Do any of you forumites lease a car? I figured you would be better off using the money towards the costs of an IP and have a appreciating assett, than ending up with a depreciating assett after 5-10 years.
Is any body buying a car under a lease arrangenent, and if so, what qualifies you to do so? What are the pros and cons, if any?
Regards
Wayne
“What is the lap record, and which way do i go?”
Just drive an old bomb, and keep your cashflow clean and borrowing capacity clean.
Terryw
Discover Home Loans
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Send an email to get my newsletter.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Originally posted by Terryw:Just drive an old bomb, and keep your cashflow clean and borrowing capacity clean.
Terryw
Discover Home Loans
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Send an email to get my newsletter.Thats what I do …
Simon Macks
Residential and Commercial Finance Broker
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0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
“I figured you would be better off using the money towards the costs of an IP and have a appreciating assett, than ending up with a depreciating assett after 5-10 years. “
You are right wayne!
I did my research on car lease option a couple of months ago and my findings were:
1. You only lease a car if your income is quite high and you are buying a very expensive car
2. In a lease arrangement the leasing company takes care of all the costs of servicing and maintaining the car but as the car is leased you would have to get it serviced and maintained by authorised dealers only. You cannot get it serviced by a good mechanic (if you know one). So why pay one grand servicing cost when i can get it serviced by someone who is really good, trust worthy and costs me only 200 bucks.
3. Even after paying the lease for a couple of years i still would have to pay 30% of the value at the end of my lease term to own the car, however had i gone to a bank and financed it, the amount of money i would have paid for 5 years would finich my car loanI wouldnt go for a lease option unless i really wanna buy an expensive car, and why buy an expensive car? why not use my money investing in property.
Hope this helps.
Talk about ‘delayed gratification’. Each to their own of course, but to have a car that is comfortable, reliable and you could jump into and drive anywhere tomorrow is essential for most people, especially business people. Personal too. You can buy a reasonable car for 15 grand only a couple of years old. Does not mean you have to buy a new one. Obviously circumstances dictate what is best for each person, but in australia now, there is officially (I kid you not) a condition called ‘deferred happiness syndrome’ . Food for thought. [strum]
Well v8ghia, i note what you say and i am not advising not to buy a car.. The cars available under lease arrangements are mostly brand new cars and my arguement was around them, not around used cars.
Last week I sat thru an information session on salary sacrificing.
it doesnt matter how much you earn or what car you buy. also, you can lease your own current, paid for car.
basically I am trying to figure out if its worth it. i paid 15 grand for my new car 3 years ago, market value is 8 grand now. If I take a novated lease on it, I baasically sell it to the leasing company and get a cheque for 8 grand. the residual is set around 2 grand, so I pay 6 grand over three years, but from PRE-tax dollars (its basically a tax deduction, i’d be negatively gearing my own current car). I would then take that 8 grand and pay off one of my credit cards (and close the account) and pay off half my other credit card (and reduce the limit). The money saved on interest payments and minimum payments on the credit cards would cover the car lease payments, and the lease payments would include servicing, tyres, petrol ,all the running costs.
my borrowing capacity would then go UP because i just blew away 8 grand in credit card debt, i could then redirect all my extra money into wiping out my other credit card (further reducing the limit so i would then use it for living expenses and keep a zero balance each payday).
I am consulting a tax accountant/financial advisor as soon as I get the quote from the lease company.
if, at the end of the month, i end up with more “disposable” income, then I will seriously consider doing it, so i can then pay off my personal debts and a chunk of my home loan, then use the equity and my now massive (well ok, increased) borrowing capacity to get into my first IP.
Anyone else inspired by the webinars about developing? having had a bit of a hand in the building of my own residence last year, I almost feel I could tackle a small residential development. using TOC finance Im sure i could get thru it with no money down. as I said to Steve this afternoon (via email) there are vacant blocks in the estate where I live now, and the area has experienced at least 10% increase in prices since I bought.
Anyway that was a bit off topic, I appologise.
Now for those of you who cry “FBT”, the leasing company does all the calulations, and you pay a portion of the lease payments with after tax dollars, which wipes out your FBT liability. and all is well.
