Is it better to lease or purchase my car?
Ellis HammondPro Member
Investor · Leawood, KS · Member since 2017 · 178 posts · 108 votesIs it better to lease or purchase my car?
Most Popular Reply
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8yAlmost always the best decision is to buy a used car that’s 3-6 years old.
It depends what’s important to you. Investing, financial freedom etc or having nice stuff. It’s rare that you can have it all. I know people who are worth millions and they drive at best used cars or a used car that’s newer (think 3-5 years old).
I don’t know anyone who’s a millionaire who drives a Mercedes. Typically people who drive that type of car are high earners who have low net worths.
3 percent of luxury car owners in the US are millionaires. The biggest factor keeping Americans from building wealth is a car payment. There’s no equity in it.
End of my rant
127 Replies
@Ellis Hammond 100% here they are all over
- All Over, USA · Member since 2017 · 689 posts · 756 votes8y
Originally posted by @Caleb Heimsoth:
@Ellis Hammond I’m not saying you can’t have both I’m just saying if multiple people I know who are easily worth 5-10M each don’t drive fancy cars (one drives a car with 180k miles that’s 10 years old) I think that says something.
When I buy a “new” 20-30k car I’ll be over halfway to a million but that’s just my personal choice
This is everything that is ridiculous about BP. What is the point of being worth $5 - 10 million if you’re driving a POS your entire life? Never makes sense to me.
I live/grew up in a HCOL, every single millionaire I know, and am related to, has at least one luxury vehicle, many have Mercedes.
Cobtrary to BP popular belief, even Mercedes, BMW, etc get old, and can be bought for $5-20k in great condition. Not that special really.
I drive a 10 yr old BMW and my wife a 12 yr old BMW.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8y
@Aaron Hunt well In the case I was mentioning it’s just not they’re style. Everyone is different
- Rental Property Investor · Lansing, MI · Member since 2017 · 48 posts · 22 votes8y
@Aaron Hunt what do you spend a year in maintenance on those old dogs....?
- Wholesaler · Charlotte, NC · Member since 2016 · 6 posts · 5 votes8yAll of this depends on what the you can buy with the cash that you would be spending on the car and how that impacts your future investments. I work in the car industry and have for about 10 years. The advantages to leasing are that there is an over inflated residual, which means you pay less for the car than what it’s worth for the time you are paying it. You will have a payment forever. You can have a more expensive car for less money monthly than a traditional finance option. Don’t finance a car for 10 years. If you’re purchasing the vehicle, try to pay as few months as you can afford. Cars will last a long time. Get a car you like and keep it. My 2 cents.
Originally posted by @Aaron Hunt:
This is everything that is ridiculous about BP. What is the point of being worth $5 - 10 million if you’re driving a POS your entire life? Never makes sense to me.
What's a POS to you? My 15 yr old Infiniti has 150k miles, still purrs like a kitten (I like to make it purr a lot), and looks great (a cop that pulled me over for making it purr said so).
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes8y
Originally posted by @Ellis Hammond:
@Matt K. @Joe Splitrock @Caleb Heimsoth @Twana Rasoul what if we weren’t talking luxury cars?
VW instead of BMW for example.
I realize luxury leasing is still a big expense but trying to see what makes sense for the avg American or maybe the average investor here on BP.
Seems like summary so far is buy used. Are you still financing that purchase? Depreciating it to close to zero?
What makes financial sense for the average American - you know, the guy (and girl) that can't cover a $1,000 emergency without trying to find someone to borrow money from - is to own no car at all. I realize that's difficult or impractical for many people, so the next best option would be to own the most economical, least expensive vehicle you can own that meets your transportation needs. Economical means cost to buy it, cost to operate it, and cost to maintain & repair it. So a $1,000 beater with 350k miles might not be the most economical purchase you can make. Maybe if you are by yourself, a scooter makes the most sense. For *most* Americans, a small 4 cylinder economy car of good mechanical quality makes the most financial sense. That might be a Kia Soul or Forte, a Honda Fit, a Toyota Corolla, etc. Now extrapolate that to $16-20k for a new one of those or maybe $10k for one that has 30k miles. If both of the cars can be expected to make it to 200k miles without any catastrophic repairs - and that's reasonable these days - then new Economy car #1 at $20k cost 10 cents per mile to purchase (I'm leaving out maintenance/repair/operation) and used Economy car #2 at $10k cost 5.9 cents per mile to own ($10,000/170,000 miles).
