Buying vs leasing (and possibly buying then): my numbers

[tmrqs]

People keep saying “leasing gets you $7.5k credit, it’s amazing” and I have been very vocal (say here or here) about leases being a money suck, especially when wanting to purchase at lease end.

I always based my stance on the interests paid over the course of the lease but then came across the one-pay option.
Coupling that with a short lease can actually make sense (to my very “anti-lease” self).

Context:

• My goal was always to buy the car and keep it until the warranty runs out - so 4 years.
  If I loved it I could buy a warranty extension, but I suspect the EV landscape will be quite different by then and I‘ll want something else.
• I have been drooling over the Macan before it was even announced: there is no other car on the market that competes with it, I am *not* looking for the next car already.
• I had a Mustang Mach-e prior, bought it outright, sold it 19 months later and took a bath: got half of what I paid. The market isn’t kind to EV and tech is evolving.
• My concerns about the Macan specifically are: it’s a first gen Macan electric and one of the (relatively) first ones to be sold… it could have issues that would make me not want to keep it.

The options:

I asked my SA to share all options with me and I’ve summarized the costs and options in the charts below.

Couple notes on the math:

• Investing the unspent money over the next 12/18/24/39 months with a 4% return, it can offset in part the cost of leasing.
  That 4% can easily be secured with a CD but I could probably earn more through stocks - I’m being conservative here.
• The sales tax on EV in NJ is changing through the ownership of my Macan: if I buy the car now, I’ll only pay 3.3125% in taxes… but if I buy it after the lease ends, I’ll pay 6.625% on the balance.
• All the leasing options include the $7.5k tax credit which may very well vanish next year if Trump follows through. So it may be worth squeezing it now.

My thoughts:

• With the 12 mo option, I could buy the car (with the increased sales tax) at lease end and be out of pocket less than $600 vs direct purchase. Not bad at all!
• Both the 18 and 24 mo offer similar peace of mind but at an increased premium… I need to check what the 24mo option would cost with 10k miles/yr.
• The 39 mo option gives the most use of the car but buying at the end of that lease makes no sense.
• The question is: if I instead bought the car upfront and sold it after 39 mo, could I get at least $42k out of it? (36% residual when Porsche states residual will be 55%) If not, leasing may also work in my favor.

I’m currently considering leasing for either 18 or 24 months (depending on 10k miles pricing) and assessing during that period whether the car is defect free and how it depreciates.

If conditions are favorable, I can just buy it then - and still sell it after 39 (or x) months of ownership when something better comes along.
If conditions suck, I can just walk away after 18/24 months.

Did I miss something? Not consider any aspect of this entire process? Make a mistake in my assumptions?
Please be my sounding board.

 

[PanameraFrank]

It's worth mentioning that mile overage is actually not that bad. 30 cents a mile sounds terrible until you really math it out.

For example.. even 25k (17.5k extra) miles on a 7.5k lease is only 5250 or 437.5 extra a month.

I think it's actually worthwhile to get a lower mileage lease. The mileage is also waived if you buy it out. I'm going to do the 2 year 7.5k and just plan to either buy or pay overage.

I'd get a quote on a 2 year 7.5k or 10k normal lease. I don't know that one pay is worthwhile when you consider you're losing the yield on the cash you're paying upfront.

The thing is I actually believe Porsche leases are setting a residual that's higher than what the cars will be worth. That's what's changed for me. I also plan to put on a lot of miles and I actually think buying extra miles will be cheaper than depreciation.

If you're planning to keep the car for years and years, sure, but if there's a chance you'll sell the car in 2 or 3 years you could be looking at a devastating sell price.

 

[tmrqs]

30cts/mile is indeed not terrible, and good to know it’s not charged If you buy the cart in the end.
I suspect worse case I’d do an extra 1k mile per year, so $600 over 2 years… I can live with that!

Thanks @PanameraFrank!