The other benefit of salary sacrificing is the chance to get a laptop for 1/3 to 1/2 off, by paying for it in pretax dollars. I work in the IT industry to start with, and Im going to want to take my laptop with me to do deal comparisons etc. my current laptop is old and the battery lasts about 10 minutes before it dies. by paying for it from pre tax income it just may benefit me to upgrade now, then its another three years before i need (or want) a new laptop and/or car.
hopefully in three years my IP income would cover the payments on a replacement car anyway (and in 10 years, my IP income will cover the cost of buying a Porsche, hopefully for cash
cheers
Russ
Originally posted by Terryw:Just drive an old bomb, and keep your cashflow clean and borrowing capacity clean
This is what most successful investors I’ve met seem to do.
Any car is a liability – costs you money.
The less you pay out for one the better. The rest is is just “stuff” and will interfere with your ability to create more wealth.
Leasing a car can be a tax deduction, but you still need to come up with the monthly payments first. And, the tax deduction is still on a depreciating liability – it’s worthless in 10 years.
I would rather take my tax deduction on an appreciating asset (house) that will be worth double in 10 years.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I understand the depreciating asset thing, my thought process ficuses on reducing my personal debt. the car will be worth 2 grand in three years if I do nothing and keep driving it around. I have already paid 15 grand plus interest for the car.
as i said, if my cashflow increases, and my personal liability falls, that has to be a step in teh right direction? after three years, i will pay the 2 grand residual and drive the car around till I can afford cash for a new car/yacht/jetski (you know, to take the family out in/on/with in all my spare time because i would be financially free, lol
Originally posted by Mortgage Hunter:Originally posted by Terryw:Just drive an old bomb, and keep your cashflow clean and borrowing capacity clean.
Terryw
Discover Home Loans
[email protected]
Send an email to get my newsletter.Thats what I do …
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Some times it is hard to resist the urge to have a nice car, but when you think of how much property you would need to own to cover the monthly lease it helps.
Terryw
Discover Home Loans
[email protected]
Send an email to get my newsletter.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Guys
A lot of very interesting views!! We have been a 1 car family over the last ten years, driving a reasonable bomb, and have only just recently bought 2 new cars within the last 12 months. I suppose i should have asked this question before the horse had actually bolted!! It is only since my introduction to this forum in the last few months, that i was sure there would be different views on buying a new vehicle.
When we bought the cars, we wanted to reap some of the rewards from our efforts, as we have always tried to keep a balance between lifestyle and investing.
I appreciate everybodies view on the issue, also russ, would be keen to hear how the leasing option pans out for your situation, if you dont mind sharing with forum.
ps: I still have got my old bomb, have been far too slack and have not yet sold it.
Regards
Wayne
“What is the lap record, and which way do i go?”
The views expressed thus far seem to cover the spectrum, except to add that perhaps some new cars are really a very good option in certain circumstances: eg, In the range of $17500 to $28000 (which will cover 1.6 litre Hyundai to 4 litre Falcon/Commodore, all ex gst) , should you have self employment status and significant taxation bracket, you can benefit from the tax angle, while also driving in a highly reliable, fully warranted, (including full roadside assist), up-to-the-minute safety specced vehicle, complete with new everything including tyres and rego…..all adding up to very low operating costs save for the depreciation aspect. Often the costs of owing a much older car are severly underestimated (including the safety issues in relation to airbags, ABS etc.) My experience is that a used vehicle ex govt auctions at about 40km, three years old, ex health department is the soundest strategy. The first driver is usually a person of mature attitude (read “careful operator” ), servicing will usually have been done religiously as required, the “on-road” costs and the GST have to a large extent been forfeited by the first owner and the purchase will be keenly priced to wholesale market values. What could be better? At the end of the day, do you want a vehicle to be reliable, safe, economical and able to blend in……….leading to a good long period of trouble free ownership, thereby saving alot of time (money) messing about with repairs, more frequent hassles with changeovers, late and missed appointments, embarrassing breakdowns etc, etc.
Each one must do their own assessment for their own respective situation…one size certainly wont fit all.
warm regards
wilrose[thumbsupanim]
If you are doing heaps of kids sports stuff or carting about reno tools/materials, then certainly a “knockabout” is the go.
