[MackSea70]

I know there have been threads on this in the past but I wanted to start a new thread because the market has changed a lot in the past six months. I've got an F90 going into build soon - delivery probably early next year. Right now, I'm planning on leasing, but leaning towards doing Select.

So the general theme these days seems to be - leasing sucks, you have to buy. I don't understand the basis for this comment. (and I'm not trying to start a flame war - I genuinely must be missing something). Is leasing more expensive today than it was 12 months ago? For sure. The money factor has doubled, effectively doubling the interest we pay on our lease. (and as you all know, the finance charge is calculated on the sum of the cap cost + residual so even a small increase in MF has a large impact on monthly payment).

I just don't understand how you can say leasing is bad now when you don't know what the financial landscape will look like three years into the future.

Here's my take on it - I'm totally open to other views. Let's assume the economy is going to shrink over the next three years. We know this because the current path of the US Federal Reserve is to raise interest rates in an effort to slow borrowing (buying).

Now, if I lease today and rates continue to rise - my lease as an assumable product becomes more desirable because I'm locked in on a lower MF than may be available two years from now.

Next, let's assume that within the next three years the fed is successful at bringing inflation under control and there is a much bigger supply of vehicles on the market. BMWFS is giving us a residual of 56 percent - but if the bottom falls out - let's say the car is only bringing 40 percent in three years - not my problem, I'm locked into my lease, I hand the keys back to BMW and they take the loss selling as a used car. On the other side, if the market is hot and my car is bringing 65 percent at lease end, I buy it out and flip it. Where is the risk in leasing given current conditions (other than the fact that I'm paying about 300 extra a month for finance charge).

On the flip side - let's look at this from a BMW FS select finance buy perspective. So interest rates on loans have risen as well - so the argument that I pay less to borrow is moot. (let's leave the variable of shopping for rates on the side for now). As interest rates continue to rise, the value of these cars will fall in the open market (because supply will increase). Now, at the same three year mark (as if I'd leased), I get the itch to have the G90. If the market stays the same as it is today - I am almost at break even on the loan (payoff = market value today). But again, if the econ tanks and suddenly there is a glut of vehicles on the market I'm underwater on the loan. (again, let's leave the concept of a very large downpayment off to the side for now). If the econ is off to the races in the next three years, same thing - lots of demand and perhaps market price is > my payoff. With select I'd be looking at a balloon of 56k or so at the end of the loan - again, to me, pretty big risk now looking five years down the road and hoping the car is worth 56k.

Given all of this I still view leasing as a lower risk alternative in a period of economic uncertainty.

For years, it was almost a no brainer that you'd lease a BMW and that when you looked at competing brands (Audi, MB) on a dollar for dollar basis, those brands ALWAYS leased higher than BMW. Is it that BMW subsidised leases for all those years?

Unless you're a buy and hold for 10 years kind of person (and I don't see many of them on these forums), help me understand what it is about today's lease deals that makes them so terrible.

[LASpartan]

Originally Posted by MackSea70

help me understand what it is about today's lease deals that makes them so terrible.

I pay $1269 total with LA County tax for my base 2021 M5 ($115k MSRP with a nice discount). You cannot get anywhere within $500 of that now. That's why today's lease deals are terrible.

[MackSea70]

Originally Posted by LASpartan

I pay $1269 total with LA County tax for my base 2021 M5 ($115k MSRP with a nice discount). You cannot get anywhere within $500 of that now. That's why today's lease deals are terrible.

I think you missed the point entirely.

I was paying 1,8xx for my 2022 that went out the door at around 138K (and paid MSRP because of market conditions). I get that prices have gone up and interest rates have gone up.

That still doesn't make leases terrible when you consider where we might be economically in three years when the lease is up. Terrible may be the new norm, even if we don't like it, especially if we end up in a prolonged period of stagflation.

I'm just really trying to understand what aspect of leasing today makes it a "bad" deal vs. being unhappy that we're paying 2x the finance cost we've historically paid over the last 8-10 years.

[Ex_Stig]

Originally Posted by LASpartan

I pay $1269 total with LA County tax for my base 2021 M5 ($115k MSRP with a nice discount). You cannot get anywhere within $500 of that now. That's why today's lease deals are terrible.

This only looks at one side of the equation. Lease payments are higher because BMWFS has been consistently lowering residual values over the last 2-3 years.

3 year residual used to be in the high 50s and now it is in the low 50s. That makes a big difference on payments, but it now presents you with the possibility of having decent equity in the car at the end of the term.

[Meinbeast]

Great post, have been running the hypo's on this as well. Interesting market and this decision is harder to make.

If LCI's keep dropping I may just buy and hold through the 2nd year of the new hybrid M5 coming out..

