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Board: Porsche - 911 - 997 Language: English Region: Worldwide Share/Save/Bookmark Close

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    Mar 19, 2006 4:30:00 PM

    Silver Bullet
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    Silver Bullet
    Loc: Canada
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    Registered on: Nov 24, 2004
    Reply to: Deven

    Re:lease vs buy

    Quote:
    Deven said:
    The main advantage to lease is to run it through your business. In that case compare pre-tax dollars. Also when comparing to buying, it is better to make the comparison when doing traditional financing (example 5 years). At 6% your 76000 car would cost 88140 over 5 years or 83232 over 3 years. So when you compare lease to buying the difference is not as much as you think (maybe 6K). I think the difference is even less when doing a 4 year lease (makes sense since the car has a 4 year warrentee). If you look at my note above, I had planned on keeping the car after the lease expires so I wanted to have the lowest residual possible. Factor in that I am leasing through my business, my 'out-of pocket' expenses for the Porsche is actually much less than the MRSP + finance charges (at the end of 4 years my out of pocket expense will be about 66% of MRSP+taxes). That means if I bought the car or financed it, vs leasing through business and then buying out car personally I will have payed 33% less for the car. (Think about it, a 100K car add taxes, financed charges etc, will cost me 80K or so 'out of pocket' at the end of 4 years, and I have a car that should be worth about 50K. That means if I sell the car privately, I had the privalege to drive a Porsche for about 600 dollars a month for 4 years for a 100K car).



    Sorry Deven - can you explain this to me like I'm a 12 year old? I'm having problems following.

    Mar 20, 2006 4:45:05 AM

    Deven
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    Deven
    Loc: Scottsdale, Arizona
    Posts: 78, Gallery
    Registered on: Jul 26, 2005
    Reply to: Silver Bullet

    Re:lease vs buy

    Let me preface by stating that I am not an accountant, but this is my understanding (any accountants please chip in)

    For the sake of an example lets say that the car you want to buy/lease is 104K. The 1st thing you have to comapare is the 'pre-tax' cost of 'ownership', ie how much money you have to grossly make to pay for this. I will use a marginal tax bracket of 50% (fedral + state + FICA/Medicare (remember that you will pay both 1/2's as and employer)). So to buy a car that costs 104K, you have to spend 208K pre-tax dollars. (Obviously this number varies based on your tax bracket, but remember that you will also have to pay taxes, registration fees etc on top of this). When leasing through your business, the lease payment is a deductable expense (usually you can do 80% safely, perhaps 90% based on how well you document usage). This means that if my lease payment was 2000/mo (example), my out of pocket expense could be ~1200/mo (which means that my out of pocket expense is ~60%).

    I will give my lease as an example. The Capital cost was ~104K, at the end of 48 months my total lease payements will be almost exactly 80K. My buyout is 37000+tax. This means that my after tax expense for the lease will be near 45K (because I likely will not be able to write off 100% of the lease otherwise it would be 40K) 45K + 37K + taxes on 37K as taxes on the rest has already been paid with the lease payments. So simply put, my 104K (add 8% sales tax = 112K) car will 'cost' me 84K (after 4 years). The difference is even more if you traditionally finance the car over 4-5 years which would be a better comparison (add about 15000 in finance charges over 4 years so that 112K car really would cost 127K at the end of 4 years). Assuming that the car has a value of 50K at the end of 4 years and sell it, by leasing, the car cost me about 34K (includes all taxes etc) to own over 48 months, vs 77K with traditional financing. So I saved about 40K by leasing vs buying.

    The other way to look at it is by comparing pre-tax dollars. The 127K car (includes taxes and finance charges over 4 years) really cost me ~250000 in pre-tax dollar earnings. The lease costs 80K + ~80K (before tax buyout) = $160000, a saving of almost 70000 pre-tax dollars.

    I have been trying to use whole numbers for the example. Hope this helps and is not more confusing.

    Mar 20, 2006 5:37:03 AM

    Damian
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    Damian
    Loc: Pa, USA
    Posts: 646, Gallery
    Registered on: Feb 10, 2005
    Reply to: Deven

    Re:lease vs buy

    Deven, good work you are blessed with a fine intellect.
    --triggered a migraine to absorb your post , but its intriguing to get to the bottom line on this.

    I am not an accountant either, sorry....just couple of
    items:
    - the buyout/residual of $37K after 48 mos. on a $104K car sounds extremely low. (For example I prev had a BMW M3 cab lease on an MSRP of $60.8K, 42 month lease @ $750/month with 12K/year miles, low money factor of .0017 IIRC.....and the residual after 42 mos was $37K --which was based on a hugely optimistic residual of 58% or so!) Of course the lease buyout/residual is inversely proportional to how large or small the monthly lease payments are, I take it you must have a 15K or 18K? per year mileage allowance?

    - the part of the lease payments you are writing off for business use, in other words did you figure in the portion of the lease payments handled through, and subsequently deducted by the business, represent a savings only to the extent of your specific corporate tax rate, or maybe there is some other variable I am missing. (I haven't used deductible lease for business, my situation doesn't meet legit criteria for biz use). So if corp income tax rate is 40%, you reduce your biz tax liability by 40% of the business portion 997 payment....a definite savings considering you would have acquired the 997 anyway, but not free money either.

    -original poster indicated he was not going to use 997 wholly or partially for a business, but good to see analysis for either type of use anyway. Cheers.

