[SouthernBoy]

I pay cash for all my cars (all that stripper money!). Never leased anything before.

[skalberti]

Originally Posted by Ben2k9

I don't want my capital tied up in a depreciating asset, it's better to be working in the market earning a higher rate of return than i'm paying on interest on a loan. I just got a 2.19% loan on my recent purchase. If I earn 8% return on that $70k I would have spent, then that's $5,600 a year in profit versus the roughly $1,500 in interest I pay on the loan, leaving me better off net $4,100 per year.

That's if you have $70K sitting around to invest. I'm guessing most don't have that. If you do, then you're right about the money you'd make with the investing. To get 8% though your taking a chance with the stock market.

[0_steve]

Such an interesting discussion and like religion and politics there usually is no way to draw a conclusion as everyone has their own value system.

Personally, I lease 1 car (small business) and own 2 others. I find all of them to be a massive financial drain.

My toy car (2009 Porsche 911): Depreciates while sitting idle in the garage. It was purchased with only 20k miles at the young age of 4 for nearly 55% of its original MSRP value so depreciation is slowing but still active. After sales tax and dealer fees a trade in tomorrow would probably net a great loss. Is it worth having? Probably not, but it makes me happy.

Girls car (2013 Mercedes C250): Purchased brand new. Negotiated an attractive purchase price but add taxes/fees and depreciation and we should be in for a big hit when we unload this thing as the warranty wraps up in a few years. My guess is we will lose roughly 60% while having to go through the hassle of trading it in or the less likely yet more cost effective route of selling ourselves. Does it make it right? Would it have been better to lease? Probably easier, but who knows? For now it makes her happy.

Work car (2014 550): I look at the constant payment of a lease with all the various fees that make up that payment and see the overall loss. BUT between my personal tax benefits and BMW's maintenance program, my 550 and the 38% loss over 3 years is essentially free. Its a constant payment but after write downs it pays for itself. Does this make it the right thing to do? Not sure but it makes me happy.

My non-car centric buddy bought a 10 year old Lexus. Drove it for 2 maintenance free years and just sold it for what he paid (including taxes and fees). FAR better investment than any of mine. We can all say, he was financially responsible and lived well within his means.

Sounds boring.

I too agree that a car value should never be near or above annual earnings. I also don't think someone should wear $350 sunglasses while driving a $350 car.

Everyone has their own value system.

[The X Men]

Originally Posted by 0_steve

My non-car centric buddy bought a 10 year old Lexus. Drove it for 2 maintenance free years and just sold it for what he paid (including taxes and fees). FAR better investment than any of mine. We can all say, he was financially responsible and lived well within his means.

But his car does not make him happy Who ever said money cannot buy happiness was wrong

[The Beast]

I have never previously leased a car, always bought them straight cash. I'm a little old school and like to own my vehicle, I don't like lots of monthly payments.

When I bought my previous X5 I took out a £10k private loan to help fund the £65k cost of the vehicle, but I paid this off within a year.

Last year I left my company job to go self employed and had to hand back my company car. This left me having to buy my wife a new car and after two BMW 1 Series she wanted a change. So we settled on the new Mercedes A Class and due to me having to put money into the new start up I decided to partially fund the car with a loan.

However after looking at nearly new cars with a loan my dealer suggested a lease. After doing the calcs the lease was a lot cheaper than buying used as the interest rate on offer was nearly half that on the used car and Mercedes were offering 3 years free servicing on top.

Someone wrote off my X5 this year and I bought a F10 to replace it, bought this straight cash.

So I guess what I'm getting at is there is no straight answer, the purchase method depends on so many variables.

Do your calcs, decide what is best for your particular circumstances, live within your means and enjoy!

[slingxshot]

Originally Posted by bkM3

i should mention it was a dealer demo with 3k miles on it but you dont need to believe me. i know what im paying and what car i have.

Now it makes sense.. I believe you now.

I was looking for a demo car like that... you got really really lucky...

[Ben2k9]

Originally Posted by skalberti

That's if you have $70K sitting around to invest. I'm guessing most don't have that. If you do, then you're right about the money you'd make with the investing. To get 8% though your taking a chance with the stock market.

If folks don't have at least $70k saved up, then it's probably financially reckless to be driving such an expensive car. If one is always living beyond their means or mostly check to check, they will never get ahead.

[The X Men]

Originally Posted by Ben2k9

If folks don't have at least $70k saved up, then it's probably financially reckless to be driving such an expensive car. If one is always living beyond their means or mostly check to check, they will never get ahead.