Following this thread.

[ResIpsaLoquitur]

+1 Ex_Stig's point.

With that being said, I've always paid whatever the lease premium (so to speak) is for the mere fact of dropping off the car and keys in three years (2 1/2 when doing pull ahead) and getting into another one. I don't buy depreciating assets on credit, so If I'm not buying it outright (and I don't for my DD, despite doing that with my other cars), I'm leasing.

So yes, there is a premium to leasing, but you're getting something for it. None of us have a crystal ball to answer the question your posing, (which is a question we've all contemplated, I don't mean to sound harsh), but the general principle about leasing for convenience is constant.

I'm not saying that leasing doesn't suck in the ways you've described by the way, but it's not all about bottom line dollar amount if you're looking from a value perspective.

As you say, leasing is lower risk, because all parties have agreed what the car is worth at the end of your lease (or, for that matter, at any given point throughout via the payoff amount at that moment) since you know the residual, buy out price, and your monthly payment in advance, even if you can't know what the car will actually be worth based on market conditions at the end of the lease. That doesn't mean those numbers don't/won't suck, but at least you know from the very beginning.

[ResIpsaLoquitur]

Originally Posted by MackSea70

I think you missed the point entirely.

I was paying 1,8xx for my 2022 that went out the door at around 138K (and paid MSRP because of market conditions). I get that prices have gone up and interest rates have gone up.

That still doesn't make leases terrible when you consider where we might be economically in three years when the lease is up. Terrible may be the new norm, even if we don't like it, especially if we end up in a prolonged period of stagflation.

I'm just really trying to understand what aspect of leasing today makes it a "bad" deal vs. being unhappy that we're paying 2x the finance cost we've historically paid over the last 8-10 years.

Agree with your point. His statement also totally ignores the current market component you mention.

[redblaze]

Some people look at leasing today vs leasing 2-3 years ago to draw the conclusion that leasing today sucks.

Some people look at leasing today vs financing today to draw the conclusion that leasing today is not that bad.

IMO if you are having a vehicle coming and you know you will take it, then the latter fits your case better.

[ResIpsaLoquitur]

Originally Posted by redblaze

Some people look at leasing today vs leasing 2-3 years ago to draw the conclusion that leasing today sucks.

Some people look at leasing today vs financing today to draw the conclusion that leasing today is not that bad.

IMO if you are having a vehicle coming and you know you will take it, then the latter fits your case better.

Leased my first M5 nearly three years ago at IIRC 11 or 12% off MSRP. Had a good amount of negative equity on my trade to roll in. Leased again in end of May, nearly June, and it still wasn't that bad all things considered.

As you're suggesting, it's not something to look at in a vacuum.

[spuntyb]

It's whatever works for you. I lease these days, because I want performance, but don't want to pay outright, and wouldn't finance a new car like this. It just doesn't make sense to me. I'd rather pay the lease premium rn with knowledge I can give the car back to BMW after 3 years (or swap the lease), and get a new one. But that's just me.

Looking at the current market, lease payments are high with low residuals for the time being, but that could mean you have more equity in the car towards the end. I'd give the slight edge to financing right now being the overall better deal I guess, but not by a whole lot.

[ResIpsaLoquitur]

Originally Posted by spuntyb

It's whatever works for you. I lease these days, because I want performance, but don't want to pay outright, and wouldn't finance a new car like this. It just doesn't make sense to me. I'd rather pay the lease premium rn with knowledge I can give the car back to BMW after 3 years (or swap the lease), and get a new one. But that's just me.

Looking at the current market, lease payments are high with low residuals for the time being, but that could mean you have more equity in the car towards the end. I'd give the slight edge to financing right now being the overall better deal I guess, but not by a whole lot.

Sounds like we're in the same boat and on the same page!

[pbonsalb]

We have had 9 BMW, but leased only 1. Of the other 8, we kept 7 for 10 years or more. Maybe the M5 will stay that long. We still have 3 BMW, including the M5. Leasing or buying does not make any difference to me, but in general I don’t rent my lifestyle. However, my lifestyle does not require the latest and greatest every 3 years. Still, I might start leasing cars for my wife since we have some small businesses and could deduct the lease, but from what I understand, she would have to be happy with a 6000+ lb vehicle and that might not be likely

[windtendo]

Originally Posted by pbonsalb

We have had 9 BMW, but leased only 1. Of the other 8, we kept 7 for 10 years or more. Maybe the M5 will stay that long. We still have 3 BMW, including the M5. Leasing or buying does not make any difference to me, but in general I don’t rent my lifestyle. However, my lifestyle does not require the latest and greatest every 3 years. Still, I might start leasing cars for my wife since we have some small businesses and could deduct the lease, but from what I understand, she would have to be happy with a 6000+ lb vehicle and that might not be likely

Why would she have to be happy with a 6000+ lb vehicle if she’s leasing? Think you might be confusing a Section 179 deduction if you purchase the vehicle thru your business. Leasing you can write off a percentage of the lease payment (if you assume a percentage of business use).