    Mar 20, 2006 6:35:18 AM

    Deven
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    Deven
    Loc: Scottsdale, Arizona
    Posts: 78, Gallery
    Registered on: Jul 26, 2005
    Reply to: Damian

    Re:lease vs buy

    Thanks, I think I got a migraine reading my own post too.

    The residual on my car is 33% at 48 months. The money factor was very low 0.0018 I think. The monthly payment ended up being the same if I went with Porsche financial with a residual of 48%, but a much higher money factor (0.0028 I think it was). Since I want to keep the car for more than 4 years, having the lowest residual works to my advantage. 12000 miles per year only.

    My understanding is that lease payments show up on the balance sheet as a monthly expense (like rent for example) and not as a liability. Theoretically the entire lease payment could be witten off, but in case of audit many accountants recommend 80% (or higher with better documentation). Our corporation has a zero balance at the end of the year (physicians office/practice) so theoretically no corporate tax is payed as we take income at the end of the year as a 'bonus' (and pay huge taxes) if we are in the positive.

    We (my partner and I) discussed this with our accountant, including the advantages/disadvantages of the corporation buying the car instead of leasing, and at the end, leasing usually makes the most finacial sense.

    Mar 20, 2006 9:46:55 AM

    jonquiljo
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    jonquiljo
    Loc: SF Bay Area - Marin
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    Registered on: Aug 14, 2005
    Reply to: Deven

    Re:lease vs buy

    This subject has crossed my mind recently as I am on the "list" for a 997TT, and probably will get to order within a few months. My 997 Carrera (2005) was purchased - mostly for non-financial reasons (sometimes its nice to own what you want -to hell with the depreciation). But with the 997TT we're talking around $150-160K. Thats a hell of a lot of depreciation - "wanting" to own your Porsche becomes a bit of a financial stupidity - especially since I can't imagine keeping it longer than 3-5 years.

    So leasing looks attractive - I guess. Sad, because I only get to drive the car abouyt 6K miles per year ( a long and irrelevant story). The only problem is what to do with the almost 60K I will get from trading or selling my current 997. If I put it in the bank, by wife will just consider it disposable cash and want to spend it. Sheeet!

    Mar 20, 2006 6:11:18 PM

    Deven
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    Deven
    Loc: Scottsdale, Arizona
    Posts: 78, Gallery
    Registered on: Jul 26, 2005
    Reply to: jonquiljo

    Re:lease vs buy

    My thoughts would be to trade it in for another car (maybe for her? if you need one?). This way whatever 'equity' you might have can be traded in for something new. (plus you 'save' on sales tax for the amount of trade in). This works well when you stagger the age of your cars (my vehicles are 2001, 2003, and 2006, so in I will need to replace the 2001 in the next few years, perhaps around the time when the 2006 lease expires. This way when I buy the 997, I will 'dispose' the 2001 and be able to lease the next vehicle through the business, and continue to cycle that way.

    Its funny, even though I lease the 997, I consider it 'mine' and pamper it as such, especially since I already plan on buying it after the lease. I view the financial transaction no different than traditional financing even though the financial institution holds the title.

    Mar 21, 2006 9:33:25 AM

    jonquiljo
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    jonquiljo
    Loc: SF Bay Area - Marin
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    Registered on: Aug 14, 2005
    Reply to: Deven

    Re:lease vs buy

    Quote:
    Deven said:
    My thoughts would be to trade it in for another car (maybe for her? if you need one?).



    Well, we lease all our cars (except my 911) - I have been doing that for many many years. It gives me emotional "freedom" to own them without feeling overly responsible for them. Thus, I can enjoy them to the fullest. For some reason my 911 was an issue of ownership - even thought the last 993 I owned was a lease.

    I guess I can trade it in toward the lease and just get reduced monthly cost. Buying an expensive car around my wife is difficult. She (sometimes) feels that if I can spend $100K or so on a car, she should spend the same on clothes and jewelry. She's right in a way, but it makes the car cost twice as much.

    Perhaps then I'm best with a lease. Then I can say,"look ... its only $xxx per month!" I admit that I am not that good with managing money - but then again she is worse. Oh well, life is very very short.

    Mar 21, 2006 12:21:45 PM

    John H Offline
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    John H
    Loc: Cheshire, UK , United Kingdom
    Posts: 7682, Gallery
    Registered on: Oct 20, 2005
    Reply to: jonquiljo

    Re:lease vs buy

    Quote:
    jonquiljo said:
    Quote:
    Deven said:
    My thoughts would be to trade it in for another car (maybe for her? if you need one?).



    Well, we lease all our cars (except my 911) - I have been doing that for many many years. It gives me emotional "freedom" to own them without feeling overly responsible for them. Thus, I can enjoy them to the fullest. For some reason my 911 was an issue of ownership - even thought the last 993 I owned was a lease.

    I guess I can trade it in toward the lease and just get reduced monthly cost. Buying an expensive car around my wife is difficult. She (sometimes) feels that if I can spend $100K or so on a car, she should spend the same on clothes and jewelry. She's right in a way, but it makes the car cost twice as much.

    Perhaps then I'm best with a lease. Then I can say,"look ... its only $xxx per month!" I admit that I am not that good with managing money - but then again she is worse. Oh well, life is very very short.



    Get a new car for your wife - could be a good swap!!
     
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