If you run these calculations, you can pretty quickly figure out what's economical to own and operate. I have had a fairly long commute (45 minutes) for years, and my benchmark was always to try to keep my car ownership costs for my commuter to less than 3 cents per mile. That sounds absurd on the surface but I've exceeded it several times and made money once on a commuter that I paid $1300 for, drove 60k miles and sold for $2500. Those are unique situations - cars are money losers - but my previous commuter to that I spent 1.25 cents per mile to own it over 80k miles. My current commuter I am at 11.7 cents per mile - can you guess why? Yup, I bought it new. Still an econocar - a Kia Soul stick shift that I paid less than $13k for brand new (14k with tax) - but I'm at 120k miles on it so there I am. BUT, if I sold it tomorrow, I could get $5k for it easy, probably $6-7 if I worked it. So if I got $5k, then my cost of ownership would be 7.5 cents per mile. Still not as good as my previous commuters, but I'm getting older and working on my own cars has gotten harder so I trade a little money for a little comfort.
Anyway, the point of all this is never fool yourself that leasing or buying new is a good financial decision. Good compared to maybe just burning the money in the front yard, but financially speaking you are spending money the same way you're spending it going on vacation or playing golf. At the end you have nothing for your expenditure. So from a pure financial point of view, you should spend as little as possible to get as much as possible. You just have to balance that with your needs, wants, abilities, etc. If you drive through a 30 mile desert every day, and can't check your oil by yourself, you probably shouldn't get a 200k mile beater. If your commute is 1 mile each way and you can rebuild an engine, you probably don't need a $30k car with a 100k mile bumper to bumper warranty.
Skyline Properties - Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes8y
Originally posted by @Steve Vaughan:
Be mindful of who you listen to. If my family and I (parents and siblings) were discussing whether to buy or lease a new car, they would buy. A new car. I'd be flopping on the floor, foaming at the mouth humming lalala with my hands over my ears. Why?
They only gat 1 house. They rely on social insecurity and small govt pensions. They took massive depreciation hits to a gasping balance sheet over and over and it shows. I may drive an $1800 minivan with 105k miles on it, but I have dozens of mostly paid for rentals.
True story- I bought a house for $90k cash 3 weeks ago. While we were working on the deck, a young dude with a new Tesla X came over and Easter egged it for is (where it dances to the beat and the doors fly like a bird). We paid about the same for our purchases, his car and my house. I told him he could have both, but alas, he did it backwards. The house will net $650/mo cf. Buy the house first, then use the cf for the payment if you have to have it I said. He looked at me cross-eyed and drove off.
Family and friends are usually horrible financial advisors. I'd wait to buy nice cars until after you've built a portfolio. I have a nice car, but I bought with cash from a broke college kid in over his head. He took a $18k value loss over 3 years. Like he could afford that! Don't buy new until your worth a mil and can take the depreciation hit IMO.
Shhh! Don't encourage people to be *too* financially smart - where will we get all our deals from? :D
I say that in jest, but in reality I never lose sight of the fact that the way most people live allows me to live the way I live. If everyone drove cheap beaters and put all their money into investments none of us could do it. So I give thanks for the guys with maxed out credit and new car payments, because they're not going to be competing with me to buy rental property any time soon, and they're going to have to find somewhere to rent because no one will give them a mortgage - and I have just the place! ;)
Skyline Properties - Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes8y
Originally posted by @Marcus Johnson:
It’s real simple. People make payments the majority of the time because they cannot afford what they are buying. Most investors on this website cannot afford to buy real estate with cash do they borrow the money for something they cannot afford and hope to make a profit. Leading our financing a car is the same. Drive something you can afford to pay cash with. As for paying cash for RE that is very difficult and most of us here will never be able to do.
I agree with the first part of what you said here, but leasing or financing a car is not the same as financing real estate. Real estate is an asset, a car is a liability. Its value as an asset declines every year, whereas (most) real estate increases annually. Cars cost money to operate, real estate (done right) brings in money when operated.
