I'm a car salesmen, Go ahead and ask me anything

[Machiavelli]

^ This is an extreme example, though, of a car depreciating in value very quickly.

My argument still stands for a lower-mid range car like a Mazda. Please argue against my exact point so that I understand, because I'm still not fully grasping this.

Let's say I buy a used $2007 Mazda 3 for $18,000. I know right now that I only want to keep the car for 3 years. Let's say that I get a 6% car loan to pay all of it in cash. So the full cost of the car over 3 years will be around $21,300. In three years I then sell the car for $16,000. Total losses = $5,300. That's it. Nothing else to talk about. I have no car but I've only lost $5,300.

If I leased that same car with monthly payments of say, $350 for 36 month term, I have spent $12,600.

So, if I am understanding correctly, you are saying that although over that term, I would have spent $12,600, the difference between $21,600 and the little amounts that I would be paying over that time could have been invested (say at a return of 10%). At the end of the first year, my savings would be $21,600 - (350 x 12), which is $17,400 and which could be invested at 10%. However, since I don't have that $21,600 either way, I would be borrowing to invest, which would bring the returns down to 4% (10% - 6% line of credit). Then again, $17,400 invested over 12 months with compound interest at 4% is still pretty good (can't work it out in my head, however). But then of course the next year you'd have to spend another $4200 on the lease, and the principle that you get your return on investment on goes down a bit. Still, you make money off your savings. BUT, I don't think you could make $7300 off that to bring it up to par with buying (i.e. $12,600 spent on leasing minus $5300 lost by buying). I'm not sure exactly how it all works, but I think I'm starting to understand.

Also, leasing you only pay tax on monthly payments rather than lump sum on the entire price of the car, right?

Okay, I think typing it all out has made it make a little more sense to me.

Are my reasonings (well, ramblings) correct?

[DementedReality]

Originally Posted by Machiavelli

^....
Let's say I buy a used $2007 Mazda 3 for $18,000. I know right now that I only want to keep the car for 3 years. Let's say that I get a 6% car loan to pay all of it in cash. So the full cost of the car over 3 years will be around $21,300. In three years I then sell the car for $16,000. Total losses = $5,300. That's it. Nothing else to talk about. I have no car but I've only lost $5,300....

i dont have time at the moment to give ou a full response, but I take issue with either the original purchase price of the rate you think you can get after 3 years.

i dont know the new value of a Mazda 3 BUT if it is 18k, there is no way you get 16k for it after 3 years.

why wouldnt the person offering you 16, just go and buy a new one if its only a few k more?

EDIT: i see now you said USED 2007. either way, a car will depreciate far more than 2k in 3 years.

[Machiavelli]

Originally Posted by DementedReality

i dont have time at the moment to give ou a full response, but I take issue with either the original purchase price of the rate you think you can get after 3 years.

i dont know the new value of a Mazda 3 BUT if it is 18k, there is no way you get 16k for it after 3 years.

why wouldnt the person offering you 16, just go and buy a new one if its only a few k more?

EDIT: i see now you said USED 2007. either way, a car will depreciate far more than 2k in 3 years.

Right now I'm seeing used 2004 Mazda 3s for anywhere from $13,000 to $18,000 so I think in three years I should be able to sell a 4 year old car for $15 or 16,000

[TimSJ]

the selling it for $16,000 in 3 years is the part where you are having the problem.. and are a bit unrealistic.

Even if you could sell the car for the $16k in 3 years you have the first option to buy the car out of the lease and at that number you would have equity on the residual and you could buy it outand sell it.

If we look at a 2004 Mazda 3 for the 4 year old comparison. it is worth about $9000...

I don't think that you are figuring in the tax either in you $21,300 number

[Boblobla]

Okay, I am currently saving for my down payment on a new truck. I have heard differing opinions on whether to lease or buy. What is your opinion on both?

What kind of down payment do I want for a new full size pickup? I am looking at a Tacoma or a Titan.

Also, I am an independent contractor and have only been doing this since August of last year. How will being self employed affect my ability to get financing?

