Leasing with the Intention to Buy

[Foodle]

Originally Posted by Robz26

I leased with the intent to drive my baby real hard and, if something bad were to happen (e.g. medium accident), have the option of giving her up and getting something new to play with.

Originally Posted by positiveions

the second reason-notice how i said second and not first-that I lease a vehicle, especially high-end cars like the M3, is due to the fact that reliability is a common concern. If I notice the vehicle is at the BMW dealer being serviced quite often, I just turn it in, and never look back.

Originally Posted by dogbone

-These are complex cars. Things can go wrong. Generally, you'll know in the first two years if it's a problem car. If it is a problem car, and you own it, selling it will be hard and you won't get the "market" value, which increases the net cost to own it.

-This was my first M, and I didn't know if I'd want to keep it, or keep refreshing to a new M each time they came out. The flexibility made it stress free.

While I understand the rationale of leasing as a trial period while you figure out if you like the car, I generally don't like to bet against myself. Meaning that before I buy a car, I'm going to do a hell of a lot of research and test drives to make sure that the car is going to fit my specifications/needs (fun to drive, reliable, etc.). At that point, I'm as sure as humanly possible that the car is the right one for me. Having the extra flexibility of jumping out of the car in case there is a problem is just a very unlikely scenario if you've done your homework. In this specific case, the e9x M3's are generally rock solid reliable (much better than the HPFP issues with the 335's).

For those of you guys that've figured out the financials, it might not be that much extra money to lease then buyout, so I guess it's all good. Just my $0.02.

[6spdg37s]

I did the math out one day it seems it will cost alot more if you lease then re-finance the buy out in the end.

if you lease it for 3 years... then write a check at lease end , you are only spending a few extra thousand dollars

[pbonsalb]

No one so far has said that leasing is cheaper than buying. Many of the people leasing instead of buying cannot afford to buy new. When the lease is up, they can afford to buy used. They spend a little more, probably in the 5% to 10% range, but they get the car they wanted.

Another option to consider is buying a CPO used car. I have leased and bought CPO used (and also bought non CPO used). There are some very nice used cars out there for 2/3 to 3/4 the price of new. After 3 years, you could probably still sell it for half of what you paid for it.

[6spdg37s]

Originally Posted by pbonsalb

No one so far has said that leasing is cheaper than buying. Many of the people leasing instead of buying cannot afford to buy new. When the lease is up, they can afford to buy used. They spend a little more, probably in the 5% to 10% range, but they get the car they wanted.

Another option to consider is buying a CPO used car. I have leased and bought CPO used (and also bought non CPO used). There are some very nice used cars out there for 2/3 to 3/4 the price of new. After 3 years, you could probably still sell it for half of what you paid for it.

i bought my last 8 cars i could have bought this M in cash as well but just figured a change of pace and I would lease it since I generally keep cars 2-3 years at a time max.

[aus]

Originally Posted by boi222

when i did my calculations, it was only around 3k more to buy out my lease compared to financing from the begining ..

i am still not sure if i want to buy it out, so having that option available at the end helps..

If it's only $3,000 difference, then it's essentially a wash. What people don't realize is, if you're within the last 3 months of your lease with BMWFS, they'll bargain on the price with a dealer. They will sell the car to the dealer at auction prices, and if the dealer isn't greedy, it can save you many thousands.
My wife's 335 had a buy out of $28,500 at the end of the lease. My sales guy (Shaw New Century), bought the car from BMWFS for $23,000 and sold it to me for around $24,250 after an "inspection" that was maybe 30 minutes since the car was fine. He made $1,000, the service people made around $250 and I saved around 4,000.

.

[jphughan]

Leasing definitely has its advantages. As has already been mentioned, sometimes in the form of taxes (though other states make it highly DISadvantageous to lease), and yes, it can also provide peace of mind because if the car suffers diminished value due to accidents or just a bad market, that's not your problem. On the other hand, if the car is worth MORE than the residual value when you turn it in, you can often bargain to get some of that cash, or just sell it privately, buy out the car, and pocket the difference.

So, IF (and that's a big "if") the added cost of leasing plus buying out later compared to financing from the beginning is worth those perks to you, then by all means, lease the car. Just don't be fooled by the lower monthly payment into thinking it's actually cheaper. Leasing can also be convenient if you expect to be making a lot more in a few years, e.g. leasing a car right out of college to keep payments down since you're not making much, but expecting to make enough to support financing later -- I did that, but definitely not with an M3.

