Should a real estate agent buy or lease their vehicle?
There really is no definite answer to this question. It “all depends”. There are numerous factors to consider.
Fundamental Value of the Vehicle
Manufacturers will look at their existing stock of vehicles and determine the pricing. This takes place monthly, sometimes weekly. They have to move the inventory, no matter what. So, they negotiate financing and leasing deals and make offers to the public. So, the actual true price of a vehicle fluctuates on a regular basis. However, the manufacturer’s list price never ever goes down. They want you to think that you are getting a good deal. Any vehicle available at any point in time might be a better deal as a lease or a better deal as a finance or a better deal as an outright purchase. That’s on the acquisition side of a particular vehicle that you like and have already picked out.
Value and Taxes
Then, there’s the competitive market, namely, other vehicles etc. Depending upon where they are manufactured there may be different taxes imposed and effectively rolled into the cost.
Retention of Value over Time
Also, some vehicles are built better, will last longer, and retain their resale value more than others. So, be sure to pick the vehicle you want.
New or used is another aspect of the acquisition that is important to take into consideration. Most vehicles depreciate substantially in the first year. Why not wait and acquire the vehicle at the price you want one year later? Yes, I appreciate, you didn’t get your choice of colour.
Government Subsidies
The next aspect naturally is government subsidization of the vehicle they want you to purchase. Their choice, not yours! Now, did the comparative price of that vehicle go up in relation to the rest of the market solely because of the subsidy? Maybe, and that would simply mean it’s overpriced. You would have to move into the secondary market to ensure that there is no real impact.
Electric vehicles are often subsidized in part by government incentives. Do they hold their value? Can you get insurance to cover you for the cost of battery replacement. That could easily amount to $25,000.00. That’s an expensive battery!
Personal Finances
Then, we move to your own personal financial situation. The best test here is to go to your own Bank and determine what it would cost you to finance the purchase. That works for second hand vehicles, but it’s no match for brand new vehicles. So, how much is that vehicle really worth from the manufacturer?
Personal Real Estate Corporation
Now that we are this far, and you have picked the vehicle that you want, your accountant should be in a position to make some recommendations to you concerning your own financial situation, and your PREC and your spouse, and your children and your current tax liability and theirs. Mileage, personal vs. business etc. One size does not fit all in this mathematical analysis.
Risk of Damage and Buyout
Also, if you are inclined to rent, you get to keep the car for the lease term or turn it in. What’s the buyout? Attractive, that means you have paid it down to a great price, or unattractive, this vehicle should be returned. That’s the manufacturer pushing or pulling at the price over the year. So, you have to watch and know this at the outset.
If you are a lousy driver and you are in a $20,000.00 collision, you want to return that vehicle not buy it out. This means that you may get a 4 year test drive of the vehicle. That would be perfect.
If the buyout is great with respect to a lease and you maintained it well, that should be taken into consideration.
Conclusion
Sorry, no clear answer here! You will obviously need an Excel spreadsheet. Then again, forget all this and go for the brand new Lamborghini and pay that new Luxury Tax as well.
Brian Madigan LL.B., Broker