[TimSJ]

Originally Posted by Machiavelli

Right now I'm seeing used 2004 Mazda 3s for anywhere from $13,000 to $18,000 so I think in three years I should be able to sell a 4 year old car for $15 or 16,000

the ones at $18,000 are dreaming.. The ones in the 13,000 range are a lot more realistic.

[TimSJ]

Originally Posted by Boblobla

Okay, I am currently saving for my down payment on a new truck. I have heard differing opinions on whether to lease or buy. What is your opinion on both?

What kind of down payment do I want for a new full size pickup? I am looking at a Tacoma or a Titan.

Also, I am an independent contractor and have only been doing this since August of last year. How will being self employed affect my ability to get financing?

The write off is simpler for a lease. the Rev Can number is $750 per month plus tax. If you are going to lease i wouldn't necessarily put any money down. on a lease all you are doing with down payment is prepaying lease payments. I would focus more on the payment.. Go with as high of a playment you are comfortable with.

If you are able to write off 80% business usage 80% of $750 is better than 80% of $399 a month.

As for being self employeed a way that i do it for quite a few of my cleints is lease in the Company name with a personal guarentee. You are on the hook but it is very tough for them to finance a new company with no real history. Also this way they won't need a bunch of financials on your company.

In any business car buying decision it is always best to consult with your accountant as to the best way to structure for your situation.

Best,
tim

[Machiavelli]

Originally Posted by TimSJ

the ones at $18,000 are dreaming.. The ones in the 13,000 range are a lot more realistic.

Oops, just realized that the $18,000 I was finding were for Mazda 3 SPORTS. The average asking price for a 2004 in Manitoba (where I would be buying and selling my vehicle) is still around $14,000/$15,000, depending on the model. And you're right, I left off the tax with the purchase option and also with the lease option, kind of on purpose. Argument still stands though. It would be tough to make up the difference in losses using investment between leasing and buying and then selling.

Plus, you actually have to find an investment vehicle that will give you 10% return. Not always easy...

[TimSJ]

the thing that you are forgettting though is that you still have the first option to purchase the car at the end of the lease if it is worth more than the buyout. Think of it as a loss protection.. If the market bottom falls off and the car is worth less than the residual at the term then you turn it back to the leasing company.. If it is worth more you can excercise your option to buy it then sell it and get the equity out.

[Machiavelli]

Originally Posted by TimSJ

the thing that you are forgettting though is that you still have the first option to purchase the car at the end of the lease if it is worth more than the buyout. Think of it as a loss protection.. If the market bottom falls off and the car is worth less than the residual at the term then you turn it back to the leasing company.. If it is worth more you can excercise your option to buy it then sell it and get the equity out.

Got it, thank you.

[metallicat]

Tim, a friend is trying to buy an 08 City Golf, and wants to trade his 1998 Ford Explorer in. With 156k and in mint condition, how much is he approximately looking to get for that?

[Kjesse]

Originally Posted by TimSJ

If you are able to write off 80% business usage 80% of $750 is better than 80% of $399 a month.

Tim, I think you've given some great advice in this thread, and I thank you for what I've learned here, but I don't agree with this comment.

Just because the write-off as far as the CCRA is concerned can be maxed to $750 doesn't make it "better" to spend that than a lesser amount.

If you're a business owners you're still better off having a smaller payment regardless of write-offs-- and it doesn't matter whether its a vehicle, a warehouse, technology, what have you. Its just that the write-off makes the larger expense more affordable come tax time.

You have to earn more revenue to support the payment regardless of the write-off. Lower payments means more money in your pocket, even in the face of the write off.

The only exception of which I am aware is flow-through share offerings, which are mainly used in oil and gas small cap shares. In that case, you get to buy shares in a company that is losing money in the short term, but which you expect to hit paydirt in the future. Under the rules, the company's book losses get passed on to shareholder, who in turn get to write those off on their taxes against their income. In that case, making a bigger payment for the write off makes sense if the stock rises subsequently, because the shares cost you less "real" money.

But that reasoning doesn't apply to vehicles, because they depreciate (unless you buy one of those very expensive classic cars).