 

[dgkhn]

Following your logic, I did a 2-year 7500 mile regular lease on a Macan 4. (The residual on a Macan 4 in that situation is 67%, more than the Turbo, so that tilts the calculation even more in the lease direction.)

Besides the reasons given by @PanameraFrank, by doing a regular lease you can buy it out any time over the lease life (without paying the remaining rent charge), so you have even more flexibility. You might want to look at the math of doing a two year lease, and then buying it out after 1 year or 18 months, vs doing those shorter-term leases.

By the way, for the most part, each additional 2500 miles in the lease reduces the residual by 1% of MSRP (I think one of the gaps is slightly different) (the 12 month and 18 month leases are different because they force you to take 15,000 miles per year). So, on a two year, 7500 mile/year lease, if you go to 10,000 miles/year, in your example, it will lower the residual by about $1200. Assuming you would actually drive the extra 5,000 miles over the two years, those miles would cost you $1500 (5,000 x $.30), or only a $300 penalty all told.

One more thing on the opposite side of the ledger: whatever you earn on the "money unused" will be taxed at your marginal tax rate.

 

[TomekGnomek]

Big factor in this is IMO battery degradation.

Even if you plan to buy the car (as I do) you can lease it for 2 years, check the degradation / SoH and decide if you want it. This way the lease plays some form of insurance - yes it will cost you more but it will protect you in case the degradation and value of the car plummets.

Taycans have very high degradation after 2 years from what I hear.

 

[cottony]

i have a 4S pickup coming up, was leaning towards cash purchase, but after checking this thread, it inspired me to look into lease terms with my SA.

cash price out-the-door (incl taxes/fees): ~$110,000

lease details:
$5,500 down, 24 months, 10k miles, monthly payment ~$1,900 (incl taxes), residual ~$64,100
total paid over lease: ~$51,100
total cost to own: ~120k

i looked up some formula for withdrawal-adjusted returns (cause we technically need to withdraw from the investment principal every month to make payments). I live in California, so assuming a tax-free rate of 2.5% using CA muni bonds, i'd earn ~$4.5k in non-taxable interest over the lease period. This reduces the cost to own down to ~115.5k.

in summary, it's a ~5.5k premium to lease over purchasing. whether that's an attractive offer or not comes down to individual risk tolerances.

===

i think something that often gets overlooked when calculating interest accrual from investing over the lease period is 1) not accounting for taxes and 2) not accounting for withdrawals.

in states with high state taxes, it is marginally more advantageous to take the tax-free yield over treasury bills/notes (which are not subject to federal taxes but are subject to state taxes), at least this was the case when i last crunched the numbers.

if i just used the general interest rate formula assuming no withdrawals, it would have shown that i'd have earned ~1k more in interest over the lease period.

 

[Salespunk]

In this instance there is NO reason not to lease no matter what the rate/residual is since you can capture the $7500 tax incentive. For those not used to leasing, there is a amortization table just like a loan. Simply buy out the lease the first month.

To answer some questions, no you don't have to pay the total of the lease payments and I don't believe PFS has a pre-payment penalty. I know that Audi/BMW/GMC/etc do not have pre-payment penalties and I would be shocked if PFS did.

Example from when I bought out my Audi and BMW leases in the past.

Step 1 - Sign the lease!
Step 2 - Wait for your to go live in the PFS app or online
Step 3 - Go into your account and get the buyout number. Should be the purchase price + any fees you wrapped into the lease - $7500 tax credit - any down payment
Step 4 - Send the check!

BTW there are significant reasons to lease an EV right now. Primarily you shift the risk to the lender on technology changes that affect vehicle values. In addition if you are in a state like California that only charges tax on the monthly payment you avoid 57% of the sales tax. For us in high tax states that can be significant, 8.5% locally for me. On a $110K purchase that would be ~$5K in savings if you lease to term.

