New member consider leasing

Is that 2wd a typo? That's one hell of a mark-up if not.

 

I don't think it's a Ponzi scheme, but you are betting against the odds and that is a fact. I think that there are cases that a lease works out but they are few.

 

You can depreciate your truck's value and expense the payments as well if you're buying for a business. Even if it's just an S Corp.

 

CPA chiming in.
Depreciation has certain limits per year. And if purchased, you can only expense the interest portion of the monthly car payment.

Also, lets not forget that your basis in the truck decreases each year you depreciate. So considering the Tacoma has great resale value, if you were to sell when your adjusted basis is low, you'll be hit with some big gains when you sell.

One more thing to consider. You can also take the business mileage deduction of 57.5 cents per business mile. I do that for many clients and gives them a bigger deduction.

Yes, even im getting a headache thinking about all this.

 

That's like saying that buying auto insurance is just "betting against the odds". While valid from an actuarial perspective, from a practical perspective we buy insurance to mitigate the financial risk of an auto accident.

Leasing is just buying insurance against depreciation downside risk, which is a very valid concern (ask VW diesel owners, owners of a GM vehicle with a defective ignition switch, any number of Hondas/Toyotas/BMWs/etc with defective Takata airbags, anyone that's ever suffered loss of value due to an auto accident, etc).

And that's not even considering investment earnings from the additional free cash flow of leasing vs. financing, which is the main reason I like leasing. Let's consider a DCSB TRD OR 6MT with tech and tow, the configuration I would buy. MSRP is about $36.5k, so let's assume a selling price of $35k (current Truecar price).

Financing:
60 month term, 1.99% APR (the very best rate I could find, from PenFed)
$3642 down (I chose this value because it equals the drive off costs for the lease below)
Monthly= $550

Leasing:
Residual for this config @10k miles/3yr is a whopping 75%
TFS base MF is 0.002 (4.8% APR)
Max MSDs costs $2700 and buys the MF down to 0.00128 (3.07% APR)-You get this money back at lease end
Acquisition Fee is $650
Monthly= $292

I'm ignoring tax, doc fee, registration, etc. because those are different in every state, but they won't affect the outcome of the analysis in most states. On day one, cash outlay for both scenarios is the same ($3642). Assume that each month you take the difference between the financing monthly and the lease monthly ($258) and invest it in an S&P 500 index fund or whatever (there are plenty of brokerages that let you make such periodic trades commission-free). The historical return of the S&P 500 with dividends reinvested has been 11.4% during my lifetime (born 1980), 9.9% over the past century. But for this analysis I'll use a very conservative 8% annual return. After all, you are talking about "odds", and odds are that the S&P will return greater than 8% annualized over every one of our adult lifetimes.

At the conclusion of 3 years, your cash outlay has been the same in either scenario ($23,442), although on this date you get the $2700 in MSDs back in your pocket if you leased. But your investment returns have been $1170, $520 greater than the acquisition fee you paid for this privilege of lower payments and no depreciation downside risk. So "odds" are that you just profited by leasing instead of buying over the 3 year term. You can buy out the lease (and finance that if you prefer) at this time, and you are exactly where you would have been by financing, except $520+ richer.

And this didn't even include the tax benefits if you are able to write off the lease payments with your business, or the money you saved if you car suffered unexpected depreciation due to collision, recall/scandal, design flaws, etc.

 

I leased my truck. In case you want to compare

2016 DCSB TRD Sport, 4x4, 6 speed manual, tech and premium package.
MSRP approx $36,900
Negotiated price of $34,500
60mo/75,000mi lease
$0 down
not sure of money factor, have to revisit my paperwork
residual of $19,xxx
Dealership covered my first payment
$431 per month with gap insurance

 

I leased my Tacoma as I lease the majority of my vehicles due to the fact that I like the luxury of being able to get in and out of a vehicle every few years with little to no effort. The nice thing about Tacoma's is the fact that they retain a high resale value and dealers are always looking to take them in so bringing a 3 year lease back at the two year mark you are more than likely going to have equity in it and won't end up upside down for getting out super early. I did that with my second gen and walked away from it clean not to mention that the dealer had the truck sold within 24 hours. It really comes down to what works best for you and your habits of getting in and out of vehicles along with how much mileage you put on a vehicle. My vehicles are typically low mileage so leasing works as far as that is concerned as well. I just picked up my special order TRD Sport 4x4 short bed with the premium/technology package with JBL and a few other add-ons which brought sticker price of the truck to $40,102. After a little negotiation I got them to agree to $425 a month for 36 months at 12K miles a year with nothing but my first months payment out of pocket. If memory serves I believe that number got the truck down in the 36,675 area. Is it the best deal? Probably not, I am sure others could do better but I do know it's better than most. Had I not been lazy I had another dealer a few hours away that was willing to come down an additional $10 a month but the three hour drive there with the wife and kids and her driving back alone with the two kids would have cost me more than the $360 I would have saved over the term of the lease in the long run one way or the other. The nice thing is I can still do things like a lift, wheels and tires. I just need to bring the truck back to stock prior to returning the lease. Been there done that and the nice thing is there is also a strong resale market for aftermarket parts for the Tacoma so you won't likely be stuck with a garage full of parts that you no longer need.

 

my dealer likes lifted trucks, and if I lift my lease, they will not be bothered by it one bit when I return it, and will not penalize me. So technically, you're not "supposed to" lift leased trucks, but depending on the dealer, they won't care. As long as it was done properly, a mild leveling or lift kit is potentially more attractive to resell. The dealer can use your lifted lease return as a point of negotiating the price higher.