[Kjesse]

Originally Posted by TimSJ
the thing that you are forgettting though is that you still have the first option to purchase the car at the end of the lease if it is worth more than the buyout. Think of it as a loss protection.. If the market bottom falls off and the car is worth less than the residual at the term then you turn it back to the leasing company.. If it is worth more you can excercise your option to buy it then sell it and get the equity out.

Originally Posted by Machiavelli

Got it, thank you.

Again I can't agree. In the recent market cars have depreciated in Canada quickly only because the Canadian dollar became so strong, so fast, that US imports started rolling in, which devalued Canadian cars on lease returns. The auto manufacturers and dealers couldn't react that quickly, but they're catching up now.

This is a phenomenon that we haven't seen in Canada since.... well, since I've been old enough to understand it.

Look at it from the big picture, and you'll spend more money leasing over the course of your lifetime.

There is no way that a dealer is going to lease you a car where they actually expect you "make money" by not buying. They pre-estimate the residual value, based on their own forecasts, and if the price of the used car tanks in that time, the lessee has made money relative to the dealer (lessor). They plan to make money on it, and they're experts on car prices. The dealer doesn't plan for the bottom to fall out of the market, and instead builds enough "leeway" in so they're secure regardless.

If you bought in Canada a few months ago up to a year or so ago, you'd probably have been better off leasing, unless at the time you bought you took advantage of a cross-border purchase. But this is the exception.

[DementedReality]

Originally Posted by Delgar

Originally Posted by TimSJ
the thing that you are forgettting though is that you still have the first option to purchase the car at the end of the lease if it is worth more than the buyout. Think of it as a loss protection.. If the market bottom falls off and the car is worth less than the residual at the term then you turn it back to the leasing company.. If it is worth more you can excercise your option to buy it then sell it and get the equity out.


Again I can't agree. In the recent market cars have depreciated in Canada quickly only because the Canadian dollar became so strong, so fast, that US imports started rolling in, which devalued Canadian cars on lease returns. The auto manufacturers and dealers couldn't react that quickly, but they're catching up now.

This is a phenomenon that we haven't seen in Canada since.... well, since I've been old enough to understand it.

Look at it from the big picture, and you'll spend more money leasing over the course of your lifetime.

There is no way that a dealer is going to lease you a car where they actually expect you "make money" by not buying. They pre-estimate the residual value, based on their own forecasts, and if the price of the used car tanks in that time, the lessee has made money relative to the dealer (lessor). They plan to make money on it, and they're experts on car prices. The dealer doesn't plan for the bottom to fall out of the market, and instead builds enough "leeway" in so they're secure regardless.

If you bought in Canada a few months ago up to a year or so ago, you'd probably have been better off leasing, unless at the time you bought you took advantage of a cross-border purchase. But this is the exception.

you seem pretty smart about #'s ..

how do you not see that spending 25k on a car and is not more expensive than spending 14k on the same car.

i just leased a 2008 JEtta. Here are details:

1) i could have purchased. either give them 25k outright from my bank or $550 per month.

2) i could lease at 300 per month, 0 down.

Now who wants to OWN a VW without a warrenty? this is a 4 year proposition.

optio 1 costs me between 25 and 26k and after 4 years I have a liability (not an asset because it continues to depreciate AND now i have no warrenty) worth say 13k at most.

option 2 costs me 14k and i can pocket the difference of about 250 per month. after 4 years i have 12k in cash built up and its liquid. in option 1, all that equity is not only tied up in metal in my parking lot, its going down every month.

i see no reason to not lease a new car every 4 years.

[TimSJ]

Originally Posted by Delgar

Tim, I think you've given some great advice in this thread, and I thank you for what I've learned here, but I don't agree with this comment.

Just because the write-off as far as the CCRA is concerned can be maxed to $750 doesn't make it "better" to spend that than a lesser amount.

If you're a business owners you're still better off having a smaller payment regardless of write-offs-- and it doesn't matter whether its a vehicle, a warehouse, technology, what have you. Its just that the write-off makes the larger expense more affordable come tax time.