Heck, I have $70K cash in my wallet right now. I would say if you don't have a few million dollars cash under your mattress, you should really drive a Hyundai instead of a BMW

[Alan l.]

This has turned into an interesting discussion. It is pretty spread out in terms of how everyone feels is the right way to spend your money. Age, education level, family back ground all plays a big role in how each person comes up with their formula. There is no wrong or right way really. Each situation is unique and to me the bottom line is as long as you get to live your life (as well as your family) happy that's all that matters. Someone making more money isn't always "better" in life or more "happy".

An a side note I love reading ezmaass responses. Long but very educational if you get into it. Lots to learn from him and a few other on this board imo.

Alan

[gtmassive75]

Originally Posted by The X Men

Heck, I have $70K cash in my wallet right now. I would say if you don't have a few million dollars cash under your mattress, you should really drive a Hyundai instead of a BMW

Money laundering...right there.. you can drop the 60K by me and the feds wont trouble you..

[twelve535i]

Ezmaass' posts are always well worded and informative.

I've come to the conclusion that Ezmaass posts long well thought out responses at all times of the day so he has a job that allows him to have a decent amount of down time......and pays him extremely well.

[ezmaass]

Originally Posted by Alan l.

An a side note I love reading ezmaass responses. Long but very educational if you get into it. Lots to learn from him and a few other on this board imo.

Originally Posted by twelve535i

Ezmaass' posts are always well worded and informative.

I've come to the conclusion that Ezmaass posts long well thought out responses at all times of the day so he has a job that allows him to have a decent amount of down time......and pays him extremely well.

I appreciate the positive feedback guys. I can ramble-on sometimes, but it's a fun community here - lots of great guys, so I appreciate that someone finds my 0.02c worthwhile!

[RSBro]

Originally Posted by Ben2k9

leasing is good under the following conditions:

1. you want a new car.
2. you want a different car in 3 years
3. you don't drive enormous miles per year
4. you can afford it

With leasing, all you're doing is financing the depreciation. So if a car is $70k new and going to be worth $40k in 3 years, you're going to pay for the difference of $30k, which will be financed and paid for in monthly installments over the 3 year period.

If you bought a car new and then sold it in 3 years, you're still going to be out of pocket the same amount of money, since you'll be selling around the $40k mark. Either way, you're out $30k.

I personally think the best bang for the buck is buying a 3 year old car with low mileage. It still looks and drives like its brand new, and yet you saved that $30k in depreciation.

Leasing works out for both parties. The dealer gets to sell a $70k car to someone who can afford the monthly notes on $30k car. The person leasing gets to drive a $70k car for the payments on a $30k car.

It's nothing more nefarious than that.

This is what I did. I knew I wanted the 550, so I found a 2 y/o one with less than 20k miles that was damn near new (Dr. owned, hated the engine lol) and plenty of time and warranty and maintenance left. Cost a good bit less than a new 535i and I got the engine and package that I wanted. Couple that to the fact I drive less than 11 mil's a day RT, it will be some time before I wear this car out. Could I have afforded a NEW 550i?? Probably but that would have been crazy and I'd be maxed out every month.

Also, I think there's a big difference in 50 to say 75k than 75-100k. If I were in the former category still I would in no way have this car. I'm an (almost) CPA, single, reasonable house expense so I can afford it. I wanted to get it now and paid off before I have to start forking out for the eventual (maybe) family type stuff. I work some light OT every week a month, which I do anyway, and that alone pays my car note.

However this thread is insightful. And shows me just how far away I am from owning that Murcielago by the time I'm 50...

[BigK]

Originally Posted by noixd

First of all you shouldn't be financing a car with 8% interest. That's just ridiculous and it shows what people will do just to get something that they can't afford. And second of all you shouldn't be purchasing cars or homes with the intent to profit from it. At that end of the day the payments are a lot cheaper for a lease but you have nothing for it. You'll be stuck with car payments for the rest of your life. At least with a purchased car you can recoup something with a trade on. I just don't find the benefits to rent anything. Why rent homes? Just doesn't make sense in my books. People should be living below their means. Stop trying to be something your not and stop trying to keep up with the Jones!

