Brav

From what I understand, residuals are not negotiable. It is what it is. What bank did you go through?

sarb

The residual is the residual lets say it is at 58% for sl500 in 3 years. That does not mean that I can't pay down the buyout value of the car to a 30% level. Yes the car is still worth 58%, but you just bought it for 30%.

All dealers can do this, and most mercedes dealers will. I know my sales guy had no idea what I was talking about. He asked a senior sales person who showed him how to change the number on the computer. I could have pcked any buyout value I wanted (I believe you want it at 25% or higher in order to qualify for the write offs).

I went through Mercedes Benz Credit.

tiggerfink

I thought about that, but I decided to keep my car. My dealer calls it a balloon lease. It’s a good idea if you were planning to purchase and sell your car at the end of term.

I just can not believe how some folks make judgment on you because you either lease or have a loan on a car. I was just helping folks to get great loan rates that may be close to the lease rate.

Well, when I get my hotel I will treat you all the same. It does not matter if you lease, buy or get a loan because we will treat you with respect.

pilot20

I'm glad to hear that the "big dogs" have found a way to transfer the tax burden to the rest of us.

blueSL

Why not just pay cash?

david_101

i'm neither a CPA or a tax attorney, so please indulge my uninformed inquiry:

would the gain at the lease-end purchase be subject to recapture or some other tax reclamation structure?

david

david_101

there are benefits and detriments to acquisition plans among tax jurisdictions.

surely, you know that.

david

trd277

Not to discount the emotional side of not being in debt, but from a financial side, you rarely want to pay cash for a car.

Normaly you would not invest in anything that would be taxed at your earned income rate. There are many tax free investments you can make with the money, and taxable investments are not taxed at earned income unless they are held short term, which they should not be unless you are Warren Buffett.

You are correct that you wont get 5% on a CD (of course there are few circumstances under which you should invest in a CD, but that is an entirely different conversation). Frankly, the market is not performing that well either. However, over the last 50 years the market has averaged just over 11% return on investment. Over the 3 years + of a lease or loan you usually (always exceptions) come out better in the market then you would have paying cash for the car.

Not to mention the majority of the population could incorporate and deduct the lease payments if they knew what they were doing...

PS - not trying to be abusive, I have been in finance for a while and deal with this all the time...

tiggerfink

Capital gain tax is only 15% not 40%. I am thanking President Bush on my way to the bank. By the way, you can get a 5 year CD at 9% outside of the USA.

Brav

More info about that CD?

blueSL

Of course it's not worth paying cash if the net of tax lease costs are less than the net of tax investment returns but whereas the former are fixed for a transaction, the latter are not and averaging returns over 50 years covers some very bumpy ups and downs. Now, I wonder what that 11% changes to if you look at 10 years, 5 years, 3 years, 1 year.

My own view is that there is a whole host of issues which are changing the ground rules (energy costs, global politics, age demographics, job outsourcing to China and elsewhere, the environment to name but a few) and we are in for a few years of lean stockmarket returns.

Others may think differently and I may yet be proved wrong but in the meantime, just writing a cheque for a new car, especially one which is not going to be my daily driver and therefore cover the normal usage pattern around which leases are structured makes perfect sense. Besides, I don't like paying commission fees to financial intermediaries who may but, Marsh & McLennan-like, probably do not have my best interests at heart.

tiggerfink

The parent bank is the bank of trust of Switzerland.

http://www.mlnbank.com/prem_cds.html

internet_mafia

I would just like to know what kind of business allows you to justify writing off lease payments for a 100K car, a convertable at that? I have done a little homework on the tax write-offs associated with "business expenses", I know it is perfectly legal so as long as you write off only the % of the car that was used for business, not personal use. However, I am curious as to how does one explain to the tax preparer that an SL600 was used legitimately for business? Who on this board seriously logs each mile they put on their leased vehicles?

david_101

hello all,

i've been going back and forth over this question while trying to decide upon how to acquire a new or used 500 or 55.

before reading this, please keep in mind i'm not a tax professional and am only relating my understanding of what i was told.

in conversation with dealer acquaintances and CPAs, i learned the following:

1. residuals can be (and are, upon request) preset over a relatively wide range, and are often set low by high cash flow leasees to front load deductions. if the buyout is less than an ultimate sale price, then (in the USA) the gain MAY BE taxable.

2. the lease v. buy decision, in strict financial terms, is a series of breakevens based on several variables, such as primarily term, and secondarily rate/money factor, tax bracket, residual, opportunity cost, and use. residual, opportunity cost and tax bracket are mutable variables, as is one's revenue/income, so one must make a best guess.

3. typically, leasing is better for the short term (< 3 years) and owning is better for the long term.

4. up front payments on a lease to reduce monthly payments generally is unwise because should something cause the leased car to be a loss, the up front monies would not be recoverable, even with GAP coverage.

to date, i have never used any sort of financing. however, i now may lease a 2005 SL500, absorbing the maintenance costs (kindly reinstated by MB), which i previously was loath to consider.

why? a few reasons:

1. i believe the negative value effect of an imminent (2 or 3 years) facelift cannot be estimated.

2. without considering 1., above, the net cost of the lease very likely would be materially less than that of owning over a similar period.

3. mileage accumulation likely would be near or at the lease ceiling.

4. i likely have significant opportunity cost considerations precluding purchase.

