Sometime ago we had discussed the fact that by doing ED every year you could save enough to pretty much drive the car at la negligible cost. The logic was that you can easily save 10% of US MSRP with ED and trade/sell the car after an year at 20% less than the US MSRP. Hence you pay only 10% for driving a spanking new BMW every year  . The spanner in the plan was the 8% sales tax on the car in California. Unlike the "Beewang" who lives/registers his cars in Oregon, us CA folks will not be able to enjoy. The alternative is leasing. While running the numbers, I realised that depending on the residual values, a 24 month lease often costs less than a 36 month lease after ED. This is because the 10-12% you save upfront is amortized over a smaller period in a 24 month lease vs a 36 month lease. Also the residuals are sometimes structured in a manner such that the 24 month depreciation cost is very low. For example, currently the 325 has a 24 month residual of 73% and a 36 month residual of 61%. Assuming a buy price of 90% of MSRP ( a generous profit for the dealer), the average depreciation over 24 months is (90-73/24) = 0.708%/month while for the 36 month it is (90-61/24)=0.806%. So your monthly depreciation costs are lower. The money factor contribution will be a little bit higher but you still save enough ($20-30) to pay for your ED plane ticket. Any thoughts? |
| Reply » Saving money on 24 month vs 36 month lease on ED |
I apologise in advance fro my ignorance.
Is the residual calculated on teh price you pay for the car or the US MSRP? Or what 
Quote: Sometime ago we had discussed the fact that by doing ED every year you could save enough to pretty much drive the car at la negligible cost. The logic was that you can easily save 10% of US MSRP with ED and trade/sell the car after an year at 20% less than the US MSRP. Hence you pay only 10% for driving a spanking new BMW every year .
The spanner in the plan was the 8% sales tax on the car in California. Unlike the "Beewang" who lives/registers his cars in Oregon, us CA folks will not be able to enjoy. The alternative is leasing.
While running the numbers, I realised that depending on the residual values, a 24 month lease often costs less than a 36 month lease after ED. This is because the 10-12% you save upfront is amortized over a smaller period in a 24 month lease vs a 36 month lease. Also the residuals are sometimes structured in a manner such that the 24 month depreciation cost is very low. For example, currently the 325 has a 24 month residual of 73% and a 36 month residual of 61%. Assuming a buy price of 90% of MSRP ( a generous profit for the dealer), the average depreciation over 24 months is (90-73/24) = 0.708%/month while for the 36 month it is (90-61/24)=0.806%. So your monthly depreciation costs are lower. The money factor contribution will be a little bit higher but you still save enough ($20-30) to pay for your ED plane ticket.
Any thoughts? |
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| Reply » Saving money on 24 month vs 36 month lease on ED |
Some thought but not much:
How about this - if you are leasing the car, the residual value is not relevent, correct? The price to lease is higher for shorter durations. I think you might consider cash flow vs residual value since on a lease the depreciation is not a factor in a tax deduction..... thoughts???
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| Reply » Saving money on 24 month vs 36 month lease on ED |
1. Residual is caculated on US MSRP. The 10-12% you save on the US MSRP all goes towards reducing the lease payment.
2. The whole purpose of this thread is to identify a case where a shorter term lease is cheaper than a longer term lease which is against conventional wisdom.
3. AFAIK, you deduct the entire cost of leasing the car. It is not relevant how the components are broken down (depreciations vs finance charges). Not having to do depreciation calculations at tax time is one big reason most business owners like to lease. If you own the vehicle you have to go through the process of calculating the depreciation etc. and amortizing other costs correctly.
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| Reply » Saving money on 24 month vs 36 month lease on ED |
Yes you are correct, the 2 year lease was infact cheaper for me than a 3 year lease when we did the numbers out, so it was a no brainer for me to do the 2 year, I put 0 down just paid ny tax and tags! If I included the tax in the payments the 2 year was still cheaper! 2 year was the way to go for me, and gives me the chance at a new BMW every 2! New every 2! (like verizons phon deal (I HATE verizon BTW)). Good Luck! 
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| Reply » Saving money on 24 month vs 36 month lease on ED |
Are you required to use BMW FS for leasing if you do ED? Can you use someone like www.leasecompare.com? Is there a policy on this?
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Saving money on 24 month vs 36 month lease on ED