However, be aware of one MAJOR pitfall with a lease. Tempting though it may be to reduce your monthly payment, do NOT put ANY more money down upfront than you absolutely have to. The reason is that if you total a leased car, insurance will only pay the remaining balance on the lease plus the buyout value, NOT fair market value on the car. So if you put $20K down and total it driving off the lot, that's $20K you'll never see again (on top of the drive-off depreciation). The reason it works that way is because on a lease, you don't own the car, so technically it's not your loss that insurance has to cover. Insurance is only obligated to make the owner of the car whole again, i.e. the bank, BMWFS, whatever, so any part of the car's value that the owner has already received as payments from you is just making your insurance's life easier.

Another word of advice: Don't trade in a car in which you have equity to lease another one, or if you must, take the trade-in value as a check rather than using it as a cap cost reduction on a lease. That's partly because of the risk I mentioned above; if the trade-in value is used as a cap cost reduction, it works like a down payment, so if you total the leased car, then insurance will get you out of the lease, but you'll have no car and no money from insurance to get another one. But in addition to that, if the trade-in value of your car allowed you to get a lease payment of let's say $800/month for an M3, you might think "Sweet, I can drive an M3 for $800/month", but when the time comes to turn that in, you won't be able to get another car anything like the M3 for that amount since that next time you WON'T have equity in the car you're trading in.

[W Cole]

I haven't seen this mentioned in this thread. If you lease, even if you cannot write off the depreciation portion of your lease payment, in CA, you only pay taxes on your lease payment whereas if you purchase you pay taxes on the entire purchase price. If you plan to hold the car for a short period of time this could have a very large effect.

Additionally, in a lease, the tax payment is made monthly on top of your lease payment as opposed to paid up front so there is a time-value of money savings as well.

Becase of the tax incentives of leasing, assuming the cost of money (money factor vs. interest rate) is similar I'm not sure how owning would ever come out ahead?

Does anyone know where I can get BMWs most aggressive current lease (money factor, drive off) and finance rates (down payment, interest rate) for the M3?

[dagolfpro]

Originally Posted by dogbone

My only advice at lease time is to make sure you get as great a selling price as you can, because if you buy the car later, it's price is the residual percentage based off the selling price.

I was told the residual is off the MSRP, not the selling price. Can someone confirm this?

Originally Posted by Team Plutonium

If you have the means to write-off your lease payments via a cooperation or LLC, and buy-out the car at the end as a private person it makes total sense.

This is why I leased.

Originally Posted by jphughan

So if you put $20K down and total it driving off the lot, that's $20K you'll never see again (on top of the drive-off depreciation). The reason it works that way is because on a lease, you don't own the car, so technically it's not your loss that insurance has to cover. Insurance is only obligated to make the owner of the car whole again, i.e. the bank, BMWFS, whatever, so any part of the car's value that the owner has already received as payments from you is just making your insurance's life easier.

Yes, this is called "cap down" you never want to put anything down. Instead, you want to put down the Multiple Security Deposits (MSD). This will lower your Money Factor (MF). By doing this, I saved over 1.8% in my interest rate over the 3 year lease.

Here are additional info on MSD.

http://www.m3post.com/forums/showthr...&highlight=msd

http://www.m3post.com/forums/showthr...&highlight=msd

http://www.m3post.com/forums/showthr...&highlight=msd

I hope this helps.

[W Cole]

Originally Posted by jphughan

However, be aware of one MAJOR pitfall with a lease. Tempting though it may be to reduce your monthly payment, do NOT put ANY more money down upfront than you absolutely have to. The reason is that if you total a leased car, insurance will only pay the remaining balance on the lease plus the buyout value, NOT fair market value on the car. So if you put $20K down and total it driving off the lot, that's $20K you'll never see again (on top of the drive-off depreciation). The reason it works that way is because on a lease, you don't own the car, so technically it's not your loss that insurance has to cover. Insurance is only obligated to make the owner of the car whole again, i.e. the bank, BMWFS, whatever, so any part of the car's value that the owner has already received as payments from you is just making your insurance's life easier.

Is this Texas state law or is it this way in CA as well?

I know in the the case where FMV < outstanding balance you would be liable for the delta. This is where GAP insurance comes in. GAP insurance will cover that delta.

If FMV > outstanding balance then I thought your insurance should pay you FMV. The lien holder will be primary then anything leftover should go to you.

