Though I take everything he says with about a tablespoon of salt, this is one topic where I can really agree with Dave Ramsey.
Dealers make the most money on Leases. They’re not getting that money out of thin air. It ultimately comes down to the fact that you, the consumer, pay much more in the long run. You get to deduct more from your taxes, because you’re paying more.
I would much rather get a two or three year old vehicle, and get private financing at the credit union. I would guarantee the loan personally, if the CU didn’t think I’d been in business long enough.
Granted, there are certain vehicles that just don’t depreciate enough in the first two or three years to justify going that route. But most vehicles do.
Having a regular car loan is bad enough… Think of a lease as compound debt. Just the opposite of compound interest… Plus the multitude of clauses like mileage, more insurance etc… What happens when your SH rusts out the truck how is that covered in a lease? By the way CPA’s are also the guys telling everyone that every house they buy is an asset… Tax write offs are way over rated…
If you’ve got the money, buy the darn equipment. 5 months left in year. Can make enough to buy truck outright too, good used one. Don’t know why anyone would ever buy a new one in our business. They get beat to crap, all kind of crap spilled or sprayed on them. And I take care of my stuff.
I think @squidskc business decisions are made based on a path that is vastly different than some of you guys. However, I am not sure leasing is the best decision either… if you are prepping to sell your business, why not purchase a vehicle that would be equity with the sale?.. unless you are just selling the business model and name, without equipment? Either way, I am not too sure about the lease option for many of the reasons some others have stated, tax benefit is not great enough to offset a lease (with potential penalties) in my mind. A possible solution would be to put some of your cash as a downpayment on a used vehicle for your business, make the loan in your business name… and boom goes the dynamite… business equity and business credit! Of course, this may not work if you are attempting to get an $80,000 vehicle. If you have business credit with Capital One, ask them what terms and criteria they have… they are already familiar with your business/business credit/income and should know if you meet the minimum criteria to even ask for a loan.
Some banks may not consider your DUNS number and may require a PG loan. Talk to a few fleet managers at local dealerships to find more info, they can help you get the right info more than the bank.
And @Innocentbystander was right…you should not have let $225 stop that deal. Pay a couple extra notes a year, or pay the loan off early and you could have saved that much on interest charges.
@RARE is 100% correct. My intention is to sell my business in which case leasing is appropriate.
A couple things happened with the $225 application fee.
I was promised until the final step that would be waived. They retracted it.
That made me uncomfortable about trusting a $10k lease that turned into $20k over its lifetime.
There’s no benefit to paying back the lease note early. You still pay the multiple no matter what.
It was a blessing in disguise. I don’t need that equipment after reevaluating what I want my business to be good at and I also found a Landa dealer that I’d like to maintain a relationship with who can get me inarguably better quality equipment for much more favorable terms.
Lastly, I may have ended up paying the $225 if I hadn’t listened to all of you who told me repeatedly not to lease.
It also gave me time to find out why my CPA would recommend leasing equipment since he’s the one with the CPA behind his name.
Every dime that goes into leasing a vehicle is tax deductible and depending on who you lease from fleet maintenance can be included. Warranty. New tires. Etc. At the end of 3 years you lease a new one. There are less issues with older vehicles being down (which means lost revenue) and you can invest whatever you may have spent on another vehicle into other tax deductible things such as marketing or you can leave it in cash.
Also, believe it or not, new cleaner vehicles can be used as a marketing tool and to build trust.
With business owned vehicles turning them over at the time of sale can be a huge hassle if some need repairs or don’t pass inspection or whatever. If the used vehicle has been depreciated fully it has no equity when it comes time to sell.
There’s a reason Terminix and NAPA auto parts and Window Genie lease vehicles.
There are times when leasing actually makes sense, but there’s also times when owning it makes sense.
I guess I should’ve been more clear. A truck with 250,000 miles and a rusted through bed that’s 10-15 years old doesn’t mean much at all on a balance sheet. FMV might be $3000 max?
I can’t sleep so I’m up reading & came across this.
While I get where some of the other folks are coming from, you & your accountant are right from a finacial perspective.
Vehicles are considered assets but depreciating asset & theirs liquidity issues. The buyer might not want that type of truck or planned on buying new so to him it doesn’t matter that you invested 30k buying it or that it has a current value of 15k because he is never going to use it. Now he has the hassle of trying to sell it & he has to do it as quick as he can because it’s a depreciating asset that’s not being used so it’s not only depreciating in value but tying up cash that could be used elsewhere in the business. What ends up happening is they sell it to a dealer or auction for whatever half decent offer they get rather then wait to find a buyer for the 15k or whatever you are valuing it at. It might be half of what you think it’s worth.
Just make sure you read the lease agreement like someone mentioned above because they will screw you if you go over miles or damage it with SH or whatever.
Also I think their might be a better option for you. If you are only raising your business credit score to lease, there is a way to avoid that & it’s actually better for tax purposes.
You can finance the truck on your personal credit & then lease it to your corp. Unless the laws have changed this is perfectly legal & I’m surprised your CPA didn’t suggest it. I’m not a CPA but my 2nd job after grad school was doing taxes & I did 2 where the business owner did just that. Just make sure you write up a lease agreement.
I’m trying to keep my business and my personal as separate as possible in order to streamline things when there’s an opportunity to sell the business. In my personal life, I don’t finance ANYTHING. If I don’t have cash. I don’t buy it. Maybe someday, I’ll get a mortgage on a house. Probably not. I don’t mind renting a house forever. Less headache. If I want to move I can move without having to get a realtor, fix stuff, etc. As far as a house goes, my grand plan is to buy a bunch of acreage and build a house on it over 2-3 years so it’s paid off and I’m beholden to no bank.
I don’t want any bills personally tied to the business either because that is a roundabout way of negating the LLC. If I get hurt or die or whatever, the LLC can go away and no one will miss it. But if I get hurt with a bill in my name and the LLC is no longer there to pay it… I still gotta pay it.
I try not to as well, I use credit to get points or miles but always pay it off.
& I got you, I don’t know much about corporate law but I could see where that would be a issue.
& I did read about where you plan to sell & you’re writing the guide. If that’s what you want to do I wish you well & hope you reach all your goals. You’ve probably already thought about this but you would stand to make way more money if you opened another location or better yet, franchised one out once you finished writing the guide. If you can establish viability of the franchise, $$$$$$$$$
Might even be able to negotiate some type of lifetime royalty.
Only drawback would be some of the guys on here would hate you because some guy in their town is opened up a Squid’s franchise & is taking their customers lol
this is comical… the stuff about leasing… I’m the new guy here, but spent 18years in dealerships… started as a tech, then wrote service, then sales, and then F&I… dealers dont necessarily make more on leases… you make money on a lease the same way you do on a finance deal… were still selling the car, to us it’s the same thing, we get paid in full regardless… honestly, people in the store would much rather you just finance it, the paperwork and process is routine, less stipulations and chances for things to hold up the funding of the deal. It does require better credit to lease as opposed to financing… and aside from the tax implications of buying it for, or as, your business no one can make an accurate generalization that it’s always better to lease, or always better to buy… each situation is different, every deal is different, different rates and money factors… Anyway, I’m done w/ that life now… on to better things… appreciate all the info here and help… I know nothing about taxes, but if anyone ever has a question about cars… service, or sales/finance… I’m happy to help if I can
