patrick.net

Waitingtobuy says

There is one exception...entirely new models. I have a 2011 Hyundai Sonata whose three year lease is over this spring. Been paying $328/month. It is a car whose value has held up likely due to it being a hot car with rave reviews. The car new was $27K, the residual is $15K, but the retail on it now is about $20K. I plan on negotiating the residual rate down (done this before so they dont have to spend money getting rid of the car), and selling it on Craiglist, Cars.com, or somewhere else.

I only buy BRAND NEW CARS. Is that not obvious by now.

If you listen to me you will do better in the future and find a car with a better ratio of residual . Subaru has the best residual in SUV CLASS!

SFace says

There may be a shortage of Subaru's but it is still not selling at 90% after 3 years it came off the lot. I get your strategy, just don't buy the fact it is essentially free.

Mainly because of the awesome tax tax code

zzyzzx says

I still drive my 1995 Ford Escort that I bought new in October 1995.

The last car I bought 3-4 years ago is a 1999 Oldsmobile that I paid $500 for, and only had 19K miles on it at the time and still is essentially a new car.

Explains everything.

edvard2 says

Why do people waste so much money on cars?

I think we all know why and we all grapple with the issue all the time.

Lust for material things or whatever you want to call it. Don't most of us struggle with this ? "You only live once" - or something to that effect.

On the one hand, my 10 year old honda is fine, the miles aren't that high, no car or lease payment,...it's economical.

On the other hand, I'm so tired of it. I want this feature or that. Or, "I work so hard - I'm ready for a much nicer car,...pamper myself for a few years, ...you only live once."

I understand it, this argument with myself, and understand it must be somewhat universal.

THen there are those with a high enough income, that the extra few hundred a month, really makes it seem like too good a deal to pass up
(that is cars that lease for about 400 - 500/month), not to do it.

(But that's not the 60 to 90K cars you were talking about.)

I'm not in that category, but if I were making say 2 or 3 times what I make as a teacher, I could see that the quality of life benefit, I would get from spending say $500/month on a car might seem very much worth it, regardless of the future value of doing without for the next 20 years.

You're right though.

And I wonder how many of the boomers that are so far from having enough saved for retirement, are living way beyond their means.

marcus says

On the one, hand my 10 year old honda is fine, the miles aren't that high, no car or lease payment,...it's economical.

On the other hand, I'm so tired of it. I want this feature or that. Or, "I work so hard - I'm ready for a much nicer car,...pamper myself for a few years, ...you only live once."

bet you would love bluetooth hands free!

Thedaytoday says

Waitingtobuy says

There is one exception...entirely new models. I have a 2011 Hyundai Sonata whose three year lease is over this spring. Been paying $328/month. It is a car whose value has held up likely due to it being a hot car with rave reviews. The car new was $27K, the residual is $15K, but the retail on it now is about $20K. I plan on negotiating the residual rate down (done this before so they dont have to spend money getting rid of the car), and selling it on Craiglist, Cars.com, or somewhere else.

I only buy BRAND NEW CARS. Is that not obvious by now.

If you listen to me you will do better in the future and find a car with a better ratio of residual . Subaru has the best residual in SUV CLASS!

I know you buy new cars. Sure, you could hand it back to the dealer, but they have to do something with it for them to hand you a check $6K. I've never seen a dealership give anyone the retail price for a car. After all, it is not their car, but the leasing company's. And again, it is highly unlikely the car, no matter what the make, has depreciated only $2K in $36 months. The car depreciates 10% the minute to drive it off the lot.

Either all of us, including me who has been leasing cars for 20 years, don't get this, or it is way above our heads and you haven't explained it well enough. I don't get how you get a check for $6K.

marcus says

On the one, hand my 10 year old honda is fine, the miles aren't that high, no car or lease payment,...it's economical.

How much do you think you car cost you in maintenance and devaluation per month over 10 years? would you say about $250 per month?

I like my completely depreciated reliable toyotas.

Since they are old and depreciated, there is no need for collision, so insurance is low. Since they are old and depreciated, California annual registration fee is (relatively, - this is California) is low. Since they are old and depreciated, there is no interest payment.

Those are my fixed costs and they are all low. Yes I have had some repair costs but they are manageable.

Thedaytoday says

every penny I put into the lease I GET BACK!

Please explain this. I don't understand it. If it's possible I would like to do it.

chanakya4773 says

You guys are ignoring the payments that you have already made to the car company.

You don't make any payments to the car company. It's is a lease, financed by the bank. The bank "OWNS" the car until you payoff the remaining balance. The payments like any other loan goes towards principle and interest (zero in my case)

swebb says

Thedaytoday says

every penny I put into the lease I GET BACK!

Please explain this. I don't understand it. If it's possible I would like to do it.

