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      02-25-2013, 03:23 PM   #1
Axxlrod
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10k mile lease and just buy extra miles as needed?

So I'm trying to figure out which is the better way to go financially.

I drive 20K miles per year.

Is it better to just do a 36 month lease with only 10k miles per year to get the lower payment, and then buy the additional miles needed at .15 cents per mile?

Or go with the 15k miles lease and still buy the extra miles needed at 15 cents each, but have to buy less of them?

According to my math, BMW charges about .52 cents per mile when you break down the cost per mile of a standard lease. So wouldn't it be better to lease for the smallest amount of miles, 10K, and then buy any additional miles at only .15 cents each?

What am I missing here?
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      02-25-2013, 04:00 PM   #2
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Axxlrod,

I believe the benefit is to not have it all weighted to the end of your lease.

If you are paying for it monthly, you won't have to worry about a lump sum payment of $4,500 at the end of your lease for mileage overage.
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      02-25-2013, 04:18 PM   #3
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I see what you are saying, but you don't have to wait until the end of lease to pay for the miles. You could do it on an annual basis for instance.

I'm trying to figure out if it's cheaper to only contract for 10k mile per year and then buy any extra miles as needed, as BMW only charges .15 per mile instead of the .52 cents per mile, which what each mile costs in a standard 10k, 12k or 15k per year lease.
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      02-25-2013, 04:22 PM   #4
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BMW isn't stupid. They charge enough per mile to outweigh the initial residual benefit. Its $.20 per mile over, so if you had a 10k/year lease, and drove 20k/year, you would need to buy $2000 worth of mileage each year, or $166 per month.

Don't know your exact scenario, but I don't see how this could play out in your favor. You'll never win, the math should prove it:

$40,000 sale price
.00125 money factor
36mo lease
10,000 mile residual = 65%
15,000 mile residual = 62%

10,000 mile lease = $471/month
15,000 mile lease = $502/month

10,000 mile lease at $471 + $166 of miles = $637/month
15,000 mile lease at $502 + $83 of miles = $585/month
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      02-25-2013, 04:36 PM   #5
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BMW only charges .20 per mile if you wait until end of lease. It's .15 cents per mile if you pay upfront or .16 during the lease up until 4 months before end of lease.

I believe there is a breaking point on sale price of car as the price goes up, it is more beneficial to buy miles versus lease them.

That's what i am trying figure out.
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      02-25-2013, 04:53 PM   #6
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Quote:
Originally Posted by Axxlrod View Post
BMW only charges .20 per mile if you wait until end of lease. It's .15 cents per mile if you pay upfront or .16 during the lease up until 4 months before end of lease.

I believe there is a breaking point on sale price of car as the price goes up, it is more beneficial to buy miles versus lease them.

That's what i am trying figure out.
Okay, so same car with .15 cent miles instead of .20

10,000 mile lease = $471/month
15,000 mile lease = $502/month

10,000 mile lease at $471 + $125 of miles = $596/month
15,000 mile lease at $502 + $62 of miles = $564/month

You still lose. At these residuals it would break even at an $80k car, but chances are that $80k car will have a higher residual spread.
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      02-25-2013, 05:17 PM   #7
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Quote:
Originally Posted by smohr33 View Post
BMW isn't stupid. They charge enough per mile to outweigh the initial residual benefit. Its $.20 per mile over, so if you had a 10k/year lease, and drove 20k/year, you would need to buy $2000 worth of mileage each year, or $166 per month.