I do agree that most people here are never going to buy RE for cash, and I would probably say that based on our current markets, interest rates, and economic system that buying RE for cash isn't necessary in order to turn a profit. In fact some people here have made an entire BP career out of the claim that buying a house for cash is losing money (ahem Greg or Thomas S); I wouldn't say that but you can look at the numbers and see that a property well-bought and financed has an infinite cash on cash return (in exchange for the risk of owning the responsibility of the mortgage). There's virtually no parallel with buying a car - maybe when driverless cars come around, and someone buys a bunch of them and uses them as driverless taxis that people rent - that would be similar.
Skyline Properties - Accountant · Fort Lauderdale, FL · Member since 2018 · 37 posts · 18 votes8y
Unfortunately, comparing the costs of leasing and buying isn’t as simple as it looks. To do it right, you must consider not just out-of-pocket costs but also cash available, the tax benefits of each option, and the time value of money.
- Investor · FL · Member since 2016 · 332 posts · 388 votes8yI buy from government auctions (govt used not seizure) at wholesale, drive it for 2-3 years, sale it for what I paid then rinse and repeat. I don't care what I drive and I don't care what people think of what I drive. I do own 7 properties free and clear and financed 3 others as of today. When I retire at age 46 I will still buy at auction. As for a tax write off it doesn't make true economic sense...so pay $250 a month to save $50 a month in taxes? My last 4x4 SUV with 29k miles on it cost $3.4k at auction. Now it was 14 yrs old, but who cares? Just my 2 cents.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes8y
LOL I hear you. I'll get a call for a LL credit reference from a financer of furniture or cars and think 'that renter ain't goin' nowhere'. #tenant for life
My sister and bro-in-law just moved back west after living in VA for 20 yrs. I stopped to see them and saw their car for the 1st time. A Lexus SUV. He showed it to me with pride and went on to say how they are getting a 2nd one and a pick-up and hope to buy a huge and expensive, updated primary in the $6-700k range in Msla, MT. All I could do is nod and smile. I wanted to ask, "For 1 unit?!" and flop on the floor (again). We are often on different financial planes than family...
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes8y
Originally posted by @JD Martin:
Originally posted by @Steve Vaughan:
Be mindful of who you listen to. If my family and I (parents and siblings) were discussing whether to buy or lease a new car, they would buy. A new car. I'd be flopping on the floor, foaming at the mouth humming lalala with my hands over my ears. Why?
They only gat 1 house. They rely on social insecurity and small govt pensions. They took massive depreciation hits to a gasping balance sheet over and over and it shows. I may drive an $1800 minivan with 105k miles on it, but I have dozens of mostly paid for rentals.
True story- I bought a house for $90k cash 3 weeks ago. While we were working on the deck, a young dude with a new Tesla X came over and Easter egged it for is (where it dances to the beat and the doors fly like a bird). We paid about the same for our purchases, his car and my house. I told him he could have both, but alas, he did it backwards. The house will net $650/mo cf. Buy the house first, then use the cf for the payment if you have to have it I said. He looked at me cross-eyed and drove off.
Family and friends are usually horrible financial advisors. I'd wait to buy nice cars until after you've built a portfolio. I have a nice car, but I bought with cash from a broke college kid in over his head. He took a $18k value loss over 3 years. Like he could afford that! Don't buy new until your worth a mil and can take the depreciation hit IMO.
Shhh! Don't encourage people to be *too* financially smart - where will we get all our deals from? :D
I say that in jest, but in reality I never lose sight of the fact that the way most people live allows me to live the way I live. If everyone drove cheap beaters and put all their money into investments none of us could do it. So I give thanks for the guys with maxed out credit and new car payments, because they're not going to be competing with me to buy rental property any time soon, and they're going to have to find somewhere to rent because no one will give them a mortgage - and I have just the place! ;)
I was thinking the same thing. Let all these people lease cars and burn their money, that is just more renters in the renter pool. But ultimately people will make bad decisions no matter how many people warn them. Like Steve said, it is all about the payment to most people.
- Miami, FL · Member since 2018 · 1 post · 1 vote8y
Get the car at the auction and get it fix at the dealership of its brand, you will not have to make monthly payment.
- Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes8y
@jdmartin
Sorry, I’ll try to make it more clear so that you can understand my point. Most of us on this site buy/lease cars we cannot afford because we make payments. Same is true for RE. Most of us on this site don’t have enough money to buy RE with cash so we have to borrow money Most of us cannot be like David Ramsey or Clark Howard who pay cash for RE and are multi millionaires. The rest of us have to leverage and hope that things work out through calculations and math. Personally I’d prefer to do it Dave’s way, but since I don’t make his income it would take me forever to pay with cash. So when you say paying cash is a terrible idea, my guess is your net worth is no where near Dave Ramsey’s.
Originally posted by @JD Martin:
Originally posted by @Ellis Hammond:
@Matt K. @Joe Splitrock @Caleb Heimsoth @Twana Rasoul what if we weren’t talking luxury cars?
VW instead of BMW for example.
I realize luxury leasing is still a big expense but trying to see what makes sense for the avg American or maybe the average investor here on BP.
Seems like summary so far is buy used. Are you still financing that purchase? Depreciating it to close to zero?
What makes financial sense for the average American - you know, the guy (and girl) that can't cover a $1,000 emergency without trying to find someone to borrow money from - is to own no car at all. I realize that's difficult or impractical for many people, so the next best option would be to own the most economical, least expensive vehicle you can own that meets your transportation needs. Economical means cost to buy it, cost to operate it, and cost to maintain & repair it. So a $1,000 beater with 350k miles might not be the most economical purchase you can make. Maybe if you are by yourself, a scooter makes the most sense. For *most* Americans, a small 4 cylinder economy car of good mechanical quality makes the most financial sense. That might be a Kia Soul or Forte, a Honda Fit, a Toyota Corolla, etc. Now extrapolate that to $16-20k for a new one of those or maybe $10k for one that has 30k miles. If both of the cars can be expected to make it to 200k miles without any catastrophic repairs - and that's reasonable these days - then new Economy car #1 at $20k cost 10 cents per mile to purchase (I'm leaving out maintenance/repair/operation) and used Economy car #2 at $10k cost 5.9 cents per mile to own ($10,000/170,000 miles).
If you run these calculations, you can pretty quickly figure out what's economical to own and operate. I have had a fairly long commute (45 minutes) for years, and my benchmark was always to try to keep my car ownership costs for my commuter to less than 3 cents per mile. That sounds absurd on the surface but I've exceeded it several times and made money once on a commuter that I paid $1300 for, drove 60k miles and sold for $2500. Those are unique situations - cars are money losers - but my previous commuter to that I spent 1.25 cents per mile to own it over 80k miles. My current commuter I am at 11.7 cents per mile - can you guess why? Yup, I bought it new. Still an econocar - a Kia Soul stick shift that I paid less than $13k for brand new (14k with tax) - but I'm at 120k miles on it so there I am. BUT, if I sold it tomorrow, I could get $5k for it easy, probably $6-7 if I worked it. So if I got $5k, then my cost of ownership would be 7.5 cents per mile. Still not as good as my previous commuters, but I'm getting older and working on my own cars has gotten harder so I trade a little money for a little comfort.
Anyway, the point of all this is never fool yourself that leasing or buying new is a good financial decision. Good compared to maybe just burning the money in the front yard, but financially speaking you are spending money the same way you're spending it going on vacation or playing golf. At the end you have nothing for your expenditure. So from a pure financial point of view, you should spend as little as possible to get as much as possible. You just have to balance that with your needs, wants, abilities, etc. If you drive through a 30 mile desert every day, and can't check your oil by yourself, you probably shouldn't get a 200k mile beater. If your commute is 1 mile each way and you can rebuild an engine, you probably don't need a $30k car with a 100k mile bumper to bumper warranty.
You make a lot of sense. I'm just sayin'
Originally posted by @Marcus Johnson:
@jdmartin
Sorry, I’ll try to make it more clear so that you can understand my point. Most of us on this site buy/lease cars we cannot afford because we make payments. Same is true for RE. Most of us on this site don’t have enough money to buy RE with cash so we have to borrow money Most of us cannot be like David Ramsey or Clark Howard who pay cash for RE and are multi millionaires. The rest of us have to leverage and hope that things work out through calculations and math. Personally I’d prefer to do it Dave’s way, but since I don’t make his income it would take me forever to pay with cash. So when you say paying cash is a terrible idea, my guess is your net worth is no where near Dave Ramsey’s.