Why do people rent? First of all, it’s a lower cost to the owner. When you “own” a property (especially a house), you have to spend money to maintain it (insurance, community fees, repair, lawn etc.) where I don’t have to pay anything when renting other than the monthly rent. Second, when you take a 30 year mortgage like most people do in America, you end up paying double the financed amount if you stick with the house for 30 years. For the first a few years, most of your payments go towards the interest rather than the principle so you don’t really own anything, the bank owns it. If you don’t believe it, try not to make your payments for a few months and see what happens. And since people move around so much in America, it’s really not realistic someone will stick with the same house for 30 years. So what you do? Selling the house and take another mortgage, talking about stuck with payments for life…

I’m not saying owning something is bad, I rent but paid off both of my cars. But IMO, as long as I have a comfortable place to live, I don’t give a f*** who owns it, same goes for cars.

[ezmaass]

Originally Posted by BigK

Why do people rent? First of all, it’s a lower cost to the owner. When you “own” a property (especially a house), you have to spend money to maintain it (insurance, community fees, repair, lawn etc.) where I don’t have to pay anything when renting other than the monthly rent. Second, when you take a 30 year mortgage like most people do in America, you end up paying double the financed amount if you stick with the house for 30 years. For the first a few years, most of your payments go towards the interest rather than the principle so you don’t really own anything, the bank owns it. If you don’t believe it, try not to make your payments for a few months and see what happens. And since people move around so much in America, it’s really not realistic someone will stick with the same house for 30 years. So what you do? Selling the house and take another mortgage, talking about stuck with payments for life…

I’m not saying owning something is bad, I rent but paid off both of my cars. But IMO, as long as I have a comfortable place to live, I don’t give a f*** who owns it, same goes for cars.

Like owning vs. leasing a car, owning vs. renting a property has both financial and lifestyle considerations. Don't confuse the two.

The most financially responsible thing you can do with a property is to own it outright. Mortgages, as you mentioned, will bleed you for many years with interest, causing you to pay nearly double, even with great interest rates, in the long term. Then again, don't forget that inflation is also occurring each and every year, and even paying double for your home in 30+ years-from-now dollars may still be a bargain. Many financial experts will contend that, if done conservatively (not over-extending), a low-interest loan on an appreciating asset isn't so bad all things considered. And if you're an aggressive investor who wishes to leverage their cash, it may even be preferable at today's interest rates. After all, you can have a place to live using OPM @ 3.5% while remaining much more liquid with your own cash making 6 - 8%.

As for the argument about maintenance costs, taxes, etc - don't be fooled. Even if you're a renter, you're still paying for it. Or do you think the owner, your landlord, is simply forgiving their expenses? No, it's baked into your rent. If you're renting in a multi-tenant complex (e.g. condo/apt complex), you're paying a fractional share of all of those expenses in your rent. If you're renting a single family home, you may be cover 100% of the costs regardless. At the same time, you're not only paying for these expenses, but you don't get to realize any of the tax benefits. Your landlord, for instance, can write off the property and school taxes, along with any interest they may be carrying on a mortgage. You? Nothing. Renters have no deductions there, even though you may theoretically be carrying the full load of those expenses in your rent payment. This can mean many thousands per year of lost tax savings.

At the end of the day, remember this - being a landlord is one of the oldest professions on the planet. It's a business. And like every business, it exists because there's profit to be made. So for every cost-avoidance argument someone can make for renting, I'll maintain that there are MORE cost avoidance arguments to be made for owning... and hence why a profession exists to own property and rent them to others for a PROFIT.

Now, if you look at lifestyle choices, similar with leasing a car, you can make some very valid arguments for renting a property versus buying. You've made some here already - flexibility, for instance. If you need to remain flexible to pick up and leave every 1 - 3 years, owning a home may not be for you. It'll impact both your finances (cost of sale through a realtor) as well as your lifestyle flexibility. Likewise, if you just don't want the responsibility, renting may be a better option. When you rent, someone else can worry about fixing a broken water heater, a leaky roof, etc. There's a certain level of "hands-off" lifestyle that comes with renting. But again, don't for a minute believe that because you're hands-off it's somehow free-of-charge. It's a service being provided by the landlord - it comes at an expense. For those of you who have operated as a landlord, you'll know that a property management company, for instance, may skim ~10% of the rent to provide this service... so it IS usually baked-in.

From a financial perspective, I think the best thing you can do is:

1. Buy in a historically highly-desirable area. Land is finite, and the population of the US is growing. Pick a major metro area with strong, diverse business opportunities, access to waterways, airports, etc, and make sure you're in a good school district. Everything else is simple due-diligence on the property that a realtor and inspector can help with.

2. Be very conservative with what you mortgage. I think the old school max 80% LTV is still sound advice, regardless of what a bank may give you. It may not have helped EVERYONE who went upside-down in the last few years, but it surely would have helped many.