5. (non-financial consideration) i may prefer a restyled 209 to the current 209, and would like to be able to part from the car on a preset date.

i considered leasing a fully optioned used SL55 with purchase price ~$5,000 (the cost of a sport package) more than a moderately optioned new SL500. the problem was that the monthly payment would have been $400+ more before insurance. i couldn't see the sense in paying the differential, if only because i already own a CLK55. should i decide i selected improperly and wish for a different car, i would be able to roll into it with an acceptable penalty.

so, this would be new financial territory for me. any practical advice would be much appreciated.

thank you,
david

david_101

hello again,

i'm nearly set to sign a dealer lease because the numbers seem worthwhile:

36 months
15k miles
0 down
~ $1,425 / month

please tell me i'm right to think this is a decent deal.

thanks,
david

tiggerfink

Does that number incude all the taxes? What is the Lease rate factor? What is the value of the car if you wanted to pay it off at the end of lease? Is it a new car?

david_101

the number was an oral estimate that i recall included all taxes.

i asked a few times for confirmation, which i did receive.

yes, it's a brand new car.

i'm uncertain about MF, EOL value/buyout because they seem to be irrelevant. the reason is that only the payment matters, given i would not wish to own the car at any point.

david

tiggerfink

The EOL value/buyout is important. It determines if you got a good deal. For example, lets say you have a 60 month loan and you expect to sell your car at at the end of 36 months.

Loan
100,000
15,000 for deprecation per year
45,000 3 years of deprecation
1,800 monthly payment
64,800 for 3 years of payment
43,200 remaining balance of loan
55,000 rough estimate of what you can sell your car for at the end of 36 months. 100,000-45,000

If you sell your car at the end of 36 months you would be out of 52,200.
64,000+43,200-55,000. This a rough estimate.

If you lease for 36 months at 1,425 for a total of 51,300. Looks like the lease is a good deal for 36 months.

david_101

i understand.

please take a look at these numbers for a new 2005 SL500:

cap: $95,000 +/-
term: 36 monthss
down: $0

the ubiquitous total monthly payment in S FL is $1,500+.

payments seem to vary roughly $30.00 per $1,000.00 of cap.

if the great majority of stores quote within a range above $1,500 for the same car, and i've found ~ $1,425, then i am uncertain why MF/rate are very relevant.

i am looking forward to your reply,
david

tiggerfink

I forgot TAX so the total cost of purchasing and selling at the end of 36 months would be about 56,000. They charge about 8% tax here on the total amount of the selling selling price when you buy your car. The options that I have are 318, 317, keyless go, cell phone, rubber mats, rubber trunk tray, shelf bag.

Your lease rate factor is below .015. That determines your monthly payment. total month payment =95,000 x .015 + tax.
tax=(95,000 x .015)tax factor

If you lease for 36 months at 1,425 for a total of 51,300. Looks like the lease is a good deal for 36 months and if you have the above options. If you do not have the above options, just (total extra options)*.015*36 and add it to your total for 36 months. You do not need the buyout because you will be walking away from the car at the end of 36 months. If you decide to keep the car, your deal will go down south very quickly?

Here is a recap

own and sell car at the end of 36 months
$56,000

Lease for 36 months
$51,300


Good luck

david_101

thank you for the analysis.

if i understand it correctly, then leasing will cost ~ 9% less than owning, before calculating effects of our tax shield.

yes, we do not wish to own this car, if only because we believe something more desirable will come along sooner rather than later.

it's very likly that tomorrow i'll receive a firm quote in writing. should be interesting... the only variance disclaimer came along with the quote in EM, and allowed very minor changes resulting from hard credit score.

thank you again for your help!

david

tiggerfink

Yes and No. Paying cash is the best deal. Here is the ranking for selling your car at the end of 36 months. These numbers were done on my computer with a guess of 45,000 deprecation in 3 years. Number are base on a 8% tax on a selling price of 97,000, so the loan total will be 104,760. The loan interest is at today's rate of 3.65%.

Did the dealer tell you the estimated deprecation for 3 years? I think 45K is high for deprecation in 3 years.

1. Cash; 49,760 out of pocket
2. 36 month lease; 51,300
3. 36 month loan; 55,7959.40
4. 60 month loan; 56,289.95

david_101

thank you for your efforts to educate me. it may be working...

however, an interesting deal came up when i went to visit the dealer yesterday. a 2005 SL500 with ~ 500 miles came in just before i got there. it hadn't been cleaned, prepped or stickered. first number on it was $91,900. but that has a bit of wiggle.

the deal is the same as that for the new 2005, but the payment would be ~ $1,300.

what do you advise?

regarding your previous computation, i am uncertain whether you considered TVM in your BE. also, i haven't asked this dealer about residuals because the numbers have been good enough.

looking forward to your reply.
david

tiggerfink

What is BE?

TVM is not consider in the estimates. I can not calculate TVM because I have no idea what you will do with your money. In my case, I made a deal with my broker not to pay cash for the car when I got it. He invested the money in April and made enough to pay off my loan. He was not please when I decided to pay off my car loan. It was a piece of mind for me to pay off the loan. My wife comes from culture to pay cash for everything.

Leasing is best when you just want to walk away from the car in 3 years. You have the information and now its up to you on what you want to do. The only time your worried about residuals is when you are purchasing the car after the lease.

david_101

BE = breakeven point

given the numbers you arrived at, it seems to me that the next step would be a net present value computation.

NPV analysis would bring everything back to a single time point, thereby permitting apples-to-apples comparison.

after that, individual assumptions about tax rate, opportunity cost, and the like could be applied.

the result i suppose would be to understand how one could best squeeze every bit of value out of one's hard-earned money. and that's a worthy endeavor.

thank you again,
david