Car Equity to Invest?

5 Replies

You always here the back and forth debate about buying or leasing a car. I personally have never leased but am considering it, given the following details.

Car Value ~16k

Car Loan ~ 6k

Equity: $10k

Payment $485/mo

Would it make sense to sell the car and use the $10k towards my next property and get into a $0 down lease with a similar payment? I have a year left of payments and it would take 20 months of saving the payment, after it's paid off, to recoupe the equity that I can gain today. I am Not one to drive a car into the ground, and I would most likely use the equity towards my next car purchase a year or so after it's paid off. Given that, I feel I would make better use of the money and if it returns $250/ mo cash on cash, it seems like a no brainier, right?

Personal finance "experts" all agree that a lease is a bad deal. It is also nice. Knowing you have already contracted to trade in a vehicle every 3 years. Not being bogged down mentally about owning a depreciating asset. Being honest with yourself that the vehicle is just an expense.  A lease is just a luxury product in my opinion. 

Now the equity in your car is also "dead equity." It is not earning you anything.

The concept of thinking in terms of how many houses it will take to pay for a new car, house, boat, jet is covered in Rich Dad Poor Dad. Also 4 Hour Work Week for that matter.

If you were able to buy a property that has a cash on cash return equal to the new lease payment. Great! You used your equity to basically lease a vehicle in perpetuity. But wait, theres more! Over time you reap the benefits of principal paydown, depreciation write off, and appreciation. Over time the rent should also go up. In this case, so will your car payments so its kind of a wash.

The only problem I see with this plan is that 10k equity might not be enough to buy enough cashflow to lease a similar vehicle to what you have now.

@Tyler Weaver thanks for your input! I agree that the $10k would not generate enough return on its own to cover the lease payment but it would probably cover about half and would be quick available cash towards the next down payment on a property.

I have always heard the same as you described how a lease is a bad investment which is why I always bought. Getting another car a year after it's paid off isn't really leveraging the benefit of buying from what I see. The only benefit is not worrying about the miles!

With owning the car, there is definitely a sweet spot as far as depreciation vs maintenance while still driving around something decent somewhere around 4-10yrs old. Not having the negative cashflow of holding after it is paid off is definitely a positive factor. It may also be good for your borrowing ability. 



I used to lease heavy equipment.  Think big yellow iron.  Those guys.

The discussion around leasing revolved around keeping assets off balance sheets, expensing the lease payments every month vs. depreciation them.  There were also, for some, a little bit of advantage in terms of getting higher bonding capacity for state jobs, etc.  Not sure how all that bonding stuff worked, won't lie to you, but there were some ratios getting managed.  But keeping the stuff off balance sheet has some appeal for the CFO types and their bankers.

Is there a parallel here for our cars?

Is the car something that your LLC or business can pay for each month and expense it? Or just a portion of it? Are there some tax advantages to leasing the vehicle as a work car, something over and above the mileage allowance and all that stuff that most people claim? I honestly do not know - not a tax guy - but it seems like a reasonable question to ask.

@Mark Sewell

Thanks for the input And I can definitely see how taxes advantages could come into play by using it as an asset. Since I still work full time, I don't depreciate my car as as asset in the company but will definitely consider the benefits of lease/buy when I make the move to full time investor.

Good point and thanks for brining that up!