[pbonsalb]

Maybe I am confused about the business purchase and deduction versus the lease. This is what is confusing me:

“If a vehicle is first leased in 2021, a taxpayer must add a lease inclusion amount to gross income in each year of the lease if its fair market value at the time of the lease is more than:
$51,000 for a passenger car, or
$51,000 for an SUV, truck or van.
The 2021 lease inclusion tables provide the lease inclusion amounts for each year of the lease.

The lease inclusion amount results in a permanent reduction in the taxpayer's deduction for the lease payments.

The depreciation caps and lease inclusion amounts do not apply to:
cars with an unloaded gross vehicle weight of more than 6,000 pounds; or
SUVs, trucks and vans with a gross vehicle weight rating (GVWR) of more than 6,000 pounds."

Seems like there is a vehicle price based limit to the amount of the deduction unless the vehicle is over 6000 lbs.

[mjr24]

Let's put it this way….whether you lease or own always depends on a lot of individual factors.

That being said, the more true statement is that you are going to pay $500 more per month on a lease now than any of us paid for our M5 a couple a years ago….and you will be paying this premium on a model that will be outdated in a year because a new 5 series will be out. That's why I wouldn't lease another let alone for the ridiculous prices right now.

[M5VanHalen]

Originally Posted by mjr24

Let's put it this way….whether you lease or own always depends on a lot of individual factors.

That being said, the more true statement is that you are going to pay $500 more per month on a lease now than any of us paid for our M5 a couple a years ago….and you will be paying this premium on a model that will be outdated in a year because a new 5 series will be out. That's why I wouldn't lease another let alone for the ridiculous prices right now.

I have both purchased and leased my previous M5's. I only like leasing when BMW is heavily subsidizing the residual value. That not only lowers your payment, but ensures BMW that you will most likely turn in the vehicle at lease end so they can resell. BMW has figured out the 'game' with leasing is to subsidize so they can ensure a steady stream of off-lease vehicles becoming available for reselling as CPO vehicles. I'm always surprised other auto manufacturers have never figured this out, since they rarely offer good residuals. One other thing to keep in mind is that a lease payment still shows up on your credit report, so a high lease payment will not be good for your rating. That is why I did a pre-payment lease to keep it off my credit report. Also, BMW frowns on you doing any mods on lease vehicles and will require you to remove all of them prior to turning in. In addition, any mod will give BMW a reason to refuse to return any deposits you made to lower your payment. One other thing; only lease with NO money down. Paying down payment money up front to lower your lease payment is a terrible idea since you lose ALL of it when you turn the car in, or if you have an accident. For all my leases, I paid zero money at closing, which is the only way I would do it again.

[SSM5]

Originally Posted by Ex_Stig

This only looks at one side of the equation. Lease payments are higher because BMWFS has been consistently lowering residual values over the last 2-3 years.

3 year residual used to be in the high 50s and now it is in the low 50s. That makes a big difference on payments, but it now presents you with the possibility of having decent equity in the car at the end of the term.

I always lease. My accountant would kill me if I didn't. It gives you flexibility and eliminates the risk if the value drops when the new models come out. If you change your mind in one year you can just put it on Lease Trader. If you get into an accident the diminished value is not your problem. I am now on my 5th M5, only my first a 2002 E39 M5 and my 2019 F90 had equity at the end of the lease.

On the 2019 M5 I had the Residual was 55% at 12K and the Money Factor was 0.00165 in July 2019, the 2019 programs improved later in 2019 because there were so many unsold 2019's sitting on dealer lots.

I just picked up my 2023 M5 Comp on Friday and the lease rate was almost the same as my 2019. The Residual is actually higher than in 2019 at 56% at 12K and the Money Factor is slightly higher at 0.00190. Payment on the same dollar amount is about $14 more now than 2019, so pretty close !!

The Money Factor now of 0.00190 ( Interest Rate of 4.56% ) is not bad considering all of the fed rate increases recently. I would advise anyone that is planning on leasing in the next month or so to lock in the rate before it expires tonight. BMWFS is way overdue to raise their rates.

The difference now is discounts are not the same. I was able to get a decent discount on my 2023 because of my relationship with the dealer.

[Greer]

Originally Posted by SSM5

I just picked up my 2023 M5 Comp on Friday and I was able to get a decent discount on my 2023 because of my relationship with the dealer.

Which dealer in LA? Who was your sales advisor?

