[Geradeaus]

First let me apologize for bringing this up again. Probably would get more agreement on the meaning of life, but here goes.

My example is a lease vs. a cash purchase. This comparison is not applicable to a lease vs. a financed purchase. I think the financial disadvantages of leasing under that scenario are well documented. The main advantage being leasing has a smaller monthly payment.

Here are the details of the lease vs. cash comparison:

Lease payments are paid from current income with the car's sale price invested at lease inception in various mutual funds that historically (in one case almost 40 years) have increased in value by 9.5% or more on average each year. For the cash purchaser the amount of the lease payments are deposited each month in an account invested in the same funds.

After three years (lease period), the lessee can walk away from the car with a net spend (investment results of $17536 offset by the payments of $23497) of $5,961 or a net lease payment of $166 a month. Not too bad for driving a new Z4 under warranty and maintenance plans. Sign me up for another three years, please!

After three years, the cash purchaser will have saved $25,847 in his investment account built each month from the saved lease payments and cumulative returns. In addition he owns a three-year old car. If the car appraises at 70% of its' MSRP ($42,053) then the car's value plus the $25,847 will equal the lessee's investment account total of $67,900.

There are three big assumptions in this comparison:
1) Investment returns of 9.5% on average can be had over a specific three-year period (lease). The market can be nasty to the short-term investor so there's certainly no guarantee that one won't have losses after three years.
2) A three-year Z4 will be worth over 70% of its' MSRP. BMW uses a residual value of 59% for its' three year leases and that is generally considered a generous residual (as BMW tries to lower the lease payments and sell vehicles). For what it's worth, caredge.com shows a three-year old Z4 at 46.98% of its' MSRP. I think that is a very low residual and looking at recent sale ads for 2019, 2020 and 2021 low mileage Z4s it appears that they are holding their value pretty well. As many of us have seen it is difficult to get an allocation which has made for a scarcity of Z4s in the U.S. and perhaps is contributing to the higher re-sale values.
3) The car can be turned in to BMW at lease-end with no large out-of-pocket assessments. There could be a bunch of expenses for new tires, brake pads, wheel rash repair, etc. that add to the expense of the leased car.

Now, how does the comparison go if one wants to buy the vehicle at lease-end. By buying the car at lease-end the risk of returned car expenses (assumption #3) is eliminated. Buying the car at lease-end also eliminates the difference in values in assumption #2 as now both the cash buyer and lessee own the car and have the same residual value.

Buying the car at lease-end costs $38,052 including tax and registering the car in the lessee's name. The difference of the two Z4 owner's investment accounts is $42,054 resulting in a savings of $4,002. Again, the lessee comes out ahead but not by a whole lot.

So, in summary, the question boils down to the assumptions fed into the calculations and whether you hope to buy the car at lease-end. I can easily change the parameters to show that paying cash works out better (especially if the stock market tanks). If you can only get 5% returns, then the net lease payment drops to $426 a month (still not too bad of a payment for use of the car), the disadvantage to the lessee on purchase is -$4,227 and the cash buyer breaks-even with the lessee (who doesn't buy the car) with a residual of 56% (that still is above the caredge estimate though).

I think I'm satisfied that leasing the Z4 for me makes sense. I'm not sure I want to keep it (may want to move up to the M40i), I most likely want to get the 2024 model year (last one for the Z4) and I kind of want to hold onto cash rather than carrying a depreciating asset like a car on the books (monthly budget vs net worth statement).

Hope this makes sense. Please post a reply if you see some error in my logic as I will have to make a lease vs. cash decision soon on my new Z4 very soon.

[spbbonzo]

'caredge.com shows a three-year old Z4 at 46.98% of its' MSRP'.

The MSRP of my Z4 3.0 was £47k in the UK.

It's now 18 months old and the best trade-in offer I've had is £27k which is 57%.

Unless depreciation magically slows on the Z4 over time I'm not holding my hopes up for a decent resale value.

[Geradeaus]

Originally Posted by spbbonzo

'caredge.com shows a three-year old Z4 at 46.98% of its' MSRP'.

The MSRP of my Z4 3.0 was £47k in the UK.

It's now 18 months old and the best trade-in offer I've had is £27k which is 57%.

Unless depreciation magically slows on the Z4 over time I'm not holding my hopes up for a decent resale value.

Wow, that is news. I know the UK economy is in the tank due to Covid and Brexit - could that be contributing? Us Yanks just keep printing greenbacks so no worries. The Fed will make everyrthing alright.

[CeEl]

If you are not going to keep the car and are likely not going to replace it, lease makes sense.

However, if you keep leasing one car after the other, purchasing and trading in makes more sense (not always), especially if you tend to switch brands every so often.
You also have max flexibility. Need to or want to keep it a year longer? No problem.