Do you have a business?

EBGuy says

think we need to take a step back and look at where Thedaytoday is coming from. Early on he said:

For every penny I invest the government deducts it off my tax bill

Do you use this car for business purposes?

I can't believe that you guys got in such a long argument with someone who doesn't even know what a tax deduction is.

He or she maybe needs to do some really stupid rationalization about what he spends on his car. Appropo for this thread.

Either that or he is just trolling you.

chanakya4773 says

Ok good. so you are saying the car company then says that the residual value of your car is 90% of the original value after 3 years ?

When you trade into a brand new car and a new lease with a dealer who has maintained and knows the vehicle your trading, it gives you leverage on what you can get for your car.

I went to multiple dealers before going to my own dealer and got written quotes to show them the quotes ranged from 17-20k

I got $21k due to the following

A) The dealer is making money selling you the new car(if you time this correctly you will do it when they want to hit quota or have shortage of used inventory) YOU NEED A MAIN DEALER!

and

B) The dealer makes money on the lease

and

C) The dealer profits from selling your trade

and

D) Timed correctly dealers are offered rebates from manufacturers I was offered $500 to get into the same vehicle.

marcus says

For every penny I invest the government deducts it off my tax bill

I was generalizing, not 100% , but enough combined a lease and with 0.55 per mile for business use to make it cost efficient

Thedaytoday says

Make sure you pick a vehicle with a very high retained value , forget the additional extras, leather seats and you will be driving a FREE CAR NOT TOO LONG!

Three questions if I may:

1) Does an automatic transmission count as an extra here? From what I can tell the Forrester comes standard with a manual.

2) I gather this model only works if you have a business for which you can claim a leased car as a company car but not if you are a standard employee or the car is to be used as a family vehicle, correct?

3) You mention you got a great deal due to Fukashima - how difficult is to to negotiate a similar deal without the assistance of a once-in-a-century disaster?

You guys are ignoring the payments that you have already made to the car company.
if you signed a new car lease for a 20K car and then paid 5K in payments over three years, as long as the company offers the same car to you for more than 15K , the car company is making profit.
if its offers the car to you for 17K then the car company makes 2K profit.
typically people make so much payment within the three years that the car company always makes good money. thats why they "encourage" people to lease vs buy.

in your case, your car was 27K, you probably made 12k in lease payments. As long the car company can sell you the same car to you for for more than 27K - 12k = 15K , they make money.

this is the only case where you get the car for free only if
(new car value that you bought for - residual car value) > total paid in lease payments

in your case,

27K - 15K > your total paid in lease payments

I am curious how this math looks in your case.

_________________________________________________________

Your math is correct and I'm not ignoring my payments. I paid $300/month and the rest was sales tax. If with sales tax I paid $328/month on the lease, times 36 months, I paid $11808.

If the residual is $15K, and I sell it for $20K, then my costs are $328-$138 ($5K/36 months) or $190/month.

If I bought the $27K car, put $1000 down, and I financed it over 60 months at 2.6%, then I would have payments of about $500/month for 36 months or $18K. I would also have paid tax of $2430. Total of $21,430. (anyone know if the vehicle registration cost is based on the whole value of the car and in a lease it is just on the annual amount of payments?)

I would owe the bank $10,806 after 36 months. I get $20,000 for the car. I get back $9194.

So, $21430-$9194= $12,236 /36 months = $340/month

So $340/month to buy or $190/month to lease. Leasing is the much better deal.

New Renter says

2) I gather this model only works if you have a business for which you can claim a leased car as a company car but not if you are a standard employee or the car is to be used as a family vehicle, correct?

Business is preferred but not 100% necessary.
None of my calculations included the business miles or deductions for tax!!!! Infact I rounded down considerably.

A percentage of the lease is deductible and business miles are easy to calculate. Keep receipts.

You want to get a Subaru, Auto, with "the" highest residual, it will be around 23k or under, base model I think is 21995!

The 2014 is updated with even more room and I can tell you it is a crazy 360 view.
There is also a Turbo model now, but I would check the residual again.

I also got the moon roof, people like those for trades.

Work with your dealer on the highest residual possible,i think my dealer originally calculated about $18k but after 3yrs I got $21K in the end. That was due to all the factors I list above.

Waitingtobuy says

If the residual is $15K, and I sell it for $20K, then my costs are $328-$138 ($5K/36 months) or $190/month.

How often is there a spread like that ?

B) The dealer makes money on the lease

and

C) The dealer profits from selling your trade

________________________________________________

B is incorrect. The dealer doesnt make money off the lease. They make money off of A, selling the car. The leasing company makes money off the lease.

In my case, I have Hyundai Finance as my leasing company. The car company owns the leasing arm to sell more cars at low money factors and make some money too.

