The problem with buying an Ex-leased Ferrari

Great points. I just have two comments:

1) In California we don't get tax back
2) When you lease, after two years dealer buys car back and you should have some equity (~20 - 30k) unless you put excessive mileage - but of course this depends on the market and your particular spec, etc.

If you can get tax back and don't have any other use for the cash, then by all means best option is to buy it outright vs finance if interest rate is low enough. I'm always of the opinion that it makes little sense to build equity in a car (which generates no return). You just have to look at whether or not that money can be working for you through other investments and if that return is better than the interest rate on the finance. But you already know all this

 

I would say this is probably an accurate generalization for most short term closed ended leases. But that is just a small percentage of Ferrari leases. The whole reason to do open ended is because you know the car will retain its value. I would treat a pre-owned Ferrari with one prior open ended lessor the same as a pre-owned with one prior owner.

I have an open ended lease on my Ferrari and I can tell you she is treated like royalty!

 

Thanks for the well thought out and cordial post. We agree!

I don’t disagree that you can put the money to work but hopefully anyone buying a Ferrari isnt going to have their life changed changed cause they missed the opportunity cost of not investing the funds they used to buy the car.

Cheers.

 

What happens after 36 months?

Man this whole - what if there is an accident thing is thrown around a lot but you are paying a premium for something that is very unlikely to happen unless you totally thrash your cars.

Just be careful if there isn’t a hidden incentive for the dealer to suggest a lease.

 

[QUOTE="Condor Man, post: 145627470, member: 39034"
Also, the dealer said to me that Ferrari believes that the value of the car would be $188k in 36 months.

How does a closed or open ended lease vary this situation for me?[/QUOTE]

I don’t lease so I can’t comment but if the value is 188k in 3 years- then you spent 112+ the lost tax. Seems to me you are way ahead by not leasing.

And that is if you sell to the dealer. There is not doubt in my mind that in 3 years you could get like 220k easy for the car. Then you come out way ahead.

Hopefully someone else can chime in re open vs closed end leasing.

 

If you believe that leased exotics are not generally abused more than owned models then you probably don't mind buying used rentals either. Just ridiculous to deny human nature here. You are literally bought into the owned car while the lease is just really a borrow to drive and return situation. This does not, of course, apply to all leases as has been pointed out above. I would never buy a leased exotic as there are many available with straight ownership but that's a personal thing and not a guarantee against prior abuse.

 

Leasing is generally different to rental though, because a rental is an occasional drive while the leaser still has to live with the car for three years - so in case of abuse, he has also to cope with some consequences. And while I can't make much financial sense of a lease, there might be some reasons (fiscal or whatever) to prefer not to get ownership.

 

An open ended lease would place a higher residual at 36 months which would lower your payment. However, you would not be able to simply hand the keys back at that point as you would be responsible for the difference between the car's true market value and residual value. That being said, you will only be "upside down" in your open lease if you put like 100k miles on it or get in an accident.

I agree with SoCal to az, I think accidents with these cars are so rare (unless you drive like a maniac) that it is not worth hedging your bets and paying a premium to have the ability to hand keys back no questions asked. Ferrari artificially sets the residual so low that you will not want to simply hand the keys back in 99.99% of situations as you will have some equity in the car.

I would also advise against paying the entire amount of the lease up front. Realize that your $170k payment includes tax + interest in addition to principal. If you decide 1 or 2 years into the lease that you would like to sell the car, you will have paid tax on depreciation that you did not use. I doubt you will get that money back. You will have also paid interest on depreciation that you did not use, but they may give that back to you. In general, it is best not to pay a lease up front because you will not save any money and in doing so you will corner yourself into a bad situation should you decide to trade in the car earlier than the 3 year mark. Just pay the monthly payments as you go.

Cheers!

 

Please share your secrets. We all want to write off our Ferrari!

 

LOL

 

Agreed works the same in Ontario and it's nice to get the tax break. What I also do is buy the car personally, keep it off the corporate books and expense back some mileage. The tax hit (add backs for the luxury cost) and accountants don't like these kind of things on our PNL or BS. It's hard to tie up the personal cash but I would rather a larger mortgages payment then a car payment. Btw I support making payments for something, keeps me hungry to make it go away. It's how I stop my wife from wanting to move all the time, "lets pay the house off first". We have moved 3 times and been married only 8 years. We just moved (1 yr plus) into her "dream house" and she is already looking around again.

 

Bankers and car dealers told me the following advice.

1. If buying (financing) and you have kids over 18 years old, put them on the car loan too. It juices their credit score and gives them a great credit score for when they get out of college. I have personally done this and it works very well. Bought my new Maserati for $110,000 and took out a $20,000 loan, only for the purpose of putting 2 of my kids on the loan along with me. It was a 5 year loan. Both kids now have a 800+ credit score and have just started their working careers.

2. Take out a Home Equity loan to buy the car, that way you can deduct the loan interest on your taxes. Haven't tried this yet, but my banker says it is legit.

 

As long as you don’t cross the maximum cap- home interest mortgage is deductible.

 

If anyone takes advice from "bankers and car dealers" I seriously feel badly for you. For anything regarding lessee find a qualified CPA otherwise you're the sheep approaching the wolves

 

2500 miles / year. So little driving.

 

I'm not sure of the wisdom of a open ended lease as it introduces risk that you will have to come out of pocket at the end of the lease depending on the value at that time and there is no protection from a devaluation due to an accident. With a closed end lease you limit your risk and can just hand it back in and it's a hedge against a massive devaluation due to an accident during the lease period. In addition, if you are "in the money" at the end of the lease, you always have the option to buy it outright and then keep or re-sell it.

As others have stated, a lease can make sense if you'll trade out in a few years as you don't pay the sales tax up front as many states you only pay taxes for the depreciation during your lease term. It could also make sense for someone who can deduct the expense on their taxes. Also, if someone doesn't want to come out of pocket with $300K+ up front and has a better use for those funds like an S&P index fund that has returned ~ 17% YTD for 2017. That certainly covers the interest on a lease multiple times over.

I personally like to pay cash for my cars even though its probably not the smartest use of my cash.

 

I never mentioned a lease.

 

Many exotic cars are leased due to sales tax issue in California. Just go to any Ferrari dealer website in California and check the car fax and there is a good number of cars that are/were leased. Since we don't receive sales tax credit for the trade in then there wouldn't be much incentive for people to go in and out of cars as frequently as people do. (ie., 488 to 488 spyder, to whatever comes next).

No one that I know of abuses or treats the car any differently if they lease it...and they hardly ever take it to the full lease term.

 

Ok so you calculate a loss of 25k a year. How many miles does that include in your use calculation?

I personally calculate it at $5 a mile for depreciation purposes so about 5,000 miles a year driving.

 

The one point you're overlooking is those $4K/month payments are building a ton of equity when you turn around and buy the car out of your lease and trade it in... Buyout of the car in this instance is much lower than true market value due to said equity.

 

That depends on the residual. Ive never known a car lease to build equity. I can see why in California some people do it due to the tax issue but overall it seems like a way more expensive way to own a car.