If this isnt the case then I learned something new today.

[Leonardo629]

Leasing is cheaper if you own a company, and can write off the lease expense.

Why? Because you are using pre-taxed dollar (more buying power) to pay for the lease.

If you are financing, more than likely you are using your taxed income to finance, and that has less buying power.

There's a reason 50% of all BMW/Mercedes on the road are leased, because it makes sense for the financially affluent.

[jphughan]

Originally Posted by W Cole

Is this Texas state law or is it this way in CA as well?

I know in the the case where FMV < outstanding balance you would be liable for the delta. This is where GAP insurance comes in. GAP insurance will cover that delta.

If FMV > outstanding balance then I thought your insurance should pay you FMV. The lien holder will be primary then anything leftover should go to you.

If this isnt the case then I learned something new today.

Check with your insurance carrier, but as far as I know, that's how it works with leasing everywhere. Insurance's obligation with a totaled car is to make the owner of the car whole again, but since you're just renting the car from the true owner, you're not entitled to any payout. If anything the bank/BMWFS would get the delta if FMV is greater than amount owed, but I don't think that's the case. It might be different in various states, but I doubt it. Remember, it's the CAR that's insured, NOT the owner or the owner's investment in the car. If you hear it works otherwise in your state, I'd definitely check with multiple sources to confirm before leasing with a down payment though. But the ideal strategy is to lease with as little down as possible and of course buy gap insurance in that case, because that WILL have you owing more money than the car is worth.

Imagine if you were renting an apartment and prepaid several months for some reason, and the apartment burned down one month in. The owner's insurance company isn't going to pay YOU anything in that case. You might be able to get those lost months' rent back from the owner, but I've never heard of that happening with banks or BMWFS on car lease payments.

[MKE_M3]

My income is "lumpy" so I leased to keep my fixed costs low. Having said that, I will likely be able to pay off the entire balance when the lease is up. It's not really a "what can I afford" issue, but what is more comfortable for me, given the uncertainty of said "lumps."

[fongpi]

Originally Posted by jdemetry

My income is "lumpy" so I leased to keep my fixed costs low. Having said that, I will likely be able to pay off the entire balance when the lease is up. It's not really a "what can I afford" issue, but what is more comfortable for me, given the uncertainty of said "lumps."

You can always finance the remaining balance as well..

[fongpi]

Originally Posted by dogbone

Yes, leasing is a bit more dollars over the life of the lease versus buying when you look just at simple dollars, but it's more complicated than just straight dollars. I ran the numbers out before I jumped in back in '09. I ran two scenarios:

-Buy the car, 3 year loan, sell the car at the end of the three years for "market" value, so I could refresh and stay in a current car. (Remember though, many people will finance the car over 5 years to lower the payment, but that makes the car cost more in the long run. So that's the first way the dollar gap closes between lease and buy.)
-Lease the car for 3 years. Turn car in at end of lease, move on.

In those two scenarios above, leasing was more expensive by about $3000-4000. However, it's NOT that simple. On the owning side, if the car is a problem car, or it gets damaged while you own it, or the market climate is bad for selling a car like an M3, you will not be able to get the ideal "market" value you calculated and planned on, and the difference of dollars between leasing and buying evaporates quickly. Look at the used M3 market, are people getting top dollar for E9x M3's? No. And it will get way worse when the next M3 generation arrives. With leasing, you walk back to the dealer, hand them the keys and walk away if you want to.

Some reasons I leased at first:

-These are complex cars. Things can go wrong. Generally, you'll know in the first two years if it's a problem car. If it is a problem car, and you own it, selling it will be hard and you won't get the "market" value, which increases the net cost to own it.

-You can always buy the car before the lease is over and save all those expensive money factor payments. That's what I did. My M3 was trouble free and I loved it, so I decided to buy the car 7 months before the lease was done. The effective rate on the car was over 8% during the lease. The loan to buy was around 3%. I added all kinds of wheel and tire insurances, extended warranty and other stuff and my payment still went down when I bought it. (In my wife's leased X5 case, the X5 didn't have a few features we wanted, so we ordered a new one with the options we wanted, leased that and turned in the keys to the old lease. No fuss no muss.)

-This was my first M, and I didn't know if I'd want to keep it, or keep refreshing to a new M each time they came out. The flexibility made it stress free.

-If you own a business, a business lease is great for many reasons---write offs, etc.