Don't know your exact scenario, but I don't see how this could play out in your favor. You'll never win, the math should prove it:

$40,000 sale price
.00125 money factor
36mo lease
10,000 mile residual = 65%
15,000 mile residual = 62%

10,000 mile lease = $471/month
15,000 mile lease = $502/month

10,000 mile lease at $471 + $166 of miles = $637/month
15,000 mile lease at $502 + $83 of miles = $585/month
Curious about where you are getting your numbers. If it's an F30 sedan, the best I see for 15k miles is 60% residual, and the money factor is .0013 across the board for February.
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      02-26-2013, 09:12 AM   #8
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Quote:
Originally Posted by Frzdrdhppy View Post
Curious about where you are getting your numbers. If it's an F30 sedan, the best I see for 15k miles is 60% residual, and the money factor is .0013 across the board for February.
Those were the numbers when I bought my F30 over a year ago, I was just using them as an example.
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      02-26-2013, 09:51 AM   #9
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I've never leased a car, so this thread has some interest to me.

I get the point of what the OP is asking, but what I don't get is why. I mean, BMW doesn't offer a lease option for folks who drive 20K miles per year, so that suggests to me intuitively, before running the numbers, that were I one who drives that much, leasing would be a bad choice financially. (Smohr33's post above seems to confirm this. TY, Smohr33 for presenting that analysis.)

So what I'm curious about is why would folks who drive 20K miles or more per year would lease rather than buy the car?
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      02-26-2013, 11:43 AM   #10
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Quote:
Originally Posted by tony20009 View Post
So what I'm curious about is why would folks who drive 20K miles or more per year would lease rather than buy the car?
It really only makes sense if you are a business owner. Eventhough the lease payments balloon due to the milage, you can still write the lease off if its for business use.

If it's a personal car, it makes absolutley no sense. Especially since these cars only have 50k mile warrantys. Once your 50k mile warranty is up, you are still required to maintain the vehichle and return it in proper working order, which could cost a lot out of pocket if something goes wrong.
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      02-26-2013, 01:26 PM   #11
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I am a business owner hence why I'm asking.

I believe there is merit to the scenario I presented, but the breakeven point is at a higher msrp than the 3 series, and prolly even the 5 series, excluding M5.
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      02-26-2013, 09:10 PM   #12
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Quote:
Originally Posted by smohr33 View Post
It really only makes sense if you are a business owner. Eventhough the lease payments balloon due to the milage, you can still write the lease off if its for business use.

If it's a personal car, it makes absolutley no sense. Especially since these cars only have 50k mile warrantys. Once your 50k mile warranty is up, you are still required to maintain the vehichle and return it in proper working order, which could cost a lot out of pocket if something goes wrong.
Yes, I would, to a point, have to agree, provided the lease qualifies as an operating lease, but even so, operating leases are subject to deductible limits -- I believe they are called inclusion limits -- with regard to the prices of cars that are leased. (You can't deduct the payments for a purchased car, which is what a car qualifying for capital lease treatment would be deemed. You can potentially, depending on your circumstances, depreciate it or take one of several lump sum elections.)

I'm fairly certain all BMWs exceed those limits, making their deductibility less than 100% of the lease payment amount, but maybe not (it's been nearly 25 years since I actually did a corporate/business tax return). Too, I believe the classification "operating lease" is about to go the way of the dodo bird, so when that happens, the only option will be to capitalize and depreciate; the P&L approach of an operating lease won't exist.

Given the preceding, it seems quite hard to make the lease of a BMW of any sort a financially sound thing to do for US companies, although if one drives a lot of miles in a year, there is some hope of getting a small deduction, albeit not the full amount paid for the lease. If one doesn't drive a lot (more really than even the OP does each year), leasing a BMW for business in the US is just spending money with the hope that having the nicer car will yield some intangible/immeasurable return that offsets the loss of the deduction.

The OP should verify the following, but as far as I recall, here's how it works:

IRS promulgates an inclusion amount that you then multiply by the number of days the lease was active during the current tax year. The product is the inclusion amount, or in other words, it's the sum by which you must reduce your deduction for the expenses pertaining to that car.

For example, if the OP leases a $40K 3er for 3/4ths of a year and the "inclusion number" is 25 for year one of the lease, the amount of the deduction for the leased car's costs must be reduced by (25(.75 x 365) = 6844, with $6844 being the "inclusion amount." With each passing year, the inclusion amount gets larger. I believe the inclusion numbers for year two are roughly double those of year one, and then they increase by about 20% with each subsequent year. So, if the lease payment is $400/month, and maintenance is covered by BMW, there's basically no deduction.

