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Questions about leasing an MS

Discussion in 'Model S: Ordering, Production, Delivery' started by badlydrawnboy, Jun 9, 2016.

  1. badlydrawnboy

    badlydrawnboy Member

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    I just put a deposit down on a 2017 90D with sunroof, grey turbine wheels, premium upgrades, and autopilot. I'm excited!

    I'm a small business owner and have decided to lease for two reasons: I can write off 80% of my monthly payment, as well as other related expenses; and I will probably want to upgrade to the latest and greatest model in 3 years.

    However, I've never leased a car before so I have some questions:
    • I've read that it's a good idea to pay the absolute minimum down on a lease. If that's the case, should I sell my old car privately rather than trading it in to Tesla? Does it matter?
    • I saw somewhere that the money factor and APR for the Tesla lease have gone up after Q1, and the residual values have gone down. Is that true? If so, would I be better off getting a lease from another company? Any recommendations?
    • My understanding is that the federal tax credit reduces the capitalized cost and the residual value of the vehicle. This reduces the monthly payments, but if I decide to buy at the end of the lease term would that $7,500 be added to the price?
    Any other tips you have on leasing would be appreciated. Thanks.
     
  2. rcsting

    rcsting Member

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    Its always a good idea when leasing to use as little of your own money as possible.

    The residuals went down about 1 month ago which raises your monthly lease payment.

    The lease agreement shows you the total residual at end of lease, Tesla won't add $ 7500 to that price if you purchase.

    Did you use a referral code for the $ 1000.00 discount ? every dollar matters :)
     
  3. zwily

    zwily Member

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    That's right, but that residual does already have the $7500 included in it. They use the $7500 to raise the residual, which lowers the monthly payments. So if you do purchase the car at the end, you are paying back the tax credit. I have no idea why they do that, but it's another reason you shouldn't lease unless you're positive you won't be keeping the car. (That's what I'm doing.)
     
  4. rcsting

    rcsting Member

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    That's my reason for leasing too. The technology is advancing at such a rate that in 36 months there will surely be an improved version with all of the latest bells and whistles.
     
  5. Moneesh

    Moneesh Member

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    I just ordered min 90D, with same config as the originating post..... going the leasing route as well. The timing in change of the residual change is directly correlated to the introduction of the new fascia. As explained to me, Tesla wanted to move as many cars as possible prior to the new Model S facelift, so they changed the residual in anticipation of the design change

    To me it is worth having the most up to date design, but there is a cost - I'm not going to for over 110k in a purchase or lease equivalent payment for something that is already outdated. That's another reason that I am going with the lease - Tesla is like Apple, after you get your new device (or car) the better newer version is available. The 100D will probably be announced the day I pick up my 90D, which tends to be my luck.
     
  6. badlydrawnboy

    badlydrawnboy Member

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    Thanks everyone. I've always bought my cars with cash and kept them for 10+ years. Part of the reason I'm so drawn to the MS, however, is because of its disruptive technology. I know leasing doesn't make great financial sense (though it is not so bad when you're a business owner and can write off most of the payments) compared to buying, but I'd rather pay a little extra for the peace of mind that comes with knowing I'll be able to turn it in 3 years later and get the latest and greatest.

    Moneesh, I had that same thought/concern when I saw that Tesla made an announcement this morning! Fortunately it didn't impact my 90D order.
     
  7. chillaban

    chillaban Member

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    If you are not planning on writing it off for business/tax purposes, you may also like to consider financing your Tesla with the Resale Value Guarantee. It's pretty much identical to leasing in terms of the total cost of ownership if you invoke the turn-in at 36mo, but it works out better in your favor in terms of keeping your 7500 tax credit and so on in case at 36mo you really decide that you'd rather keep the car a little longer.
     
  8. badlydrawnboy

    badlydrawnboy Member

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    Thanks chillaban. I am definitely going to write off at least 75-80% of the monthly payment.
     
