Re: Leasing

Posted by 2002sliverado on September 08, 2017 at 13:42:57 from (216.16.75.34):

In Reply to: Leasing posted by 41106 on September 07, 2017 at 20:31:35:

A friend of mine had leased an automobile in 1986. He was a banker who held a PhD in Ag Economics, but I know he had a few sideline business ventures, too. He fulfilled the 3 year lease and then bought the car after the lease expired, thus driving it for another half dozen years. Knowing how analytical he was, and somewhat remembering what he had told me about how he reached his decision to do that, in the long run he found out he was better off from a financial point of view, versus buying the car outright, or financing it. He had leased this car through GMAC, since it was a GM product. I believe he was able to deduct the lease payments, since this car was tied to his use in business, then he purchased the car outright at the end of the lease, as a car for personal use. I know of a realtor who did the same thing in leasing a vehicle for his business, and then purchasing the car outright for his wife at the end of the lease.

I have a brother-in-law and his wife who, at least as far as I know, do not have a business they can write off these types of expenses. They have leased expensive SUV's for 20 years. I remember one leased vehicle in particular. It was a 1997 Dodge Durango. I remember seeing the Chrysler lease program on this vehicle in the section of a Twin Cities newspaper. I added up all the costs for that 36 month lease and realized this was going to cost them a minimum of nearly $18,000, barring any excess mileage penalties and repairs. I thought that was a lot of money to squander in 3 years and not have a thing to show for that money spent, since they turn the vehicles in at the end of every lease. I have never purchased new, nor have I leased, but at present, I totaled up all the vehicles I purchased in the past 22 years and it comes up to nearly $110k, and I still have 5 vehicles sitting in my garage and shed. My in-laws have spent somewhere between $150k and $200k, and they have 1 expensive SUV sitting in the garage after all that. They DO NOT generally have repair bills to contend with, since all this new equipment has factory warranty taking them to the end of the lease, but I also have not spent an atrocious amount of money on repairs either.

I looked into leasing a drying bin for our farm a few years ago. The actual purchase price on that was around $60k. If I financed it through Farm Service Agency, I had interest payments on top of that initial purchase price. If I leased it, and purchased at the end of the lease, it was going to cost me about $13k more versus buying and financing with Farm Service Agency. I thought that was a waste of money in having to pay an additional $13k, or roughly another 20 percent cash outlay for the same item in the end.

My parents leased a machine shed on a 7 year payment plan, with a final payment amounting to a small amount, which was required to be placed on a lengthy depreciation schedule, which my dad determined he would be dead before that wrapped up, but through the lease, he could capture a larger portion of the cost through lease payments before he started retirement. That had its advantages for his specific situation.

I recently looked into leasing a car. This would be the first new car I have ever considered acquiring ever. When we penciled the payments out, with a financed purchase after the end of the lease, I found it to be really no different in what it would cost overall. I looked at purchasing, and then financing over a 5 or maybe 6 year period. I compared this to leasing, then financing the outright purchase after the lease was up over a slightly shorter period of time of either 3 or 4 years. We based this comparison on what we knew at the time and historic experience with financing used cars. Again, in that comparison, we found no significant difference going either way.

From a balance sheet perspective and how a lending institution views you as a customer, the advantage of a lease is there is not a liability (debt) on your balance sheet. You have an annual expense tied to the lease payment, rather than a depreciation expense tied to that leased vehicle. You do not list that vehicle as an asset on your balance sheet, though. Another positive is that if you find the vehicle to be a "lemon," you are not tied to owning it at the end of a lease, and it becomes someone else's problem, rather than yours. Some probably are willing to have a greater annual lease expense, versus the depreciation expense and potential/probable repair expenses. One could view this as a way of "controlling/managing" expenses, too.

I do find it rather troubling the organizations, the cooperatives, and BTO's, and others, who, in my opinion, are probably over-utilizing leasing. In the case of a large farmer owned cooperative I know of, I think the patrons haven't a clue as to how little the company (an ultimately the patrons) truly owns, while putting on quite a show for their customer patrons with all the "façade" of investment into property, plant, and equipment. Maybe that is my problem. I spend money to upgrade and add worth to my operation in the long run, while not breaking my bank account. I also remember how disgusted my family was with the write-offs and debt restructurings of the BTO's, who didn't learn a thing in the 1980's!

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