The preceding assumes one uses the actual cost method. If you use the mileage method and drive enough miles in a year, you will get some deduction: 2013 mileage rate = $0.565, so with 15K miles (3/4ths of 20K miles since one'd have only had the car for 3/4ths of the year) you can deduct about $1600 in year one.

(Note: my numbers are "order of magnitude" numbers, that I judgmentally estimated to be the numbers the IRS is using right now. I know they aren't exactly right, but they are close enough to be accurately illustrative.)

Basically, the IRS doesn't want to provide a tax "perq" for folks who lease/rent luxury cars. But at the same time, the IRS will concur that if you have a need to lease a fancy/expensive car, you can do so and if you are using it heavily for business (i.e., having really high mileage) because it's necessary to have that expensive car, you should roughly get as much deduction as one who'd leased a less expensive car. If you just leased it to have a nice car, you will essentially get no deduction because you'll have neither the miles nor the monthly lease payment to yield a positive deduction.

Note: as stupid as it sounds, the IRS calls the damn numbers/amounts "inclusion" amounts because by reducing a taxpayer's deduction by those amount, the effect is the same as if one included the amount back into the taxpayer's income. Don't ask; don't comment. That's how the IRS sees it, and at least the theory isn't wrong, despite the fact that the name could have been something that makes more sense to taxpayers not benefited with an internal tax department.
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      02-26-2013, 10:51 PM   #13
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Quote:
Originally Posted by Axxlrod View Post
I am a business owner hence why I'm asking.

I believe there is merit to the scenario I presented, but the breakeven point is at a higher msrp than the 3 series, and prolly even the 5 series, excluding M5.
yes, it does work but mostly at higher MSRP ($80k+ usually)... for a 3er or regular 5er, the math usually works out best to just buy 12k or 15k miles per year on the lease.

Run the scenarios yourself... do a 10k, 12k, 15k scenario and in each "buy" more miles to get to 20k miles. You'll probably find the 15k lease + 5k extra miles scenario is cheapest. Plus, if you buy the extra miles upfront as part of the lease, they are $0.15 vs. $0.16 AND the ones you don't use are refundable. If you buy miles during the lease for $0.16 but don't use some of them after, BMW won't refund for those.
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      02-27-2013, 01:11 AM   #14
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Originally Posted by sarafil View Post
yes, it does work but mostly at higher MSRP ($80k+ usually)... for a 3er or regular 5er, the math usually works out best to just buy 12k or 15k miles per year on the lease.

Run the scenarios yourself... do a 10k, 12k, 15k scenario and in each "buy" more miles to get to 20k miles. You'll probably find the 15k lease + 5k extra miles scenario is cheapest. Plus, if you buy the extra miles upfront as part of the lease, they are $0.15 vs. $0.16 AND the ones you don't use are refundable. If you buy miles during the lease for $0.16 but don't use some of them after, BMW won't refund for those.
??? You can't really be serious thinking this is a good thing....
$0.15 for it. If they refund that mile to you three years from now, you will receive $0.15. You aren't coming out ahead or breaking even on that arrangement; you're losing. You are giving someone free use of your fifteen cents for three years at zero interest.

A dollar invested today that will three years later return only a dollar is, to you, zero rate of return. You spent the present value of a dollar, which is a dollar, to get the future value only one dollar. The longer the term, the worse it is for you.

I realize this involves the time value of money, but since we are talking about a business and not an individual, the time value of money and the as well as the cash flow impact of this leasing decision is germane.

So far, I have yet to see anyone here present a scenario that yields a breakeven outcome for a business, that is, neither net gain nor net loss on the use of resources. I do see net loss/cost; I don't see net gain/miscellaneous income.
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