  9. Blue Millenium

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    US. Bank the leasing company is not reliable from a service standpoint. I have had problems getting out of my lease due to the number of miles I drive and had to involve the better business bureau to assist them in getting an accurate payoff quote. I am on day 75 and the issue is still not settled. Caveat Emptor
     
  10. ChadFeldheimer

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    I have a lease from US Bank as well. Would you mind elaborating? Was their calculation of the early payoff amount incorrect or were there other issues?

    I haven't had too many issues with them - although my interactions essentially consist of them accepting my money each month =)
     
  11. Blue Millenium

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    The attorney general's ongoing investigation prevents elaborating at this time.
     
  12. chillaban

    chillaban Member

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    FWIW, in another thread, someone posted their leasing agreement from US Bank, and it was shockingly punitive if you deviate from the lease schedule. While most other financing departments will rebate you unearned rent charge and fees, US Bank's early payoff also assesses the early lease termination penalty of one or more payments and seems to have other fine print too regarding the payoff amount.

    IMO this is one lease where you're best off planning to make all the payments and make them on the contractual schedule.
     
  13. XLR8OR

    XLR8OR Member

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    I've read a lot of mythology and outright wrong information on leasing on this forum (and Tesla's too), so I've been meaning to write something like this for a while. I've leased my cars for years, and you'll see why shortly. Here's the essence of car leasing:

    The basics: leasing is no more complicated than thinking of it as a means of financing the depreciation on a car, which is defined as the difference between the capitalized cost and the residual value at lease end. All tax credits are taken by the lessor, and effectively reduce your CapCost. You maintain the vehicle, and assuming good care and normal wear and tear, have no liability for the value of the car at the end of the lease; the lessor has made the residual value bet at the beginning, and wins or loses accordingly. The interest rate you pay on an auto lease is called the money factor; to convert the MF to an APR, multiply by 2400.

    Current lease terms: per an email to me from the finance team at Tesla on June 17, the present MF is .0018, for an APR of 4.32%, The residuals on a Model S are 61%-63%, depending on the mileage permitted under the lease.

    Own or Lease? This is where there is a lot of myth. Here are the facts: on a pretax basis, leasing is always more expensive than owning because you have no equity value in the car under a lease, whereas you do if you own the car, all other things being equal. The differences arise if you intend to write off some portion of the car for tax purposes.

    It's essential to understand that there are significant limits to the available depreciation of a luxury car that you own. Under the Internal Revenue Code, that limit is ~$18K over 3 years, and it doesn't matter whether you bought a $50K car or a $400K car; it's the same. By contrast, there is no practical limit to the amount of lease payments you may deduct, unless you've got a pretty unusual tax situation. However, YMMV.

    After-tax cost. Operating costs on the car are the same whether you own or lease, so you can ignore those. What remains is the amount of depreciation you can take or lease payments you can deduct. Over 36 months the lease payments on a MS will amount to nearly $50K, but the depreciation on the same car will be $18K. At a 45% marginal tax bracket, that's an aftertax difference of $14K.

    If you are employed, meaning you get a W-2, you're basically out of luck. Why? You can't deduct commuting costs, and whatever mileage you incur on behalf of your employer must be reported on Form 2106, Unreimbursed Employee Business Expenses. There is a low limit to this, and is subject to an AGI minimum hurdle.

    If you are self-employed and use your car for business, leasing is almost always cheaper than owning on an aftertax basis. You add up all your costs of operating the car, including depreciation or lease payments, as the case may be, and multiply that sum by the percentage of total mileage that was for business use. You are then entitled to the greater of that amount or $0.54 a mile, which is the present IRS flat rate (it will be more than $0.54/mi, trust me).

    Since this stuff is ripe for an IRS audit, you'd better keep contemporaneous records documenting every business use of your Tesla. I use an iPhone app to do this, but paper logbook is fine. Making statements like "100% of my use is for business" or "I'm going to write off 80% of my car" is asking for trouble. First, the burden of proof is on you and the records you kept (or didn't). Second, envision yourself meeting with the IRS auditor, who drives a used Camry, while you try to justify your expensing of a $100K Tesla. "Absolutely, sir, 100% of my driving is for business; I never drive it for pleasure." Sure.

