Do a search on the board for "price" and you'll see lots of information.

 

$500.00 under MSRP. CASH!! IMHO if you can't pay cash for a car(toy), you can't afford the car. Never, never, never finance a depreciating item such as a car. You will always lose in the end. Especially now with the stock market in the toilet as it is . In fact, an M5 is probably a better investment than most of the stocks/mutual funds out there.

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Parkerfe:

IMHO, your advice is pretty unrealistic and impracticable. In general, cars are not toys, they are a necessity. In the M5's case it is more of a necessity for an enthusiast than a mere toy (I know...I know..I am stretching it a bit). There are so many factors to consider about financing/leasing compared to buying a car out-right with cash. What if you could buy a car with cash but you would have to divest out of something providing an income return far greater than your finance costs. I know that in the current financial markets those investment vehicles are becoming far scarcer. What about tax implications of that afforementioned divesture? I think that your general statement, although well intended, could be construed as somewhat elitist. I am sure that wasn't your intention. Maybe, I responded to your advice because it sounds too much like my dad's.

Tom

[This message has been edited by Tom C (edited 24 February 2001).]

 

Parkerfe,

I think saying 'never' to financing a depreciating item such as a car, is a rather sweeping statement.

You cannot possibly know everybody's circumstances - if a company car, cashflow is just one thing that comes to mind when thinking about a business purchase such as this.

We'd all probably rather buy a car with cash than paying finance, but to be realistic, the majority of people would never realise their dream if this was the case.

Just my 2 pence worth.

Regards,

Mark

 

Originally posted by Tom C:
Parkerfe:

IMHO, your advice is pretty unrealistic and impracticable. In general, cars are not toys, they are a necessity. In the M5's case it is more of a necessity for an enthusiast than a mere toy (I know...I know..I am stretching it a bit). There are so many factors to consider about financing/leasing compared to buying a car out-right with cash. What if you could buy a car with cash but you would have to divest out of something providing an income return far greater than your finance costs. I know that in the current financial markets those investment vehicles are becoming far scarcer. What about tax implications of that afforementioned divesture? I think that your general statement, although well intended, could be construed as somewhat elitist. I am sure that wasn't your intention. Maybe, I responded to your advice because it sounds too much like my dad's.

Tom

[This message has been edited by Tom C (edited 24 February 2001).]

I agree completely here...it may sound elitist.

However, from a financial standpoint, parkerfe is right on. Whether you want the item or not, its in YOUR best interest to never finance a depreciating item--PERIOD.

Except in a situation where someone might want to build credit...

I paid cash for my beast too.

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'00 NBM Vette Convertible Pic #2
'00 ///M5 Titanium Silver/Caramel

 

i'm on the waitlist for one of these taters. you only go around once - carpe diem. it's a dream car, and something i can afford to lease, but not buy outright or finance. for those of us doing ok, but not swimming in cash, leasing is the only option to drive a car like this. i'll tell you what though - if any of the financial types on the board can figure a way to get the monthly payments down to a grand with no money down, then i'm all ears.

 

and you paid cash for your house too????
homes dont "allways" appreciate, especially considering you pay 3 times the price with finanancing. yea yea there's a tax break but not a 200% break!!!!!!!

 

Pay cash for the car, finance the house.

First, the interest rate for your home is well below that charged for a car.

Second, Uncle Sam helps tote the note for you so your effective/after tax cost of money - or "hurdle rate" for alternative uses for your cash is almost at the money market level.

No brainer - finance the house not the car.

 

Originally posted by randy:
and you paid cash for your house too????
homes dont "allways" appreciate, especially considering you pay 3 times the price with finanancing. yea yea there's a tax break but not a 200% break!!!!!!!

Great points below max...

I wanted to reiterate that its up to YOU to choose a house that appreciates. If your house doesn't appreciate "most likely" the purchaser didn't do a good enough job on researching prior. Obviously there are other factors involved that effect appreciation, but overall the choice is yours to minimize the chances of depreciation.

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'00 NBM Vette Convertible Pic #2
'00 ///M5 Titanium Silver/Caramel

 

Recognizing that different tax laws worldwide may impact just what should be financed/leased/bought outright...

...in the US, the tax laws do not, so far as I understand, favor purchase or leasing of expensive passenger cars for or through a business.

The situation was, when last I looked, different for higher-GVWR vehicles and if I were still running my consulting practice I might well have a Land Cruiser/LX470 around.

The tax laws do, however, tend to promote purchase of real estate, including financing thereof. Appreciation of real property values has tended to be pretty consistent long-term, not necessarily so consistent short-term (at least in California) - it has run in fits and starts, with the occasional downturn.