If someone has a difficult time affording buying a Real Estate Investment property, yet they are paying for a car loan/lease, then it seems to me the first step to making the Real Estate Investment more affordable is to eliminate the car loan/lease. Simple math. I did it. Now I own a few rental houses outright, and I'm in contract to buy another, and will likely purchase yet another in a couple of months -- I am a partner in a group that owns two strip malls and other properties. Yet I drive a 10-year-old car and a 14-year-old minivan.
Maybe I would be smarter if I drove a 2015 BMW and a 2017 Lexus SUV, but I owned no investment properties? Some people have a high enough income that they can afford luxury vehicles AND buy investment real estate. That's fantastic for them. Unfortunately, I don't. So I give up the idea of luxury vehicles and put my money to work to make more money for me.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes8y
Originally posted by @Marcus Johnson:
@jdmartin
Sorry, I’ll try to make it more clear so that you can understand my point. Most of us on this site buy/lease cars we cannot afford because we make payments. Same is true for RE. Most of us on this site don’t have enough money to buy RE with cash so we have to borrow money Most of us cannot be like David Ramsey or Clark Howard who pay cash for RE and are multi millionaires. The rest of us have to leverage and hope that things work out through calculations and math. Personally I’d prefer to do it Dave’s way, but since I don’t make his income it would take me forever to pay with cash. So when you say paying cash is a terrible idea, my guess is your net worth is no where near Dave Ramsey’s.
Wow. Where did I say paying cash is a terrible idea? Please highlight and repost, because I'm guessing you are referring to someone else. I own a bunch of houses outright, so that wouldn't make sense for me to say that. What I did say was that financing a house and financing a car do not produce the same result.
Also, you said "Most of us on this site buy/lease cars we can't afford because we make payments." What you should say is "Most buy/lease cars they can't afford SO they make payments."
As for having Dave Ramsey's net worth, I fail to see how that means anything to this conversation. I don't have Grant Cardone's net worth either and he doesn't pay cash for any real estate. Regardless, I'm pretty well off and I can afford to pay cash or make payments on cars or houses, if that makes you feel any better :)
Skyline Properties - Real Estate Agent · Cleveland, OH · Member since 2017 · 184 posts · 253 votes8y
Listen to Joshua Sheets on the Radical Personal Finance podcast! He has covered this topic in depth and the short answer is it depends on your situation and the type of vehicle you are purchasing/leasing. Good luck
- All Over, USA · Member since 2017 · 689 posts · 756 votes8y
Originally posted by @Alex Corrion:
@Aaron Hunt what do you spend a year in maintenance on those old dogs....?
A bit, haha, but I do the work myself. My M3 eats tires - which is the most expensive part of maintenance. The X3 not so much.
- I think it’s funny that some people are trying to financially justify leasing a car. Obviously it’s almost always a poor financial decision. It’s better just to say your willing to pay more to drive a late model car, and leave it at that.
- Lender · Tacoma, WA · Member since 2018 · 20 posts · 8 votes8yHere is how I think... and I’ll be honest it is a little sad. Every dollar I set aside is worth 10-7 cents a year for the rest of my life. But a 3 year+ car with under 75k miles for 10k or under and drive it into the ground. As Dave Ramsey says “If you want to live like no one else you have to live like no one else.”
- Rental Property Investor · Member since 2018 · 483 posts · 956 votes8y
@Jonathan Woelfle
Dave Ramsey also says all your cars, motorcycles, jet skis etc. Should not be more than 50% your annual income.
I guess I'm actually pretty conservative on vehicle spending. $170k on 3 vehicles and Dave says I can spend more... Thank you Dave!!! 😊
- Investor · San Diego, CA · Member since 2016 · 265 posts · 305 votes8y
I've purchased brand new off the lot both cash and financed; both were a mistake.
Here's a better approach:
Buy a certified pre-owned vehicle. They are typically 2 or 3 years old on the lot and usually have some life left on the original manufacturer's warranty.
Keep the vehicle until you can accomplish 10,000 miles driven per every $1,500 you paid for the vehicle. This rule of thumb will work for any mid-grade model, such as a Toyota Camry (even with the bells & whistle upgrades).
Back 15 - 20 years ago, the rule of thumb was 10,000 miles driven per every $1,000 you paid for the vehicle.
100 responses. In less than 36 hours from my original prediction that it would take a week.
Congrats, BP. Our meat-puppet mania about passionately arguing about automobiles is once again showcased in full fig.
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