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Lease vs. Buy

by Mandy Beck - REALTORS® Federal Credit Union

RFCU ArticlePurchasing a new vehicle can be a stressful process, especially for busy real estate agents whose car is akin to a mobile office. As small business owners, real estate professionals must consider the practicality of their decision. Often, the question of whether it’s better to lease or buy a new vehicle for your business will be pivotal to the decision. Both can be viable options, but there are several important factors to consider, including cost, tax deductions, driving habits and appearances.

Cost

Lease payments are typically lower than loan payments because when you buy a car you make payments on its entire value, whereas when you lease a car you are only paying for the amount the vehicle will depreciate during the lease term. This often allows a lessee to afford more car than they would otherwise be able. As a lessee, you’re also protected if the car depreciates more quickly than expected, because its resale value was predicted up front and your payments are based on that figure. However, when you purchase a car, you build up equity as you pay it off and can eventually sell it or trade it in, reaping the benefits of the residual value. With a lease you do not have any equity in the car; at the end of the lease term you must turn the vehicle in and either enter into another lease or purchase your next car. In this sense it is easy to get caught in a cycle of continually leasing cars, which is invariably more expensive in the long run than buying a car and driving it until it is paid off.

Taxes


There are tax benefits to both leasing and purchasing a car. With a lease, you can frequently deduct a large portion of the cost of your lease payment without the hassle of tracking mileage and determining depreciation. Additionally, the luxury restrictions may be more lenient for leased vehicles than purchased ones, so if you have a high end luxury vehicle, the tax incentive may be greater.

Mileage & Driving Habits


Mileage and driving habits are some of the biggest factors to consider when deciding if leasing or buying is the right choice for you. Most leases restrict mileage to around 10,000 to 15,000 miles per year. Many agents drive quite a bit more than that and any mileage overage on a lease is an additional charge, often $0.15 to $0.25 per mile. Those charges add up quickly, and can easily turn an otherwise agreeable lease arrangement into a financial hardship. It is imperative to know how much you drive before agreeing to a lease contract. If you drive substantially more than the contract allows, you are probably better off purchasing your car than paying for mileage overages.

Another point to consider is your driving habits. Lenders expect a leased car to be returned in excellent condition, so if you tend to be messy in your car, or if the type of driving you do is more likely to result in damage to the vehicle, you may wind up with extra charges at the end of the lease. For example, if you will be transporting children or pets, or if you drive a lot of unpaved or gravel roads, you should factor in the potential cost of extra wear and tear on the vehicle. It may be more beneficial to purchase a car in these scenarios.

Appearances


The real estate industry is often very focused on appearances. Agents who want a new, luxurious vehicle to transport their clients in may end up replacing their car every few years, making leasing an appealing option. With a lease you can essentially get a brand new car every few years, when you enter a new contract. Additionally, a lease might allow you to afford a more luxurious car since the monthly payments are based upon depreciation rather than full value, and there is generally no large down payment required. However, a cycle of leasing is more expensive in the long run than purchasing a car, so it is important to factor in how often you would realistically trade your car in as well as whether you could afford to purchase the caliber of vehicle you want for your business.

There are benefits to both leasing and buying, depending on your individual transportation needs as an agent. For some, leasing allows them to afford a luxury car that will be perennially new. For others, the mileage restrictions and long term costs make purchasing a vehicle a more practical option. Consider all sides when making your decision; you might be surprised at the best option for you.

Mandy Beck
REALTORS® Division Administrator
REALTORS® Federal Credit Union, a Division of Northwest Federal Credit Union

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