 

I guess I am being elitist to an extent. If more people could not afford to buy an M5, they would make less. If they made less, they would appreciate more. If they appreciated more, I would be better off when I decided to sell. Hence, I would be better off if more people out there could not realize their dream, so to speak, to own an M5. I don't mean that to be mean spirited, its just the reality of life.

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Originally posted by Parkerfe:
I guess I am being elitist to an extent. If more people could not afford to buy an M5, they would make less. If they made less, they would appreciate more. If they appreciated more, I would be better off when I decided to sell. Hence, I would be better off if more people out there could not realize their dream, so to speak, to own an M5. I don't mean that to be mean spirited, its just the reality of life.

P.S.: My daddy did teach me not to finance toys too !



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I don't know why some people are knocking leasing. The car is going to depreciate roughly $750 a month whether you buy or lease. The interest income loss on $75K is nearly $375 a month using a conservative low 6% return. Throw in the fact that you only have to pay sales taxes for roughly a 1/3 of the value of the car and that the bank is assuming the resale risk in 3 years, and leasing comes out as a push in my book. The buy decision for high priced/high residual cars only works significantly to your advantage if you intend to hold your car for a long time (>5 years). I'm guessing most of us are going to upgrade sooner than that. That's my 2 cents.

 

If you are exploring leasing or financing - currently, the T&C's for leasing the M5 is equivalent to the following financing rate:

Money Factor = 0.00390 = 9.36%
Repayment period = 76 months

If you can get a better terms from a bank, finance. If not, lease.


Note, I found great rates with my Credit Union.

'98 528i
'01 M5 LeMans/Lemans

 

I agree. While I still prefer to pay cash when I can, financing is still much better than leasing regardless on how long you plan to keep the car ! Even if the car ends up being worth more than the lease residual value, you have still wasted all those years of lease payments with nothing to show for it in the end. I just hope all of you out there adding all these aftermarket parts aren't leasing your M5 !

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Parkerfe:

I have to disagree with you again...there is a shocker!!!

I think that we would both agree (maybe) that if people could only buy M5's (or $75k+ cars for that matter)with cash, there would be less people lining up to purchase those cars. The supplier (BMW) would have to seriously consider even building the car. If BMW decided to build the car (in this scenario) they would have to factor in the amount of R&D costs, manufacturing costs and all other fixed costs. BMW would have to allocate these costs over fewer automobiles. Thus, if the fixed costs per M5 were a theoretical $10,000, if actual production decreased by half, the M5's price would increase by another $10,000.

This is precisely why Porsche might not make the Carrera GT car. They would need to produce over 800 of them a year at $350,000 for 3 years just to break even.

Tom

 

M5under, G'day mate!

Welcome to the board. Although I'm only an aussie by nickname, I love the Cairns area your near. Send me an email sometime and lets chat. MaranelloMan is on this site too, and just down the road from you...

Aussie2u@aol.com

 

NJW and JCO have good information. As a financial planner/CPA here is my take on lease vs. cash purchase vs. financing. If you cannot afford to pay cash and so must pay over time then you have to choose between financing and leasing. If you lease then your payments are lower because you do not build equity (and also do not pay sales tax except on the lease payment amounts). Leasing may be the only way that some may be able to afford the car. Leasing is also advantageous if your company is paying the tab - generally you can write off more of a lease expense than the depreciation allowed. But, remember you won't own the car at the end of the lease. This is good if you have beaten the car up or want a new one. One more point on leasing - it is costly to get out early. If you might want to trade up to a new car in, say, 2 years when you have a 3 year lease, you will likely have a pretty big loss to cover. There is also a problem returning a leased car with modifications, bad dings, worn tires, excess miles and the like.

If you finance a car the interest is not deductable unless you take out a second mortgage on your home or use a margin loan. Both of these options are dicey because it puts your house at risk (sort of) and margin interest is only (supposed to be) deductable if used to finance investments and then only up to the amount of your investment income (it gets technical - see your tax guy). Making the interest deductible is very important in bringing down the after tax cost of a beast, and there may be ways.

JCO is right - to convert the money factor of a lease to interest rate you multiply by 2400. If neither the lease nor the interest expense are deductable for you then it largely comes down to the cost of money.

If you think that the beast will hold its value then I think that the constraints of a lease may be a problem. A quick trade to another model or year would be more difficult than if you had a loan or paid cash.

Since lots of people have the ability to use any of the methods available, I have done calculations for clients on this issue many times. For a person with very good credit, assuming that the car is for personal use and that interest will not be deductable, it all comes out pretty much the same as to the cost of money. If BMW gives you 9.35% as a loan rate or as a lease rate there is not much difference if cash flow is not an issue. If cash flow is an issue, then you better lease. If you pay cash and save the 9.35%, well that is a pretty good return on your money (at lease given the market since March 2000, before that you wanted 25% per year, huh?)

