The rational behind leasing a car is simple. You basically rent the car for a period of time then drop it off when the lease expires without any obligation (generally if the car is clean) or further costs.
What you're doing is paying for the depreciation of the vehicle during the lease. So, if a car is new and worth $50,000 today and in 3 years it’s expected to be worth $30,000 then you as the lessee basically pay the depreciation of the car over the 3 years to the lessor and get a new car every 3 years.
Seems simple and smart, right? Wrong, I'm going to show you a better way drive cars if you can raise a lump sum of money. For me it was obvious, I'm in the business of raising lump sums of money to settle debt.
So a BMW M3 Cabriolet (convertible) is a gorgeous car, it’s a driver’s machine and is truly sublime. A few years ago. After several years of very frugal living and driving cheap cars my accountant talked me into spending some money. And that was tough for him to do. After all he's the guy that told me cars are a colossal waste of money.
It was 2006 and I was looking for a 2003-4 M3. These cars were selling for $80,000+ brand new. I always buy used and private. 3 reasons:
1) Let someone else pay the depreciation in the first couple of years
2) Dealers usually lie and just tick me off
3) You can usually negotiate a better price with private sellers.
In 2006 used M3 Cabs were selling for $50,000 –. $60,000. A 2003 Imola red M3 Cab for $46,000, with low miles really caught my eye. It was cheaper then the rest and red was a rare color on these cars. It looked stunning.
So I checked it out, drove it and was really impressed. It was my first real experience in a premium German car and I was sold hook, line and sinker.
There was a catch. It was a US car. No big deal right? Wrong, the car hadn’t sold for a reason. It scared buyers. The owner had imported it as a “salvage title”. Meaning it'd been written off in the US. But he'd paperwork (albeit dodgy looking but, I verified it) to show that in the State of New Jersey when are car is stolen and written off. The vehicle later recovered it gets a “salvage title”. Because the owner was already paid out by the insurance company.
In other states a salvage title means the car was written off in an accident. Salvage titles can’t be sold in the US again. So it wasn’t in an accident like most people would normally believe and everything including the VIN checked out on the Carfax report. In fact the car was in flawless shape and found by authorities in a shipping crate ready to go across the Atlantic. It was sold at an auction by the insurance company to my seller.
So the next step was to negotiate a final price. I knew the car was up for sale for almost 6 weeks because I was following the used car ads. That told me the seller was having a difficult time unloading the car because of its history. So I told him, “regardless of the asking price, this car would be very tough for me to unload when I needed to get out of it”. He knew it was true. I offered him $38,000 and after some negotiating we settled on $40,000.
I got a car everyone else was selling for $60,000 or more with lower miles (only 35,000 miles when I got it) for considerably less.
I enjoyed the car for about 36 months, put on another 30,000 miles and sold it for $36,000 (I fully disclosed the history to the buyer), my cost to carry the car for 3 years was only about $111/m in depreciation to drive a premium German automobile.
Comparable used cars were leasing for about $900/m with $5,000 down at the time I bought mine.
That’s how I like to buy cars. It’s easy and don’t be afraid of private sellers and cheap car ads, check them out. Sometimes there is a good reason behind it and nothing really to worry about if you do a little homework and dig deeper.