C is also incorrect. No dealer would buy a 3 yr old $23K car for $21K. More like $12-$13K, they mark it up $2K, and sell it on their lot.

IS the residual price you will pay, if you choose to purchase at the end of the lease, given up front ?

Seems like you mostly made out because the value of the HYundai held up so much better than predicted.

Waitingtobuy says

B is incorrect. The dealer doesnt make money off the lease. They make money off of A, selling the car. The leasing company makes money off the lease.

Incorrect

The leasing company through the Subaru Main Dealer and the bank is Chase. Nobody else.

No middle man.

marcus says

Waitingtobuy says

If the residual is $15K, and I sell it for $20K, then my costs are $328-$138 ($5K/36 months) or $190/month.

How often is there a spread like that ?

Very rare. Hyundai blew the residual calculation badly. My car only has 13,000 miles on it. Here are other Hyundai Sonata Limiteds like mine.
http://bit.ly/WaouVJ

Sounds like everybody wins - where have I heard that before. Wait, I hear that every day ;)

Waitingtobuy says

C is also incorrect. No dealer would buy a 3 yr old $23K car for $21K. More like $12-$13K, they mark it up $2K, and sell it on their lot.

They did multiple times from me.

This was many months ago people.

At the time they had no stock as I explained! They had upsides all over the place! They made thousands!

Subaru Main Dealer? You mean Subaru Motors Finance.
https://www.chase.com/online/auto-loan/subaru_motor_finance.htm

Chase makes the money financing, Subaru sells the car and makes money, and the dealer makes money on the sale, not the lease. They dont make money on BOTH the sale of the car and lease. Chase steps in as the financier, you rent the car from them.

Waitingtobuy says

Subaru Main Dealer? You mean Subaru Motors Finance.

https://www.chase.com/online/auto-loan/subaru_motor_finance.htm

Chase makes the money financing, Subaru sells the car and makes money, and the dealer makes money on the sale, not the lease. They dont make money on BOTH the sale of the car and lease. Chase steps in as the financier, you rent the car from them.

Which is why I said Subaru gave the dealer an additional $500 if I got the same vehicle

Stop hating people and start learning.

This is not rocket science.

Work the manufacturers. Work the dealers.

Don't let them work you.

Got it.

Still lost on the $23K to $21K. But I get the rest of your argument.

by the way the Subarau Forrester 2009 was top residual in it's class with the highest safety in it's class

very desirable car.

and AWD for $10K less than any4x4 or AWD car in it's class

Waitingtobuy says

Got it.

Still lost on the $23K to $21K. But I get the rest of your argument.

OK here is the $2K lost as you all so simply see it. WaTCH!

0.55 per x 4666 miles = 2566.3

yes gas ok 4666 / 24MPG x $3.35 = $651.29

CLOSE ENOUGH!!!

That's a 14k lease

My upside is way bigger than I can show you here. I am trying to show you at the bare minimum an individual can do this. A company can do better! That's the American way.

chanakya4773 says

But if we compare the costs to buying a car outright and owning and driving for 10 to 15 years, the latter will always make more sense financially because this how the math will look.

$190 per month * 15 years * 12 months = 34 K

versus 27 K

if we take inflation in to account, the number will be even worse for leasing because while i have paid the fixed 27 K, you will be paying more and more per month for the lease.

we have ignored the sales tax on your lease as well.

Why on earth would you tie up good money into a car? It's alway losing money. As an investor I can tell you it is always better to use other people money especially at zero percent interest!

My money should be making 6% to 25% minimally a year.

I can triple $25k at any time, why tie it up?

If you tie that kind of money up you lose way more me over ten years than me.

Stay liquid. Always lease. Let the bank give you the money for free.

The way my money works potentially if I did that I may lose $250k over 10yrs!

Thedaytoday says

OK here is the $2K lost as you all so simply see it. WaTCH!

0.55 per x 4666 miles = 2566.3

yes gas ok 4666 / 24MPG x $3.35 = $651.29

So if instead you drove a beater and paid yourself the $0.55/mile, you would come out even further ahead?

And, if you can triple $25k at any time...uhh...Start with $1, and repeat 30 times. Own the world. Report back.

robertoaribas says

I'm not sure... My cousin has the forester... Kind of soso inside to me... By the time I load leather etc on it, is it really that much cheaper than a 328i? Or a Volvo s60? The leases seem kinda close...

Three years ago, I bought an 06 loaded Mazda 3... Low mileage for 12k. Sold it after 2 years for 10k... But I had to replace the ac myself, and that and some other parts, even using my friends dealer account to order the parts, brought my ownership costs to about 200 a month...screw the discount car, I can just lease something nice for 400 a month...a little extra for a much nicer car and no hassles buying,selling, fixing it etc...