I was able to trade in 2 year old cars for the latest model and the difference was less than a two or even three year lease. Yes, a bit of luck was involved.

[ejm3]

Yes if you plan of getting rid of the car in 3 years or so anyway then just lease.

If you plan on keeping it for a while then buy it.

IMO you're crazy not to finance because interest rates are so low (I think mu CU is 1.99%) and you can earn more than that investing it.

For this reason I generally take a 4 or 5 year loan but pay it off in a year or so.
But this gives me flexibility in case I want or need the money for something then I can extend out further. At 2% who cares about the cost of money?

Also BMW's (and MB's) generally lose a lot of value after 3 years because people don't want to own them outside the warranty period as the cost to maintain them is very high.

[Geradeaus]

Originally Posted by CeEl

If you are not going to keep the car and are likely not going to replace it, lease makes sense.

However, if you keep leasing one car after the other, purchasing and trading in makes more sense (not always), especially if you tend to switch brands every so often.
You also have max flexibility. Need to or want to keep it a year longer? No problem.

I was able to trade in 2 year old cars for the latest model and the difference was less than a two or even three year lease. Yes, a bit of luck was involved.

Show me the money. I've read a lot of posts about how buying is so much better than leasing so I ran the numbers. Depending on the assumptions and each state's tax policy on leases (VA taxes the entire negotiated car price up-front, Florida is pay-as-you-go and NH doesn't tax purchases) that just isn't so. Once again, I can lease a brand new Z4 sDrive 30i with maintenance and warranty included for $166 a month. If I could sign-up for a subscription at that monthly lease payment for 20 years I'd sign it! I'll do it again every three years and choke on that $166 monthly payment.

Also, the longer I keep doing it the less risk I have of short-term market dips screwing with my numbers.

[jcard71]

Originally Posted by Geradeaus

Show me the money. I've read a lot of posts about how buying is so much better than leasing so I ran the numbers. Depending on the assumptions and each state's tax policy on leases (VA taxes the entire negotiated car price up-front, Florida is pay-as-you-go and NH doesn't tax purchases) that just isn't so. Once again, I can lease a brand new Z4 sDrive 30i with maintenance and warranty included for $166 a month. If I could sign-up for a subscription at that monthly lease payment for 20 years I'd sign it! I'll do it again every three years and choke on that $166 monthly payment.

Also, the longer I keep doing it the less risk I have of short-term market dips screwing with my numbers.

I like the feeling of "owning" my car vs renting it, but maybe I'm old at 49 in this thinking.

Also, I don't want any car payment of any kind.
To each their own.

[Geradeaus]

Originally Posted by ejm3

Yes if you plan of getting rid of the car in 3 years or so anyway then just lease.

* Based on my numbers and expected depreciation - yes.

If you plan on keeping it for a while then buy it.

* Uh, based on my numbers maybe yes - maybe no. I come out ahead by leasing the car and then buying out the loan if the car is not worth at least 70% of the original MSRP.

IMO you're crazy not to finance because interest rates are so low (I think mu CU is 1.99%) and you can earn more than that investing it.

* Exactly! The interest rate on my lease is 1.13%. I'm only paying $510 a year for the use of $55,000 worth of car and keeping the money in an investment account making a helluva lot more than 1.13%.

For this reason I generally take a 4 or 5 year loan but pay it off in a year or so.

* What? We just established that one would have to be crazy to not finance because of low rates and now you're paying off those low rates? Plus car loan interest is usually front-loaded which means early payments have higher interest charges than payments towards the end of the loan. You just increased the effective interest rate by paying the loan off early.

But this gives me flexibility in case I want or need the money for something then I can extend out further. At 2% who cares about the cost of money?

Also BMW's (and MB's) generally lose a lot of value after 3 years because people don't want to own them outside the warranty period as the cost to maintain them is very high.

* Yes, BMW is supposedly artificially keeping their residual percentages high to keep the lease payments low. There must be a ton of money somewhere in the CPO marketplace for them to make up the difference. Until BMW lowers the residual to real-world values this will always be a compelling reason to lease.

Just trying to figure it all out!

[Geradeaus]

Originally Posted by jcard71

I like the feeling of "owning" my car vs renting it, but maybe I'm old at 49 in this thinking.

Also, I don't want any car payment of any kind.
To each their own.

I kind of like being able to tell people that I'm only renting the Z4. Makes me seem less ostentatious than saying I own it. Of course, I may be old at 63 in this thinking.

To each their own, always! I just dislike decisions that aren't made on facts. A lot of people just assume that a lease vs cash purchase is a bad financial decision. That just is not true in all cases and especially in my case.

[jcard71]

Originally Posted by Geradeaus

I kind of like being able to tell people that I'm only renting the Z4. Makes me seem less ostentatious than saying I own it. Of course, I may be old at 63 in this thinking.