Ultimately, I think leasing expensive cars is good way to give you some peace of mind that you're not stuck with an expensive machine if you don't like it, or it has problems, or it gets damaged. The extra few dollars are far offset by the convenience, assurance and peace of mind. How many people here have sold a used car? That's just not fun---endless emails, phone calls, PM's, and test drives with odd strangers, low-balls, lack of interest. And remember, specifically with an M car, people assume that the car has been abused, so they don't want to pay "market" value.

In the end, owning a car can be great, but with such complex cars, it is nice to have an option to hedge your bets. Leasing is the way to start in my book. If you have the car for a year and it's great, then jump in and buy it. The few extra dollars---if it even ends up really being more---are worth it to me. My only advice at lease time is to make sure you get as great a selling price as you can, because if you buy the car later, it's price is the residual percentage based off the selling price.

Now, if you said, "I'm paying cash and going to keep the car for 10 years....", I guess you can just go ahead and buy it, but how many people go into an M car saying that?

Now that I bought mine and have been modding it, I really enjoy the car and plan on keeping it for quite awhile. The way my car is setup now (VF620, JRZ RS Pro, AP Racing), I'm not worried about what BMW is going to produce next because I like how my car looks (I don't really care for the new 3 series look), and I know it will easily outperform whatever the next M is---unless BMW decides to drop 600+hp in the next M.....hahaha yeah right.

You have just changed my thought process when it comes to buying vs leasing.. Thanks!!!

[fongpi]

Originally Posted by aus

If it's only $3,000 difference, then it's essentially a wash. What people don't realize is, if you're within the last 3 months of your lease with BMWFS, they'll bargain on the price with a dealer. They will sell the car to the dealer at auction prices, and if the dealer isn't greedy, it can save you many thousands.
My wife's 335 had a buy out of $28,500 at the end of the lease. My sales guy (Shaw New Century), bought the car from BMWFS for $23,000 and sold it to me for around $24,250 after an "inspection" that was maybe 30 minutes since the car was fine. He made $1,000, the service people made around $250 and I saved around 4,000.

.

How do you get this information? Wouldn't BMWFS be better off keeping their mouth shut and pocketing the difference?

[aus]

Originally Posted by fongpi

How do you get this information? Wouldn't BMWFS be better off keeping their mouth shut and pocketing the difference?

As far as BMWFS knows, you returned the car to the dealer. They now have to get rid of the car. They are only willing to deal with the dealer in the last 3 months of your lease.
They don't want to be stuck with the car and have to deal with taking it to auction to move the car.
As for getting the numbers, you need an honest sales person who will not get too greedy.

.

[fongpi]

Originally Posted by aus

As far as BMWFS knows, you returned the car to the dealer. They now have to get rid of the car. They are only willing to deal with the dealer in the last 3 months of your lease.
They don't want to be stuck with the car and have to deal with taking it to auction to move the car.
As for getting the numbers, you need an honest sales person who will not get too greedy.

.

Wow that's is a great tip! Sorry if this seems pedantic, but essentially I would call BMWFS three months from expiration of the lease, and say "hey, I know the residual value is such and such, but would you be willing to take *about* four thousand less?"

Or do I start the negotiation with the sales person at the dealership?

[Coltgus]

Residual is a percentage of MSRP. One reason to lease is you get the holiday credit and the loyalty credit ( if you qualify ). If you buy and finance with a credit union you can get 1.49% financing. A lease with max msds is 1.82%. The $2250 offsets the $725 lease fee and a good bit of the interest difference. So for very little extra money you get the right to walk away at the end of the lease or possibly buy the car for less than the residual.

[aus]

Originally Posted by fongpi

Wow that's is a great tip! Sorry if this seems pedantic, but essentially I would call BMWFS three months from expiration of the lease, and say "hey, I know the residual value is such and such, but would you be willing to take *about* four thousand less?"

Or do I start the negotiation with the sales person at the dealership?

You needs a sales person or you could even shop around different sales people. It doesn't even need to be a BMW dealership.

.

[Mr. ///M3 RD]

I voted lease then purchase since I did that with 2 of my company cars. My M cars I purchased since they are my toys

[Transfer]

I wasn't sure if I would want my car (or its payments) for more than 3 years so I'm leasing. I think there is a very high probability I will buy it out in Feb '14.

[Edjay]

Lets not forget lease car cost more to insure and the milage cap. I for one dont like the idea of limiting how much I can drive the car.