The new Forrester is bigger and has turbo option.

Subaru cost me nothing to maintain

It has not given me 1 day problem in over 6 years.

chanakya4773 says

agree with 0% interest but if i am paying 7 K for a typical 30K car every three years ( lease).

In 9 years i anyway am paying almost ~ 21 K ...not that liquid !

and you still don't have your own car.

No so what happens after 9 years?

You own it and trade it again for another.

But your not trading a 9 year old car are you? It's 3 years old.

Has the penny dropped yet?

chanakya4773 says

waitingtobuy: Thanks for doing the right math.

you are right that leasing makes sense when you have to buy cars very often and every three or four years. thats conventional wisdom.

I think you are benefiting in two areas : 1) sales tax -> $2430 and interest payments : $2262 , which is total of approx $4700 over three years.

you save $4700 per year versus (buying the car full down and selling and buying next new car in three years.)

But if we compare the costs to buying a car outright and owning and driving for 10 to 15 years, the latter will always make more sense financially because this how the math will look.

$190 per month * 15 years * 12 months = 34 K

versus 27 K

if we take inflation in to account, the number will be even worse for leasing because while i have paid the fixed 27 K, you will be paying more and more per month for the lease.

we have ignored the sales tax on your lease as well.

$190 includes sales tax. $27K doesnt, so add $2430 to this. Then figure $500/year for repairs, brakes, tires, etc. Now close to $37K.

In the meantime, in 15 years, you would have missed any technological innovations (a car bought in 1998 would not have an MP3 player, side curtain airbags, as many crumple zones, roof protection in rollovers, and no bluetooth). In addition, by 2025, gas mileage standards are doubling, so it's likely that new cars will get at least 50% better gas mileage, if not more. If you are spending $2000/yr on gas, that's $1000/yr over say 7.5 years (gas mileage advances on a trend line, not all at once) so that's another $7500.

In other words, you are not spending $27K over 15 years, but $44,500. Meanwhile, Im spending $34K (not considering inflation), driving a new car every 3 years that is safer and more fuel efficient, with the latest gadgetry. I've not even included the opportunity cost of the $29K. At 3% rate of return, another $16K

Waitingtobuy says

$190 includes sales tax. $27K doesnt, so add $2430 to this. Then figure $500/year for repairs, brakes, tires, etc. Now close to $37K.

In the meantime, in 15 years, you would have missed any technological innovations (a car bought in 1998 would not have an MP3 player, side curtain airbags, as many crumple zones, roof protection in rollovers, and no bluetooth). In addition, by 2025, gas mileage standards are doubling, so it's likely that new cars will get at least 50% better gas mileage, if not more. If you are spending $2000/yr on gas, that's $1000/yr over say 7.5 years (gas mileage advances on a trend line, not all at once) so that's another $7500.

In other words, you are not spending $27K over 15 years, but $44,500. Meanwhile, Im spending $34K (not considering inflation), driving a new car every 3 years that is safer and more fuel efficient, with the latest gadgetry.

SHAZAAAM!

What do you think the horse power of your 15 year old car is?
Will your car be parking itself?

If you are a person who cannot afford $23k car but have good credit. LEASE!

Get a Subaru it's not the flashiest but the residuals will make you smile when you keep trading it over and over again.

Paul Getty: “If it appreciates, buy it. If it depreciates, lease it.”

New Renter says

3) You mention you got a great deal due to Fukashima - how difficult is to to negotiate a similar deal without the assistance of a once-in-a-century disaster?

Just wait for Lindsay Lohan to be locked up or something

:):)

Waitingtobuy says

Paul Getty: “If it appreciates, buy it. If it depreciates, lease it.”

I would 'nt lease a house or eek buy more..

chanakya4773 says

Waitingtobuy says

In other words, you are not spending $27K over 15 years, but $44,500. Meanwhile, Im spending $34K (not considering inflation), driving a new car every 3 years that is safer and more fuel efficient, with the latest gadgetry.

So are you saying adjusting for sales tax and 0% interest , the depreciation curve on a new car over three years is better than a regular buy over. looks like the depreciation curve is getting pushed up for leasing because of sales tax and 0% interest and potential technological innovations.

Also Subaru have just updated the 2008 model in 2014 or close to that.

So depreciation was low, lowest in it's class. this made finance payments lower.

For example the same 23k loan on a lets say a Mazda would be 379 per month. making your upside much much lower. I wouldn't do it. $129 is a lot because it means it is depreciating faster than another 23k car in its class.

I can drive it for 9yrs and lose 28% but thanks to the tax system less, nothing wrong with that. It's called a business deduction because it's for business.

36mos with 14,000 shit the car is like brand new.