To each their own, always! I just dislike decisions that aren't made on facts. A lot of people just assume that a lease vs cash purchase is a bad financial decision. That just is not true in all cases and especially in my case.

Oh, I like telling people I paid cash and own my Z4 outright when they ask if I'm leasing (AKA renting for three years)

[Geradeaus]

Originally Posted by jcard71

Oh, I like telling people I paid cash and own my Z4 outright when they ask if I'm leasing (AKA renting for three years)

I like to tell people that I'm renting the car for $57.33 a month with maintenance and warranty included. But again, each to their own!

[jcard71]

Originally Posted by Geradeaus

I like to tell people that I'm renting the car for $57.33 a month with maintenance and warranty included. But again, each to their own!

We can keep going back and forth if you'd like?

If you need a lot maintenance in the first three years, you should go Toyota...

[CaboM4]

Originally Posted by Geradeaus

I like to tell people that I'm renting the car for $57.33 a month with maintenance and warranty included. But again, each to their own!

Your G29 keeps getting less expensive ... care to share?

[Geradeaus]

Originally Posted by CaboM4

Your G29 keeps getting less expensive ... care to share?

Reminds me of the CFO looking to hire an accountant. He brings all the applicants into a room, hands them copies of the company's books and says give me an income statement. All but one puts on their green visors and starts to work. Intrigued he sidles over to the one not calculating and asks him why he's not working. The applicant says, "You haven't told me what number you want on the bottom line." The CFO turns and says to the room "Everyone, please stop and go home. I've found my new accountant!"

The numbers for the net lease payment in my first post at $166 a month is actually correct. After reviewing my spreadsheet I realized I hadn't added the seven MSDs back into my total cash-on-hand after lease-end. While the $4900 should be added back in to the cash-on-hand it does not affect the net monthly lease cost. The lower number for the net lease cost I later posted was incorrect. My bad.

Now, obviously if you did not buy the Z4 you would end up with both the monthly lease payment total and the investment total in your account. The lease will always cost you $655 a month but my point is that if you gave the full purchase price in cash to the dealer you lose out on the investment return over the lease period and potentially suffer large depreciation costs. With decent results in the market you're giving up a five-figure amount ($17536 in my example). If you play the game of taking your returns less the lease payments the difference is the $166 net payment. Just for fun.

This exercise was to try to determine what makes the most sense for me based on my situation. Should I pay cash or should I lease? Everyone always jumps to the conclusion that paying cash is the best option and for some it probably is. If the market doesn't provide the returns I'm looking for (to give the CFO the number he asked for) then I'm making a bad decision to lease rather than pay for the car outright.

I've never leased before but the numbers are intriguing. If it all works the way I've calculated, I can buy my car at lease-end for $38,052 tax, tags and title out of my investment account of $72,800. Adding the remainder of the investment account to the value of the three-year old car (59% of MSRP) totals $70,198. The cash purchasers investment account (accumulated lease payments and returns) of $25,847 plus the same value of the car of $35,450 (59% of MSRP) totals $61,297. The lessee comes out ahead by $8,901.

The advantage to the lessee increases if the actual car value at lease-end is below 59% of MSRP. The lessee can turn in their car and purchase a similar (with some wheeling and dealing perhaps even their own car) for less than the lease stated residual. If the residual value of the car is only 45% of MSRP then there is another $8,412 of savings to the lessee.

Anyway, as has been said many times - "to each their own", but at least now I have a case for why leasing is actually better than paying cash for a car for me. Based on this I will be leasing my new Z4. It will be interesting to follow along with this and re-visit it in three years. I'll have hard numbers on investment returns and residual / used car values then and can recompute. I could have egg all over my face or a smug self-satisified look. Stay tuned.

[jcard71]

Originally Posted by CaboM4

Your G29 keeps getting less expensive ... care to share?

Pretty soon BMW is going to pay him to rent it for 3 years...

I love the assumption that the money invested is going to automatically return so much $$ like it's a guarantee...

[Geradeaus]

Originally Posted by jcard71

Pretty soon BMW is going to pay him to rent it for 3 years...

I love the assumption that the money invested is going to automatically return so much $$ like it's a guarantee...

Never stated it was a guarantee - maybe you should read the post instead of just reacting to it. Check back in three years and we'll compare numbers - your depreciation and my investment account. The truth will be known!

[CaboM4]

Originally Posted by Geradeaus

Never stated it was a guarantee - maybe you should read the post instead of just reacting to it. Check back in three years and we'll compare numbers - your depreciation and my investment account. The truth will be known!

I have read your entire thread and many posts, I hold an undergraduate Accounting degree, an MBA as well as another graduate degree ... so I have the ability to comprehend your logic, and while I think your ROI in 3-years is very optimistic on a 36-month investment, I understand your argument.