The views expressed thus far seem to cover the spectrum, except to add that perhaps some new cars are really a very good option in certain circumstances: eg, In the range of $17500 to $28000 (which will cover 1.6 litre Hyundai to 4 litre Falcon/Commodore, all ex gst) , should you have self employment status and significant taxation bracket, you can benefit from the tax angle,Wilrose, why do these type of vehicles represent a good option? Can anyone lease a car, or do you need to be a business or have an ABN?
Do you personally lease a car?
Regards
Wayne
“What is the lap record, and which way do i go?”
Originally posted by wilrose:The views expressed thus far seem to cover the spectrum, except to add that perhaps some new cars are really a very good option in certain circumstances: eg, In the range of $17500 to $28000 (which will cover 1.6 litre Hyundai to 4 litre Falcon/Commodore, all ex gst) , should you have self employment status and significant taxation bracket, you can benefit from the tax angle, while also driving in a highly reliable, fully warranted, (including full roadside assist), up-to-the-minute safety specced vehicle, complete with new everything including tyres and rego…..all adding up to very low operating costs save for the depreciation aspect. Often the costs of owing a much older car are severly underestimated (including the safety issues in relation to airbags, ABS etc.) My experience is that a used vehicle ex govt auctions at about 40km, three years old, ex health department is the soundest strategy. The first driver is usually a person of mature attitude (read “careful operator” ), servicing will usually have been done religiously as required, the “on-road” costs and the GST have to a large extent been forfeited by the first owner and the purchase will be keenly priced to wholesale market values. What could be better? At the end of the day, do you want a vehicle to be reliable, safe, economical and able to blend in……….leading to a good long period of trouble free ownership, thereby saving alot of time (money) messing about with repairs, more frequent hassles with changeovers, late and missed appointments, embarrassing breakdowns etc, etc.
Each one must do their own assessment for their own respective situation…one size certainly wont fit all.
warm regards
wilrose[thumbsupanim]
If you are doing heaps of kids sports stuff or carting about reno tools/materials, then certainly a “knockabout” is the go.
I agree with the above about the ex-govt cars etc. If you must lease, then this is probably the best value, but still a significant (and unnecessary and wasteful) business expense.
Buying any new car is a bad idea. As soon as you drive it off the lot you have done around 20% of it’s value. If you don’t believe me, try taking it back to the same dealer the next day and getting either a trade-in or cash for the vehicle.
It is far more (but still not very) financially intelligent to buy a 2 year old version of the same thing. It still has the new car warranty, and the way they make cars these days it will last for at least 200,000 km’s if treated well (or if treated like crap in my case).
I don’t believe that buying something older (5-10 yrs) costs more money in maintenance because of the way cars are made now. Even the el cheapo’s are very reliable and run forever. I should know – it’s all I drive.
Leasing does not give you any tax benefit; it is a false economy – all it allows you to do is spend money on a car you normally wouldn’t be able to afford.
As I said in my previous post; you are still required to find the money for the lease repayment every month. It may be a ‘tool of business’ but is a cost you should absolutely minimise as it affects the cashflow of the business on a monthly basis.
The biggest cause of bankruptcy of businesses is lack of cashflow.
The problem is many people use the leasing perk to justify driving around in a fantastic (and expensive) car. Bottom line; you are hurting your own pocket in the long run.
Read “The Millionaire Next Door” to see what the average percentage of nett worth the millionaires spend on cars. A lot less than the average middle-class wage earner.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I have leased a car about 6 years ago through my employer and I personally wouldn’t do it again..
Since the top marginal tax rate back then was $50,000 it made a lot of sense.. But now the top tax rate kicks in at $150,000 and has been reduced to 45%.. You have to do your numbers and even with after tax contributions for FBT it may be marginal if worthwhile at all..
Check with your employer if you can get a fleet discount on new vehicles (They may have negoitiated this). Also ask if your employer will pass GST credits on to you.. This makes a big difference as you effectively don’t pay GST on the purchase price of a new car, the lease payments, petrol, maintenance etc..
Above all remember that just because you receive some tax benefit doesn’t necessarily mean it makes smart investment sense.. Many of my colleagues went and purchased $50k cars just because they could get big deductions.. But a few years later when they look at the depreciation that they have suffered they are bleeding..