3. Keep the mortgage, regardless of LTV, to less than 3x (preferably 2.5x) your annual household income. More conservatively, keep it to that of just one income if possible.

4. Getting a 15-year or shorter mortgage can dramatically drop the amount you pay in interest (better rates AND short repayment time contributing there).

Of course there are a ton of additional tips and tricks, but if you do it the right way, home ownership can be a source of great financial wealth. If you do it poorly, it can also be the death of you (reference our recent bubble). In the long run, though, renting is a losing financial proposition - like I said, it's a business, and the owners (landlords) are making money off your back. But it's not all about finances, and lifestyle choices do need to be considered. If renting is the right LIFESTYLE choice, so be it. But as I said at the very beginning of this post, we shouldn't confuse the two.

[noixd]

Originally Posted by BigK

Why do people rent? First of all, it’s a lower cost to the owner. When you “own” a property (especially a house), you have to spend money to maintain it (insurance, community fees, repair, lawn etc.) where I don’t have to pay anything when renting other than the monthly rent. Second, when you take a 30 year mortgage like most people do in America, you end up paying double the financed amount if you stick with the house for 30 years. For the first a few years, most of your payments go towards the interest rather than the principle so you don’t really own anything, the bank owns it. If you don’t believe it, try not to make your payments for a few months and see what happens. And since people move around so much in America, it’s really not realistic someone will stick with the same house for 30 years. So what you do? Selling the house and take another mortgage, talking about stuck with payments for life…

I’m not saying owning something is bad, I rent but paid off both of my cars. But IMO, as long as I have a comfortable place to live, I don’t give a f*** who owns it, same goes for cars.

BigK that was THE dumbest response ever! Go play some monopoly!

[SoDigito]

Man, this thread is so off-topic now. It is amazing to see how many people think their choices are the best and everyone else should follow their examples. I strongly disagree with the one-size-fits-all approach. It is up to the individual to be responsible and make the decisions they can live with in regards to their finances.

[BigK]

Originally Posted by ezmaass

.....Of course there are a ton of additional tips and tricks, but if you do it the right way, home ownership can be a source of great financial wealth. If you do it poorly, it can also be the death of you (reference our recent bubble). In the long run, though, renting is a losing financial proposition - like I said, it's a business, and the owners (landlords) are making money off your back. But it's not all about finances, and lifestyle choices do need to be considered. If renting is the right LIFESTYLE choice, so be it. But as I said at the very beginning of this post, we shouldn't confuse the two.

Ezmaass, owning and renting are NOT lifestyle choices they’re simply financial choices. Owning a house doesn’t make you sleep on 2 beds or eat 10 meals a day. However I do appreciate your analogy on the financial details of owning properties. I support renting because it makes sense to me where I live. I rent a condo in downtown Shanghai, monthly rent is about $2,400 + $250 condo management fee. If I’m to buy this $2 million condo, finance half of that and take a 15 year mortgage, my monthly payment would probably be something like $5,700. On top of that, higher condo fee, maintenance/repair and insurance (~$600), that’s a lot of savings IMO. Additionally I don’t need to worry about the value or the condition of the condo go up or down. As far as I know, the growth in the US housing market is not nearly as high as a place like Shanghai, so the ROI on owning a house is quite a bit lower. So I don’t think owning A house is going to make a night and day difference in people’s financial situation, now if you can afford multiple properties and rent them out, that’s another story.

Originally Posted by noixd

BigK that was THE dumbest response ever! Go play some monopoly!

Oh yeah? Then why don't you break down my analogies and let me know why they're so dumb? I think you should stop playing monopoly...

[ezmaass]

Originally Posted by BigK

Ezmaass, owning and renting are NOT lifestyle choices they’re simply financial choices. Owning a house doesn’t make you sleep on 2 beds or eat 10 meals a day. However I do appreciate your analogy on the financial details of owning properties. I support renting because it makes sense to me where I live. I rent a condo in downtown Shanghai, monthly rent is about $2,400 + $250 condo management fee. If I’m to buy this $2 million condo, finance half of that and take a 15 year mortgage, my monthly payment would probably be something like $5,700. On top of that, higher condo fee, maintenance/repair and insurance (~$600), that’s a lot of savings IMO. Additionally I don’t need to worry about the value or the condition of the condo go up or down. As far as I know, the growth in the US housing market is not nearly as high as a place like Shanghai, so the ROI on owning a house is quite a bit lower. So I don’t think owning A house is going to make a night and day difference in people’s financial situation, now if you can afford multiple properties and rent them out, that’s another story.