 

[cottony]

In this instance there is NO reason not to lease no matter what the rate/residual is since you can capture the $7500 tax incentive. For those not used to leasing, there is a amortization table just like a loan. Simply buy out the lease the first month.

To answer some questions, no you don't have to pay the total of the lease payments and I don't believe PFS has a pre-payment penalty. I know that Audi/BMW/GMC/etc do not have pre-payment penalties and I would be shocked if PFS did.

Example from when I bought out my Audi and BMW leases in the past.

Step 1 - Sign the lease!
Step 2 - Wait for your to go live in the PFS app or online
Step 3 - Go into your account and get the buyout number. Should be the purchase price + any fees you wrapped into the lease - $7500 tax credit - any down payment
Step 4 - Send the check!

BTW there are significant reasons to lease an EV right now. Primarily you shift the risk to the lender on technology changes that affect vehicle values. In addition if you are in a state like California that only charges tax on the monthly payment you avoid 57% of the sales tax. For us in high tax states that can be significant, 8.5% locally for me. On a $110K purchase that would be ~$5K in savings if you lease to term.

i was told there is a clawback on the 7500 if you buyout too soon; i was told by SA it's 1 yr, but i haven't verified this.

regarding the sales tax savings, that is assuming you don't purchase the vehicle at lease end -- i believe paying the residual incurs sales tax.

 

[krissrock]

i was told there is a clawback on the 7500 if you buyout too soon; i was told by SA it's 1 yr, but i haven't verified this.

regarding the sales tax savings, that is assuming you don't purchase the vehicle at lease end -- i believe paying the residual incurs sales tax.

yeah, i've been told you do have a 1-3 months before you buy out the lease... But I don't think one can make this determination with allllll the numbers.

 

[adamjay79]

Supposedly a one pay lease makes the terms better as well.

 

[PanameraFrank]

You can buy out the lease whenever you want. However, the dealership will be punished if you buy out extremely early. That's why they're telling people various time frames.

You will likely never be allowed to buy a car from the dealership if you buy out immediately.. but the dealership can't stop you and there's no way to "claw back" the 7,500. The 7500 is being given to you as a discount, it's not contingent on anything.

 

[cottony]

You can buy out the lease whenever you want. However, the dealership will be punished if you buy out extremely early. That's why they're telling people various time frames.

You will likely never be allowed to buy a car from the dealership if you buy out immediately.. but the dealership can't stop you and there's no way to "claw back" the 7,500. The 7500 is being given to you as a discount, it's not contingent on anything.

thanks that’s good to know. The SA I’ve been working with has given me some scummy vibes. Like withholding information or twisting the facts in a misleading way. This is just another example.

 

[USMA81]

In this instance there is NO reason not to lease no matter what the rate/residual is since you can capture the $7500 tax incentive. For those not used to leasing, there is a amortization table just like a loan. Simply buy out the lease the first month.

To answer some questions, no you don't have to pay the total of the lease payments and I don't believe PFS has a pre-payment penalty. I know that Audi/BMW/GMC/etc do not have pre-payment penalties and I would be shocked if PFS did.

Example from when I bought out my Audi and BMW leases in the past.

Step 1 - Sign the lease!
Step 2 - Wait for your to go live in the PFS app or online
Step 3 - Go into your account and get the buyout number. Should be the purchase price + any fees you wrapped into the lease - $7500 tax credit - any down payment
Step 4 - Send the check!

This is exactly what I did. 2 year, 5,000 miles/yr lease, then first month payoff. There is no prepayment penalty, but dealer is penalized by Porsche in some way if you pay off sooner than 3 months, probably because they lose interest income. The leasing interest rate was 9+% which I thought was ridiculous. I ran the numbers and believe that doing this I am ahead by a few thousand dollars over buying outright (so I essentially captured half +/- of the ev credit). I prefer to own anyway. I will plan to keep longer than shorter time and if I was really worried about high depreciation I wouldn’t be interested in any ev.

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