You have to earn more revenue to support the payment regardless of the write-off. Lower payments means more money in your pocket, even in the face of the write off.

The only exception of which I am aware is flow-through share offerings, which are mainly used in oil and gas small cap shares. In that case, you get to buy shares in a company that is losing money in the short term, but which you expect to hit paydirt in the future. Under the rules, the company's book losses get passed on to shareholder, who in turn get to write those off on their taxes against their income. In that case, making a bigger payment for the write off makes sense if the stock rises subsequently, because the shares cost you less "real" money.

But that reasoning doesn't apply to vehicles, because they depreciate (unless you buy one of those very expensive classic cars).

No question you have to have the cashflow/revenue to support the payment. All i am saying is that by putting money donw on a lease you are losing out on the write off.. If you are more comfortable with the lower payment than that is the way to go.

[TimSJ]

Originally Posted by oilers_fan

Tim, a friend is trying to buy an 08 City Golf, and wants to trade his 1998 Ford Explorer in. With 156k and in mint condition, how much is he approximately looking to get for that?

As a trade or at retail?

As a trade you will be hard pressed to find a dealer that will book it at more than $500 to $1000 they may show you more with overallowance but that is what they are really putting into the car.

As for if he is just going to try and sell it himself.. prob could ask $3000 -$4000

[TimSJ]

Originally Posted by Delgar

Originally Posted by TimSJ
the thing that you are forgettting though is that you still have the first option to purchase the car at the end of the lease if it is worth more than the buyout. Think of it as a loss protection.. If the market bottom falls off and the car is worth less than the residual at the term then you turn it back to the leasing company.. If it is worth more you can excercise your option to buy it then sell it and get the equity out.


Again I can't agree. In the recent market cars have depreciated in Canada quickly only because the Canadian dollar became so strong, so fast, that US imports started rolling in, which devalued Canadian cars on lease returns. The auto manufacturers and dealers couldn't react that quickly, but they're catching up now.

This is a phenomenon that we haven't seen in Canada since.... well, since I've been old enough to understand it.

Look at it from the big picture, and you'll spend more money leasing over the course of your lifetime.

There is no way that a dealer is going to lease you a car where they actually expect you "make money" by not buying. They pre-estimate the residual value, based on their own forecasts, and if the price of the used car tanks in that time, the lessee has made money relative to the dealer (lessor). They plan to make money on it, and they're experts on car prices. The dealer doesn't plan for the bottom to fall out of the market, and instead builds enough "leeway" in so they're secure regardless.

If you bought in Canada a few months ago up to a year or so ago, you'd probably have been better off leasing, unless at the time you bought you took advantage of a cross-border purchase. But this is the exception.

True it is a relativly new phenomenom... but not jsut because of the Dollar issue.. It started with GM putting there 0% leasing/financing on 5 or 7 years ago.. What that did was make it cheaper to buy a new car than a used car payment wise... As a result that was the first start on pushing down used car values.

As for the car manufacturers they would be happy as hell if the cars would be worth there residual at the term of the lease.. They don't want the cars back... and for every car that come back they are taking huge losses.

No question that it does cost a little bit more to lease than to buy a car but in todays and imho going forward vehicle market that downside protection is well worth it.

[metallicat]

Originally Posted by TimSJ

As a trade or at retail?

As a trade you will be hard pressed to find a dealer that will book it at more than $500 to $1000 they may show you more with overallowance but that is what they are really putting into the car.

As for if he is just going to try and sell it himself.. prob could ask $3000 -$4000

Yeah, it was as a trade in. He was hoping that the dealer would give him 3k, looks like that won't be happening. Thanks Tim.

[metallicat]

Hey Tim, I have another question for you.

When I browse carcostcanada.com, it shows the wholesale price...etc. It also lists all factory incentives offered to the dealership. Do you get ALL of those back from the manufacturer regardless of whether or not the customer qualifies for them?

My parents are looking for a new vehicle, and I am just starting to do a little research for them. Thanks.

[OilersBaby]

What has better resale value..a Honda Civic or a MINI Cooper?