There are both financial and lifestyle considerations when choosing to own or rent. I think I've made that pretty clear in my last post. From a pure financial perspective, owning is the CLEAR winning proposition - unless you plan to argue that property rental is a business that operates at a loss? Someone needs to notify Donald Trump and other real estate tycoons if this is the case. But alas, it isn't... and owning real estate, while renting it to others, is done for PROFIT. Plain and simple.

All of the arguments I've ever heard for renting versus owning usually boil down to LIFESTYLE choices, such as:

1. I'd like the freedom to move at a moment's notice.

2. I don't want to waste my Saturday afternoon mowing the lawn.

3. I don't want to worry about fixing the roof if it leaks.

4. Etc.

These are lifestyle choices, and there's nothing wrong with them. But as I said, don't confuse them with financial choices. By the way, if someone is renting you a $2M condo for only $2,400/mo, you're getting quite a deal.

[BigK]

Originally Posted by ezmaass

There are both financial and lifestyle considerations when choosing to own or rent. I think I've made that pretty clear in my last post. From a pure financial perspective, owning is the CLEAR winning proposition - unless you plan to argue that property rental is a business that operates at a loss? Someone needs to notify Donald Trump and other real estate tycoons if this is the case. But alas, it isn't... and owning real estate, while renting it to others, is done for PROFIT. Plain and simple.

All of the arguments I've ever heard for renting versus owning usually boil down to LIFESTYLE choices, such as:

1. I'd like the freedom to move at a moment's notice.

2. I don't want to waste my Saturday afternoon mowing the lawn.

3. I don't want to worry about fixing the roof if it leaks.

4. Etc.

These are lifestyle choices, and there's nothing wrong with them. But as I said, don't confuse them with financial choices. By the way, if someone is renting you a $2M condo for only $2,400/mo, you're getting quite a deal.

Again, I don't think I can agree with these "lifestyle" choices you outlined because I can make an counter-argument on every one of them:

1. I'd like the freedom to move at a moment's notice.
Tenants sign rental agreements with terms, in most cases we can't move freely without a big penalty. Homeowners on the other hand can decide whenever they want to move.

2. I don't want to waste my Saturday afternoon mowing the lawn.
Not likely an issue anywhere in the world but suburbs in America, we simply don't have lawns...

3. I don't want to worry about fixing the roof if it leaks.
This I agree, but again, I think usually your insurance takes care of that.

4. Etc.

As far as my rent goes, that's the downside of paying $2M for a property that doesn't really worth that much. But since I rent, it's not really my problem...

[noixd]

Originally Posted by BigK

Ezmaass, owning and renting are NOT lifestyle choices they’re simply financial choices. Owning a house doesn’t make you sleep on 2 beds or eat 10 meals a day. However I do appreciate your analogy on the financial details of owning properties. I support renting because it makes sense to me where I live. I rent a condo in downtown Shanghai, monthly rent is about $2,400 + $250 condo management fee. If I’m to buy this $2 million condo, finance half of that and take a 15 year mortgage, my monthly payment would probably be something like $5,700. On top of that, higher condo fee, maintenance/repair and insurance (~$600), that’s a lot of savings IMO. Additionally I don’t need to worry about the value or the condition of the condo go up or down. As far as I know, the growth in the US housing market is not nearly as high as a place like Shanghai, so the ROI on owning a house is quite a bit lower. So I don’t think owning A house is going to make a night and day difference in people’s financial situation, now if you can afford multiple properties and rent them out, that’s another story


Oh yeah? Then why don't you break down my analogies and let me know why they're so dumb? I think you should stop playing monopoly...

Here's the breakdown.

BigK theres two types of people in this world.

1. People who pay rent - can't afford to own and racking up in debt
2. People who are financially sound and have money in the bank.

The first guy is trying to floss like the second guy. The second guy laughs at the first.
Don't get it twisted!
One!

[BigK]

Originally Posted by noixd

Here's the breakdown.

BigK theres two types of people in this world.

1. People who pay rent - can't afford to own and racking up in debt
2. People who are financially sound and have money in the bank.

The first guy is trying to floss like the second guy. The second guy laughs at the first.
Don't get it twisted!
One!

This is the most ignorant statement I’ve heard in a long time. How do you know people who rent don’t have money in the bank, stock market or other investments? I bet there’re plenty of “the first guy” that have way more money than you do, so I think you got it “twisted”.

If you have paid off your houses, cars etc., more power to you! But don’t go around and insult other people like you’re some kind of superior being.