 

You are correct in your insurance analogy, but the chances are very slim that the depreciation will change significantly in the next 3 years. These trucks have changed very little in 11 years, even the new gen has changed little, so a out of the blue surprise chance is slim.

In cash terms you are correct, but not in total worth terms. In your scenario with a lease and investment (wont argue the rate or anything like that) your cash outlay is a total of $23,442 in either scenario over 3 years. With a lease and investing your total investment is worth $10,458 at the end of 3 years at 8% and you have 0 equity in the truck. If you put all of that money into a loan on the terms you laid out instead you have $12,918 left on that loan after 3 years. At the residual value of 75% of $36,500, same as the lease, the truck is worth $27,375. That leaves you with $14,457 worth of equity in the truck. Your net worth is $3,999 higher in the buy scenario than your lease scenario.

As far as tax advantages as it has already been mentioned, you get very similar tax benefits either way. You get depreciation as well as writing off the interest if you buy.

 

Your math is correct, although you neglected the MSDs in your calculation. 3 years into the loan you have $14,457 of equity in the truck as you stated. If leasing+investing, your investment account has a balance of $13,158 ($2700 higher that what you stated, thanks to the MSD refund). So your net worth is $1299 higher in the finance scenario after 3 years, but this is solely because the TFS lease MF is so awful compared to PenFed's amazing finance rate (not many people on this forum got 1.99% on a 60 month loan for a Taco). $1299 is a reasonable fee to insure against depreciation downside risk from loss of value due to an accident (most likely source of unexpected depreciation on a Tacoma), the extra liquidity ("cash is king", equity in a vehicle is much less fungible), plus the convenience of being able to just turn the vehicle in to the dealer without the hassles of a private sale.

If the finance and lease APR were the same (like if you financed from TFS instead of PenFed), then your net worth if financing is only $526 higher than leasing+investing after 3 years; less than the $650 acquisition fee that you paid to lease. $526 is a steal for the depreciation insurance, extra liquidity, and turn-in convenience (although you sometimes have to pay a disposition fee of $350-ish if you turn in the vehicle and don't lease another from the same manufacturer).

Anyway, these numbers all support my greater point that there actually isn't a very big difference between leasing and financing over a 3-year time frame, with a few caveats (that you don't get ripped off on the money factor, and that you do max MSDs). Leasing often costs you nominally more (assuming you invest the extra cash flow), but you get the aforementioned benefits for the nominal upcharge.

 

Ah I did forget that you get that 2,700 back. Well, I think we can leave this here. This topic is now pretty thoroughly covered. Excellent analysis work sir.

 

Haha these numbers tho. Funny, when I went to the dealership to lease my Runner, i started laying out the terms on a scratch pad. I showed my salesman and he admitted he had the slightest clue what I was doing. He grabbed his sales manager and he too had no clue. Even the Finance Manager conceded that he knew that bare minimum of leases, and all he did was punch in a bunch of numbers on a computer.

Long story short, i coyldnt figure out why my calculations were $15 off from theirs. After some investigating I realized they included a lojack dealer option that I never agreed to. FTW!

 

"I like math, so I'm going into sales". Said no one ever.

I will say that as a consumer if you don't educate yourself on leasing, you WILL get screwed by the dealership somehow (marked up MF, they'll roll some nonsense accessories/insurance into the lease, etc). When buying, the difference between an average deal and a great deal is usually only about 4-5%. When leasing, the difference between an average and great deal can mean a 30%+ difference in payment.

Also, FWIW, the math in favor of leasing usually only works out for expensive vehicles. If you lease a Nissan Versa, that acquisition fee is going to be over 10% of your lease cost!

 

Hmm.. that's an interesting lease (60 months, eh?)

If you add up your lease cost + residual if you were to buy out the truck, it would be well over 45K.

If you turn in the truck at the end of the lease, you essentially paid 25K to drive the truck.

I don't see at any point of your lease you'd be right side up.

 

TFS' money factor on 60 month leases is 0.0022 (a whopping 5.28% APR), and that's for excellent credit. Based on the numbers he posted, it looks like he is paying an even higher MF than that (due to either markup or FICO). Good discount on the selling price though; local dealer sells 6MT Tacos within 24 hrs usually (near sticker price).

“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.” -Albert Einstein

 

He could have brought down the MF by paying out MSD's but doesn't seem like it.

I tell everyone - don't shop by monthly payment!!

 

Maybe I will be, maybe I won't. I could be mistaken on my residual value... I haven't looked at my lease documents since November. This isn't the first vehicle I've leased. Maybe it isn't the best deal out there, but surely it isn't the worst.

 

Leasing works best with expensive cars....

Problem with leasing is one has a perpetual car payment. We lease the wife's CRV. Honda had good leases. We leased a CRV EX-L with Nav for $300 a month 3/36. She can write off the lease and since she is a musician and sometimes works late, I prefer to have her in a new vehicle that pays for itself through her business.

Leases have to be negotiated like non lease vehicles. I was able to get a $2500 deduction from MSRP and We are 2 years into the lease and we are in the black about $1500 at the two year mark..

THAT IS WHY it is so important to get a great front end discount (whether one leases or purchases). The money saved up front allows for a lot of wiggle room on the back end when its time to sell. We intend to pay the Honda off, sell it and lease another for her.

 

I leased my new 2015, because I trade out a lot, and when it comes time for my usual trade time I should be sitting pretty nice. Depending If I actually keep this one or not, I will be sitting pretty nice on value, and I didnt put anything down when I signed the papers. Right now in my area of DFW texas, Tacos are holding their value exceptionally well.