    I drive a lot for business, and have found that over the years it averages 65-75% of my total mileage. I think it'd be hard to legitimately claim more, but, YMMV.

    So, what does it take to make leasing cheaper than owning? 1) be self employed; 2) have a high enough marginal tax bracket, say above 35%; 3) drive enough for business, say above 45%. It's a simple analysis, and I run the numbers each time I get a new car. For the $103K Model S 90D I just ordered, leasing was more expensive on a pretax basis but much cheaper on an aftertax basis (and we live in an aftertax world). For every lease going back 15 years that has been the case. Plus, I get a new car every 3 years.
     
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  14. KZKZ

    KZKZ Member

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    Does Telsa/US Bank charge a fee at the termination of the lease if you don't purchase the vehicle?
     
  15. XLR8OR

    XLR8OR Member

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    No. You're under no obligation to purchase anything. If you were, it wouldn't qualify as a lease.
     
  16. ChadFeldheimer

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    US Bank charges a $395 disposition fee if you don't purchase the vehicle.
     
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  17. KZKZ

    KZKZ Member

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    Ok thanks!
     
  18. buckerine

    buckerine Member

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    Great, great, great write up and this should be "sticky"'-ed on every forum where owning vs. leasing is discussed. Although, I should add that leasing ties you in for the length of your lease unless you transfer the lease. The problem is finding someone to take over the lease isn't so easy. Some people, like me, may not be so comfortable with that. Financing gives me the flexibility to unload the car much more easily. I just trade it in, sell it in a private sale, or sell it to places like CarMax.
     
  19. chillaban

    chillaban Member

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    This actually depends on the leasing company and isn't actually true universally. What you said is true for Tesla / US Bank's lease: The lease payoff to buy out the lease is only penalty-free at the end of the lease period, but buying out the lease earlier incurs a penalty of one or more lease payments!

    This is not true for all leases. For example, Audi hits the middle ground where you can buy out your lease and get the unearned lease interest (rent charge) discounted at any point in the lease, so it's basically equivalent to financing but you're financing half the car at double the average interest rate, but it gives you a guaranteed safety net. In that regard, leasing gives you MORE flexibility than financing, because even if you can't sell the car in your favor within 36 months, you can still just return the car at the end of the lease compared to financing….


    BMW actually takes it one step further: If you would like to terminate a BMW lease early, you can either:
    (1) buy out the lease and trade in the car at any time with no penalty
    (2) make the remaining payments on the car and turn it in early, with no penalty. This one sound stupid but it's actually very useful towards the end of your lease when you only have a few payments left.
    (3) Invoke BMW's early lease termination clause and BMW will auction off the car on your behalf and send you an invoice for the deficit versus how much you've already paid.

    And BMW will actually help facilitate choosing the minimum cost of those 3 options on your behalf.



    TLDR: Some leases are actually more flexible than financing. Tesla's through US bank is not. If you lease through Tesla, you should plan to keep the car for the entire 36 months and then turn it in at the end. Making any other move puts you at a noticeable disadvantage versus the average luxury car lease from other automakers.
     
  20. CapeOne

    CapeOne Member

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    I think it's wrong to say that leasing is always more expensive and misleading to say it cannot provide "equity" or at least similar. Leasing can still allow someone to build up cash thanks to much lower monthly payments versus financing and potentially allows the lessee to end up better off financially.

    Example: Person #1 leases a car with $0 out of pocket for $700/month for 36 months and person #2 finances same car with $0 out of pocket for 36 months for $1,450/month. Let's say at the end of the three years the car is worth $25,000.

    Person #1 turns the car in and has $27,000 in the bank ($1,450-$700 x 36) saved from the lower monthly payments and person #2 has a car worth $25,000. Here, the person who leased has $2,000 more in assets at the end of three years.
     

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