770 – Buying an auto? Listen to this NOW: Tom talks Auto Leasing vs Buying

Episode 770 – Auto Leasing vs Buying
[00:00:08] Welcome to Screw the Commute. The entrepreneurial podcast dedicated to getting you out of the car and into the money, with your host, lifelong entrepreneur and multimillionaire, Tom Antion.

[00:00:24] Hey everybody, it's Tom here with episode 770 of Screw the Commute podcast. I'm going to talk about auto leasing versus buying for your company and all the pros and cons of that. And somehow, this entire week was about motor vehicles because episode 768, that people are just going crazy over, was on car rental hacks. I could save you thousands of dollars on car rentals if you just listen to that episode. And then also Episode 769 was all kinds of cool ways, and I'm not talking just Uber and Lyft. I'm not even just wiped them off the table. I'm talking about ways that you can get paid for driving. All right. Again, I'm all about Internet marketing. But the thing is, is you can make cash with these things if you need cash. So check out back episodes at Screwthecommute.com, slash, then the episode number. Car rental hacks was 768. Getting paid to drive was 769 and leasing versus buying is today at 770. All right. Make sure you pick up a copy of our automation book at screwthecommute.com/automatefree. Follow me on TikTok at tiktok.com/@digitalmultimillionaire.

[00:01:38] All right. Let's get to the main event today. We're going to talk about leasing vehicles. Now, if you're interested in information about leasing commercial space and buildings and equipment, check out episode 166. And I always must remind you, to get competent, legal and accounting help when you're doing this kind of stuff.

[00:02:02] Don't just rely on something I've said in this podcast. I don't know your financial and business situation. This is meant to be a primer to give you some of the big picture issues with regard to leasing and whether it makes sense for you to look into it to further your business. So let's get into some of the pros and cons of leasing. But before I get started with that, let me make a blanket statement that I've heard from many business people over the years, and I agree with it myself. Rarely does leasing make sense on a personal level. Usually to take best advantage of leasing. You need to be in some kind of business or some kind of business entity, even if it's a sole proprietorship. Fine with me. But to take advantage of all these things that we're going to talk about today, you really need to be in some kind of business and you wouldn't get these these deals if you were an individual. So check with your tax professional on this. All right. Let's talk about vehicles. See, a lease is basically a really long. Car rental. Okay. If you rent cars often, also make sure you absolutely listen to episode 768. Screwthecommue.com/768, which could save you thousands of dollars on short term car rentals. But we're talking about leasing today.

[00:03:29] So with vehicles we have to discuss closed and open end leases with a closed end lease. The lessor that's the company you're leasing from. Assumes the risk that the vehicle will depreciate, in other words, become less valuable over time. Now, to reduce this risk and to reduce the amount the vehicle will lose in value, the lessor, again, that's the company you're leasing from, sets annual mileage restrictions so that you can't run the wheels off the car and put 200,000 miles on it for the basic lease price. Also, they usually keep the lease from 12 to 48 months so they don't get back a beat up old piece of crap at the end of the lease and then have to fight with you over misuse or abuse of the vehicle. If you do go over the mileage allotted, you usually pay a hefty premium like 15 to $0.30 per mile or more. And that really adds up. At the end of the lease, you'll have the option to purchase the vehicle at the. And here's the word residual value or just return the vehicle to the lessor. Now, the residual value of the car is what the car is worth at the end of the lease term, assuming typical wear and tear residual value is determined by the bank or finance company that's holding your lease contract and it's usually non negotiable. Okay.

[00:05:13] Now, if at the end of the lease the car is actually worth more than the residual value, you could exercise your right to buy it and then sell it and make some money. If it's worth less because you ran the piss out of it, basically, or damaged it, you'll be responsible for the difference. That's why if you do damage it, you should fix it yourself. Or, you know, somehow before you turn it to them. Because if you turn it back with damage, who knows how much they'll charge you to fix it. Now, this residual value is why it's really important to research which cars are worth at least 50% of their value after three years or for whatever your lease period is. If a car depreciates way more than that, it would be a bad idea to lease it because you'll get screwed at the end of the lease because it'll be worth way less than, quote, the residual value. All right. So that's a closed end lease. Now let's move on to open end leases. See, an open end lease is more common for commercial vehicles, and that kind of lease allows you to assume the depreciation risk. This means I mean, you kind of assume it no matter which one you're doing. But this means that at the end of the lease you can purchase the vehicle or pay the extra depreciation to the lease or when turning it in.

[00:06:42] So if you beat up the vehicle and put tons of miles on it, well, great. But you will either buy it at the end or pay up for beating it up. All right. But in either lease, you're going to pay one way or the other for beating up a vehicle. There's no way around that. Now, I want to tell you a story about my leased Mercedes and how my dogs gave me two weak headaches all the time. But before that, let me tell you about what I did about 25 years ago to turn the Internet training world on its head. See, people at that time were like me, We're charging 50 or 100 grand up front to teach what we knew to clueless business people who refuse to learn it on their own. And I'm a small business advocate, and I knew many small businesses could never afford that kind of upfront money. So I made all those gurus mad by charging a relatively small entry fee to my program that also got a percentage of profits that was capped so that you're not stuck with me forever. So for me to get my big money, you had to make way bigger money. So for me to get my 50,000, you had to net 200,000. Well, guess what? People love this. And they knew I wasn't going to disappear because I want to get my money right.