My tip if you choose to go this path is choose a vehicle type NOT used by fleet companies (Government and rental companies).. Commodores and Falcons are worth dirt in 5 years.. Look at something like a Subaru or Mazda which generally will sell for a higher percentage of the purchase price even after a few years..
Be aware that the leasing company will build in adminisitration fees etc and the rate they charge for included petrol and tyres may not be competitive.. Negotiate the interest rate too!
Personally I chose a non-maintained lease, which doesn’t include any maintenace costs, fuel etc.. My company allows me to deduct them seperately from my pay (pre-tax) and this means I can shop around to get the best price..
Having said all that it is probably better than getting finance on a new car.. Especially if you travel more than 25,000 km each year as the FBT rate drops to 11%.. If you do less than 25,000 km per year (500km per week) then forget it – the FBT will kill you at 20%..
Hope that helps,
GregMust have been typing as you posted LA Aussie..
I agree totally it is a false economy.. You have to think about why the government (Tax Office) allowed normal employees to claim vehicles as tax deductions back in 1996 (I think)..
It has boosted the GDP (making people spend more) and boosted the car industry.. Plus people feel richer..
As I drive around now I notice how many people drive new or near new cars these days.. Take a drive in the outer suburbs which are full of first home buyers and you’ll see what I mean.. There has been a shift to consumerism in the world of cars over the last decade or so..
Greg
Great to hear (sorry, read) all the comments.
We leased a Holden Commodore for one year through my husbands work (Secondary teacher) in 2003.
His old car broke and we couldn’t afford a lump sum at that time to buy him another. The lease was only about $110 a fortnight before tax (about $80 after tax if I remember correctly) and the price included registration, insurance, services and roadside assist, but not fuel.
It was great (but it broke down, because that model had a problem with the radiator and I got stuck up in the middle of nowhere with a car that would start and water pouring out of the motor! They fixed it for free, as it was under warranty, etc… but it was still a damn nuisance!).
As I was saying, it was great to have a nice new car, but we almost did too many klm’s on it and we certainly couldn’t have afforded to buy it out at the end of the year. We did have to pay an extra $800 at the end of the year because of some minor scratches etc…
All in all, it worked for us because we were able to save a few thousand to spend on a bomb for my husband.
We always have driven 15-20 year old bombs which have cost us money in repairs, so I can see both sides of the “cost” equation. More recently we have ‘up-graded’ to 8-10 year old cars (always bought with cash, NO CAR LOANS) and they have been much better with fuel economy and repairs/general running.
The moral: Investigate options, and make a decision that makes financial sense for your circumstances (though not all of my decisions have made sense…I admit it!)
Kelly
Hi Wayne,
By the amount of traffic on this subject, it clearly causes a considerable level of discussion and deliberation both off and on line. No, I do not lease vehicles. Business opportunities allow for a significant percentage of the depreciation, interest, (including opportunity costs), running expenses etc to be factored into the mix when evaluating our options. I agree that the “showroom floor purchase” option is expensive (as indeed is the lease option because all of these expenses are fully factored into the lease), primarily because the “on-road” and GST component are an integral part of the immediate losses to incur. If you’re not self employed and in a higher tax bracket, or do not have a serious use for a vehicle of a particluar configuration or price, then I would shy well away from any expense you can, save for the minimum you can settle for, taking into account family needs (not wants). Do not be pressured from any quarter to buy above your medium term needs, but also do not be so mean as to expose yourself excessively to the rapacious excesses of the auto repair, maintenance and service industry. Once again, my thinking is to buy as per my first post. The vehicle’s history will be fully documented, (allowing you to check in confidence), and the style of the drivers will have been (most likely) careful. You will buy at wholesale, with the greatest chunk of depreciation having been wiped from it’s value, and at all times not be having to put up with the BS of the car sales people. I am reminded at this point of an excellent experience we had with a near new car that was ex Hertz rental. If you do this don’t buy a little one as they will have probably sufferred from hard driving.
Sorry to have taken up so much space…hope this helps. Whatever you do, avoid buying anything for the tax reasons….that should always be secondary consideration at most.
warm regards
Wilrose[thumbsupanim]
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