Still having a hard time following the shrinking net effective payment:

Originally Posted by Geradeaus

... a net lease payment of $166 a month.

Originally Posted by Geradeaus

... choke on that $166 monthly payment. ...

Originally Posted by Geradeaus

I like to tell people that I'm renting the car for $57.33 a month with maintenance and warranty included. But again, each to their own!

[gasnet]

I would never keep a BMW when the warranty expires. So lease is the way to to go. My 2014 Z4 35is was 72k keep it until warranty runs out. Had an accident? The car is now worth in the 20's. I get bored after 2 years. Could never keep a car for 10 years.. A crappy pickup for utility use only, no problem. But a car like this, no way. If your goal is to keep a car for 10 years then buy a 2 year old BMW. The sweet spot.
I made the mistake of buying that brand new Z4 35is. After 2 and a half years i had a minor accident. Had it fixed in a week. Sold it before carfax. Otherwise i would have taken a bath!!

[DocWho]

There are a lot of perspectives. Do what makes you happy, whether that involves the best financial choice or not.

[Geradeaus]

Originally Posted by CaboM4

I have read your entire thread and many posts, I hold an undergraduate Accounting degree, an MBA as well as another graduate degree ... so I have the ability to comprehend your logic, and while I think your ROI in 3-years is very optimistic on a 36-month investment, I understand your argument.

Still having a hard time following the shrinking net effective payment:

Thanks for your civil post. I did this comparison as I was on the fence between cash and lease and I like to get the best deal possible. I also needed to kill some time waiting for the car to be delivered.

Yes, the ROI is optimistic - especially after the runup in stock values the last year (10+ years). Looking at past returns for my Z4 fund, the best three-year gains were 28, 13 and 6% over three years. The worst returns were -38, 28 and 13% (starting understandably in 2008). There seems to be a rhythm of returns on this fund of a big year, a nice year and a bad year. As 2019 was a big year and 2020 a good year, I'm afraid 2021 will be a bad year. As they say though, historical returns are not a guarantee of future performance. We'll see how it turns out.

As for the shrinking net effective payment that is perhaps a bridge too far. I've previously retracted the $57 net as that was an error in counting the return of the MSDs as a gain. The $166 net payment is based on the assumption that the gains from investing the purchase price would not be available without leasing the car. In other words, the money would sit in an investment account in a cash MM drawing .07% APY. It is only being moved out of cash reserves to generate income for the Z4 comparison. Not really too far off reality as I have been fairly conservative with my cash reserves. If I subtract this investment income from the lease payments I get the $166 a month. Not really an apple to apple comparison but kind of fun nonetheless. As I said, a bridge too far!

[Geradeaus]

Originally Posted by gasnet

I would never keep a BMW when the warranty expires. So lease is the way to to go.

Made the mistake of buying a 2013 Chevy Volt. Love the car, the concept (onboard gas generator in addition to storage battery) and still drive it today on electric power, but man did it ever take it on the chin in the depreciation department. If I had leased for three years and then bought it used I could have saved high four to five figures. I did get the $7,500 tax credit which was useful but 70% depreciation after three years killed me!

[Mixitt]

Originally Posted by Geradeaus

A lot of people just assume that a lease vs cash purchase is a bad financial decision. That just is not true in all cases and especially in my case.

If a dealership pushes a certain transaction then I figure it's good for them and not me. For financial reasons a dealer prefers 1. leasing, 2. financing thru their institution and 3. cash.

Regarding making money, since going all in during the March 2020 crash and just shy of 1 year later, now, I have returned a 4X profit playing stocks, mainly going long. No lie, 6 digit figures. My portfolio is very diversified including OTC and big tech plays, swing trades, buying stuff like AMC at $2.20 and 2 weeks later flipping it for a huge gain at $15.32. https://www.barchart.com/stocks/quot...eractive-chart Am playing lithium mining stocks, EV, oil, biotechs like Moderna, Biontech and Vaxart, doing several pump and dumps for 100% profits or more each time. Financials like SQ, etc. I get up in the morning and start my research at 5:30 streaming FOX business.

So....cash is KING with my Z4 paid for via my research, tolerance for risk, and personality knowing good and well to hang tough when something takes a dive only to return for a 100% gain 3 months later.

Check out HYSR. Crazy penny stock based on tech that splits any water source into H2 and O2 using only the sun. Is it a scam? Don't know but when the millenials sitting behind their Reddit and Robinhood accounts/forums run it up 400%, scam or not doesn't matter. Young tradiers could care less about fundamentals and more about momentum plays and posting rocket memes on forums like stocktwits.com.

Mutual funds are OK but you won't get rich. The only one I'm holding which I've played for 20 + years is NBGEX, for stability. There are some pretty damn good ones like IYMIX, POAGX, etc.

Good luck!