[00:08:02] And I went several steps further of things that were never done before. I got this big estate home and TV studio where my students, as part of their year long training, come and actually stay in my house for an immersion weekend. And that's just one of the unique features. They also get a scholarship to my very unique that's the only licensed, dedicated Internet marketing school in the country, digital marketing too. And they can gift that to someone their children, nephews, nieces, grandchildren and save those kids a fortune and give them an actual marketing or actual marketable skill. So anyway, check it all out at greatInternetMarketingTraining.com. We'll have that in the show notes and give me a call if you want to discuss. No high pressure here.

[00:08:49] Okay, here's my headache, my two week headache. For about nine years, I leased a Mercedes sedan every three years. The reason I did it was I wanted the tax deduction. I mean, I don't drive that much, maybe 9 or 10,000 miles a year. And I didn't want to be responsible for a $10,000 transmission. Right. I always worried about that because before I leased, I had Mercedes and I was always worried. You know, the the transmission goes out. You've got 5 to 10 grand just for one thing. So I was always worried about that.

[00:09:24] And I'd still be leasing them if it wasn't for my dog. So. All right. So I kind of cheated for a year. So by putting my two German Shepherds in the back seat of the Mercedes, which was a major no no, in my lease agreement, you weren't allowed to have animals in the car. Well, so I bought a big tough dog seat cover, but there was still dog hair everywhere. And but the big thing was they were sitting right behind me, and Abby would bark in my ear if anyone got anywhere near the car, even if I went through a drive through window to get a hamburger, she would give me a headache for two weeks. You just just totally go crazy. So I knew I needed a much bigger vehicle and I knew I needed to customize it for my protection dog part of my business. So it made sense to get another vehicle and purchase it. So I now have a Suburban with a custom dog kennel in the back and a custom bumper in the front and a dual battery system and a bunch of other custom features. And it's paid off. So no payments. And unless I wreck it, it's going to be around for a long time because I don't put on a lot of mileage and I take extremely good care of my vehicle.

[00:10:43] So in this case, it definitely made sense to just buy it. I think I have about $75,000 in it. I mean, it's paid off and it only has 84,000 miles on it and ten years and it looks brand new. So. All right. So. Let's take a look at a bunch of advantages to leasing and then we'll get into some disadvantages of leasing. So so one of the advantages is potential tax benefits. So your lease payments are normally tax deductible, but that depends on whether you take your standard mileage deduction or not. So again, check with your tax advisor. And it's easy to stay competitive so you can drive a much nicer car than you could normally afford. So if you need to, you know, to keep up with the Joneses businesses, you know, to look good and look successful, then you can do that much cheaper. It's easier to get approved. You don't actually own the car. You typically don't need as much money up front and with great credit. I don't think I ever put any money up front on these. I don't know, $100,000 Mercedes that I only. Uh, usually a lower payment than a car loan payment would be. And it can be better and cheaper for you as prices go up on new cars. So if you don't want to buy a new car because the inflated prices and most leases are under the warranty period of the car, and as long as you make sure you have a good lease agreement that covers you, major failures of the car like blown engines or bad transmissions aren't your problem.

[00:12:25] The other thing is you don't have to go through the hassle of selling the car when the lease is up. That's you just turn it back in or you can buy it from them. And plus, you can enjoy driving a new car every few years. So again, these are advantages of leasing, but you must check with your tax professional when considering a lease because a lot of things can go wrong. Okay. Some disadvantages of leasing is you will pay a premium if you go over the allotted miles and that can add up pretty fast. You'll be responsible for excessive wear on the car. Typical wear. Fine. But excessive wear on the car and any damages to the body and interior. That's your trouble. You're going to get charged. You can't use the vehicle in any way you want with no strings attached, like with my dogs. And some don't allow you to drive on dirt roads. Think about that. Or on any off road situation. I mean, you could technically be in violation of the lease to go park in a field at the Kentucky Derby or something if it wasn't paved. And you won't be building an asset.

[00:13:34] For instance, my Suburban is worth a lot of money still, and if I ever decide to sell it, I could get money out of it. And you won't be able to take depreciation deductions off your taxes. Again, this is one of your tax advisor areas to discuss. Now, this is a big one if you decide to end the lease early. Oh, boy. There could be extremely large penalties for doing so. So you've got to make sure you're solvent enough to go for the length of the lease. Or you could pay big penalties and there could be unexpected fees at the end of the lease period. So make sure you understand all the fine print. And again, get somebody that knows what they're doing to help negotiate it and to show you the areas that could be trouble for you. So there's a little primer on leasing vehicles versus buying vehicles and just be extremely careful. But if it works for your business, these are the kind of things you got to address. So. So there you go. So check out my mentor program for all kinds of business tips. I've been in business, I think 46 years, long before the Internet had even started. And I'll be glad to help you. So check it out at greatInternetmarketingtraining.com. All right. We'll catch you all in the next episode. See you later.