[SSM5]

No Client Advisor on this one. My friend knows the manager who recently moved to this store and he took care of me. Deal can not be duplicated, they sell all of their M5's at MSRP or above.

I will say a friend of mine checked around last week with SoCal dealers and found a few that were dealing on M5's, Especially 2022's that are still sitting around. Even with the lower msrp they wanted the 2022's gone. Not sure about now but last week the loyalty rebate for a lease on a 2022 M5 was $1750 vs. $750 on a 2023 M5

[MackSea70]

Thanks everyone for the healthy discussion.

What's interesting is that we've created a platform for all those "I'd never lease right now, buy is the only way to go" people to come in and explain their rationale - and best I can tell, no one in this thread thus far has made a solid argument for why purchasing is a better deal in today's rising interest rate / inflationary (perhaps stag-flation) market.

I'm a big of an arm chair economist / geek when it comes to this stuff so I was hoping someone could come in with a model and explain why a purchase is better for me financially (because I can't find a reason).

[Rafichicago]

I am not financial advisor neither economist for that matter. The only question I have now for all the members that are in the field or have great knowledge on economical situation is what are odds/chances for Fed or government for that matter to make things better for us as regular citizens to even think that they will have anything under control? First they crated the problem by injecting money into our economy. that never should happen. That drove stock market to ridiculous levels. Back in the end I of 2019 beginning of 2020 market was due for correction. What they done is that only postponed inevitable. This benefited a few at the cost of many. My thinking is that a fall from higher elevation hurts more that the fall from lower. Now we are in the market with high interest high inflation high energy cost ridiculous fuel prices. Fuel prices alone create situation in which everything coat more. I am in transportation and things are not pretty. And no war in Ukraine is not the cause of that. But it became convenient excuse. OPEC just decided to cut oil production in environment like this. Please explain what are the signs we should look for that would allow to think that we are heading towards better economical environment. My wife is in car business. Prices started to drop very slightly and not on every model. With prices dropping we should start seeing better deals. That leads me to conclusion that this is still extremely bad time to lease a vehicle. Sorry for long post guys

[MackSea70]

I wanted to come back to this thread. After I wrote it I got to thinking - maybe those who are saying leasing is bad are talking about total out of pocket cash. One conclusion that is absolutely certain, leasing today DOES mitigate upward / downward risk three years into the future. If the market has crashed (and our cars are worth substantially less than the residual on the lease) - we hand the keys back to BMW at the end. On the other side, if the market is hot - say as it was a year ago, we buy the car out at the end of the lease or otherwise cash in the equity we have in the car.

However. When looking at my specific situation, I ran a number of scenarios that looked at total cash out of pocket, when I'm equity positive in the car, and net cash out of pocket (total cash - equity at disposal). It was a pretty enlightening activity and if anyone would like my spreadsheet PM me and I'll send it to you (it's messy right now).

It's too much data to paste here and gets messy so I'll try to explain.

My MSRP is 147k
MF is .00200
RV is 57%

3 year lease / 10k per year. Pmt is 2324 with sales tax. Total out of pocket over 3 years = 83,686. Equity in car = 183. Net cash out = 83k

5 year traditional finance (4.29 APR, 10k down). Pmt = 2675. Cash out = 106k. Equity at 3 year mark = 22k. Net cash out = 73k

5 year select (4.29, 10k down, 44k balloon). Pmt = 1854. Cash out = 76,772. Equity at 3 year mark = -2,112 <--- note here we are in almost same shape as a lease - but have put out 7k less cash over the same period. On amortization this goes positive at month 41. Net cash out = 78k

3 year select (4.29, 10k down, 72k balloon. Pmt = 2,136. Cash out = 86,918. Equity at 3 year mark = 12k. Net cash out = 74k

So the best deal in terms of least amount of cash is to straight up buy the car. 73k. Next is the 3 year select at 74k, then the 5 year select at 78k followed by leasing at 83k.

However. All of this is predicated on historical depreciation rates. For example, I'm straight line depreciating the car at 1.52 percent per month. That means at 36 months the car is worth about 84k and at 60 months about 60k. This could be wildly off depending on what happens in the US and global economy over the coming years and for that reason alone, it may be worth paying a 7k premium over 3 years to insulate yourself from that risk.

Personally, I'm leaning towards doing a 3 year select deal - the payment is acceptable to me, I'm potentially cash positive at year 3. I'd like to say I'm buying this F90 as my last hurrah to the gasoline powered super sedan - and so at year three I can either pony up the balloon, finance the balloon, or trade for the G90 and have 12k to put down. Of course this is all predicated on the econ not totally being in the sh!tter.

Hope this helps you guys as you think about current finance options