One last thing: there is a BMW program to lower your lease money factor (interest rate). For each additional month's payment deposit, up to 8 or 9, they will lower the money factor by a little bit. The deposit is refundable at lease end. I have calculated in the past that if you have the money to put down it is advantageous to pay the maximum deposit. As I recall the rate could be lowered to about 4% this way. Even calculating the lost earnings on the deposits the deal was much sweeter. Be sure to look into this if you are leasing. And do the math! It pays.

 

Great input from RGCohen, but the issue that I believe people underestimate is resale. With a lease, you have no resale risk, the value is locked in and the bank assumes the risk. If you buy or finance, all the risk falls in your lap. I know from experience that it is very difficult for a private party vs. a dealer to sell a $50K used car. (how many buyers are comfortable paying that much to a private party for a used car?). The other option is to turn your car into a dealer after 3 years. Dealers generally low-ball trade in values using low-end wholesale blue book so they can make a healthy spread on resale. Residual values for leases are generally set somewhere between retail blue book and wholesale blue book. I have found that if you intend to upgrade your car every few years, you are much better off letting someone else assume the resale risk.

 

Originally posted by Tom C:
Parkerfe:

I have to disagree with you again...there is a shocker!!!

I think that we would both agree (maybe) that if people could only buy M5's (or $75k+ cars for that matter)with cash, there would be less people lining up to purchase those cars. The supplier (BMW) would have to seriously consider even building the car. If BMW decided to build the car (in this scenario) they would have to factor in the amount of R&D costs, manufacturing costs and all other fixed costs. BMW would have to allocate these costs over fewer automobiles. Thus, if the fixed costs per M5 were a theoretical $10,000, if actual production decreased by half, the M5's price would increase by another $10,000.

This is precisely why Porsche might not make the Carrera GT car. They would need to produce over 800 of them a year at $350,000 for 3 years just to break even.

Tom

I don't think that is the case. Ferrari seems to be able to sell its cars ranging from $150,000.00 to over $500,000.00 with very few customers financing or leasing. According to Ferrari North America, over 80% of its customers pay CASH. I think there are enough M5 customers out there willing to pay cash too. Sure it might cost a little more, but that's life in the fast lane.


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hey park,
not quite sure why you say paying cash is the only way to go. persoanlly i leased, good for the taxes, and i personally reap large returns on every dollar i have, so i like to keep my money and invest my money into my business, where my money sort of works for me. If i bought it in cash my money would not be working for me. i lease as oppose to buy most of the time because at teh end of my lease i guess i could just give the car back and dont have to worry about giving it to a dealer who is going to try to lowball me, here i financed just becuase i thought maybe i will mod the car, though not to much of a good idea for me, the lease would of been better. at teh end of the lease if i feel i can get more for the car, i just buy it then, and sell it. That is what i did with the 993. I kept the car for 2 years. When i realized when i wanted the M5 that the 993 would give me a greater return if i sold it then the lease payments i had ammortized on it, i just bought it from the bank, and sold it, hence i let them take the risk at first, and then when i had a buyer, i reaped the rewards off of it. only problem i had with that was i had the company paying for the lease, bought it from my company for a couple of beans, but now have to pay income tax on it.
well anyway, dont think it is really an elitist thought, but do find paying cash a bit dumb, unless you are elitist enough not to want to make your money work, and i do know the sorts

. i have a friend who looks down at leasing because he says he just likes to 'own' his vehicle, just a feeling he told me. i dont really understand that point of view.

o and the interest doesnt really bother me either. i mean what would i get charged for a 100k car in interest in 5 years, 200k? well i make far more on 59 payments i have then the interest i will pay, much more then a wash. actually when i come to think of it, if take the 59 payments i have and calculate the return on investment i get now, it would be like me getting the car for free in 5 to 6 months. hmm have to verify that but i am pretty sure that is the case, so i would be dumb to sink that into a car where the money depreciates. hmm am i thinking financially reasonable here guys?

fas

 

It just seems to me that if you pay cash for your car you will have more cash flow per month to invest, spend or whatever. I have leased cars in the past and have not been very pleased.I either wanted out of the car before the lease was over and ended up having to pay just to get out or I wanted to buy the car at the end but couldn't justify the residual that was built in to keep the lease payments low. If you add up your lease payments with the residual I'll bet you will end up paying over $100,000.00 for your M5. That's just too much to pay IMHO ! Also, the tax deduction is not as great of a benefit as most people think. You spend a dollar on interest to save 39 cents on taxes. What happened to the other 61 cents ? You pissed it away on interest that's what ! Sure you may be able to make more on your investment that you lose on interest. But you may not too. And , cash flow may get tight but you'll still owe a monthy payment. I've just always done better by paying cash for my cars and freeing up my monthly cash flow for other things. It's worked so far for me. But I usually keep my cars at least 5 years too unlike most people today. Whatever floats your boat...go for it !

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