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New Car - are my calculations correct ?

Discussion in 'Finance & Banking' started by Here_To_Learn, 8th May, 2006.

  1. Here_To_Learn

    Here_To_Learn Well-Known Member

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    We all now that cars are a depreciable asset however a necessary evil in Sydney. I am in the process of buying one.

    I would like to share my thoughts on what I think may be a more creative way to MINIMISE my loss and MAXIMIZE use of capital.

    Here is my situation :

    ** I would like to purchase new car - Cost is $73K
    ** I have funds available parked in my LOC
    ** I do not wish to salary sacrifice as K's are not sufficient to offset Fringe Benefits Tax

    I have put together a spreadsheet showing what would happen if instead of using the 73K I use a margin loan + 73K Capital to invest in the Navra fund over a period of 3 years.

    I then take out a lease with 60% residual. From my research at the end of the lease I simply return the car back to leasing company.

    A few assumptions.
    ** 10% p.a return on Navra Fund
    ** 5% capital Growth
    ** 34% tax rate

    If my calculations are correct at the end of Year 3 I am ahead $19K.

    Please feel free to take my spreadsheet apart !
     

    Attached Files:

  2. MichaelWhyte

    MichaelWhyte Well-Known Member

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    HTL,

    So what you're really modelling is the opportunity cost of capital right. i.e. If, instead of buying that car with my cash, I put it into a positive cash flow investment, then what is the net impact of this decision?

    I'll just have a quick look at your spreadsheet and come back and edit this post with my findings. Watch this space...

    Cheers,
    Michael.
     
  3. Here_To_Learn

    Here_To_Learn Well-Known Member

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    Michael, spot on ! Oppurtunity cost is what I am looking at.

    There has to be a better way then sinking 73K and watching it dissapear. MORE ASSETS = MORE INCOME to play !

    Thanks. I am looking forward to comments.
     
  4. -T-

    -T- Well-Known Member

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    Are you self-employed?

    Are you sure you can just hand the car back after the lease term? Is it an operating or finance lease?

    Do you mind me asking what you're buying for $73k? It's not one of those new Chrysler 300cs is it? You know, the quick one with 300kw+. :)
     
  5. Jenny

    Jenny Well-Known Member

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    Hi HTL

    Your spreadsheet looks correct to me. Can I ask what you have set your sight on for $73. We are looking to buy a new car shortly, but only to about half $73 - looking at Honda Accord, CRV, or small volvo. (I'm old enough that being a volvo nerd doesn't worry me) :eek:

    We are concerned with economy in regard to petrol consumption without sacrificing too much comfort - we do about 30,000km per year.

    Jenny
     
  6. MichaelWhyte

    MichaelWhyte Well-Known Member

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    HTL,

    OK, a few initial observations and a revised spreadsheet attached for you...

    Firstly, $14,162 seems like an awfuly low lease cost over three years on a $73K vehicle with only 40% down, but I've assumed that this is correct. That lease cost wouldn't even cover the cost of depreciation over that period so the lessor would be well and truly behind when they recover the vehicle since its salvage value is less than the initial value less lease income.

    Anyway, I also added back the opportunity cost of not having to wear this depreciation yourself. i.e. If you bought it and sold it in three years time then you would have had to wear a significant amount of depreciation in your costs as well. I also reduced the amount you had invested in Navra to be the 60% of the value of the vehicle. i.e. 40% is put towards the vehicle as deposit leaving only 60% to margin into Navra.

    All in all, at that very low lease cost it still is a no brainer that you'd be better off taking the lease instead of buy decision. Navra aside, as I said above, your lease costs are less than depreciation over that period so its a done deal.

    Check the spreadsheet attached and let me know what you think.

    Cheers,
    Michael.
     

    Attached Files:

  7. TryHard

    TryHard Well-Known Member

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    Hi HTL

    Not an answer to your question, but have you tried a car broker to maybe get the purchase price down a little ? I used www.carbroker.com.au last time and Chris there was very good. Cost about $80 for peace of mind and none of the usual car salesman hassles :)

    Cheers
    Carl
     
  8. Here_To_Learn

    Here_To_Learn Well-Known Member

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    OK - let me try and answers some of these questions.

    1) I am not self employed.
    2) Yes - there are leases where you can hand the car back at the end.
    3) I am looking at buying a 1 or 2 year old Lexus RX330.
    4) I would like to finance the entire deal. So ... 40% financing is what we have to work on. 40% of 73K = $29,200
    5) Michael - I want to put the entire 73K into Navra with a margin loan of a further 73K. Not only 60%.
    6) I am using this link to do the numbers.

    Finance Amount: $ 73,000
    Number of Years: 3
    Interest Rate: % 7.95
    Residual Value: $ 43,800

    Calculated Payment Amount: $1204.52

    So ... my maths is as follows :

    ** $1204.52 x 36 payments = $43,362 ( This is the total P&I paid during 3 years).
    ** $43,362 - 40% ( $29,200 ) = $14,162 ( This is the total Interest paid during the years).

    Hope this makes some sense.
     
  9. -T-

    -T- Well-Known Member

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    That's an operating lease and it could possibly be more expensive than a finance lease or HP. I guess you'd have to weigh that up against trying to sell the car at the end. Many cars that hold their value may even give you a profit (if you can call it that) at the end on top of the residual. This may be an added benefit of not going with an operating lease.

    I haven't checked, but are Lexus doing anything with their rates to try to clear stock? A friend bought an Audi on 4.95% recently and I saw Lotus is doing 3.95% at the moment. However, sometimes these discounts are recovered elsewhere by the lender.
     
  10. Here_To_Learn

    Here_To_Learn Well-Known Member

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    This is for a new car ? The Lexus RX300 has been replaced by a new model. On road it's close to 87K ! :eek:
     
  11. -T-

    -T- Well-Known Member

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    Hey HTL

    Yes, apologies, I didn't realise they were that much new. 87 bad boys hey? You could almost get a Hummer for that much! hehe just joking :)
     
  12. Here_To_Learn

    Here_To_Learn Well-Known Member

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    Can't even imagine filling a Hummer's tank up with today's petrol prices... :eek:
     
  13. Here_To_Learn

    Here_To_Learn Well-Known Member

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    Thanks for everyone's input ...

    Does not however sound like there is too much excitement around my topic. :(
     
  14. rambada

    rambada Well-Known Member

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    Dont know about excitment but I'm certainly interested. As you said cars are a neccesary evil, they are expensive, emotive, and they are worthless after a period of time but we still do it with our eyes shining!
    Robert Kyosaki relates a story where he wanted a Porsche and his wife said no worries but you get an asset that pays for it, not pay cash.
    This is a difficult subject to model into wealth creation - because it is really a huge wealth reduction grub! A great topic really and one a lot can relate to. I'm not in business, dont have a company car - I am an investor who wants to see their $ work efficiently and cars dont fit well into that paradigm - but they are neccesary.
    Best idea I've seen in a while - anything better out there?
     
  15. -T-

    -T- Well-Known Member

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    Yeah, don't buy a car. :)

    Don't get me wrong, I love cars, escpecially fast ones, but since I got rid of my car, cash flow has been great. It literally cost me more than my PPOR repayments. So no car, means I could probably service another 5 IPs. Just got to get those deposits now. :)
     
  16. Nigel Ward

    Nigel Ward Team InvestEd

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    Cars are fun. But I guess my thought is that you shouldn't spend more than say 5% of your net worth on them.

    So a $73k car shouldn't figure until you're worth about $1.5m

    Just a personal view...don't let me hold you back.

    That ferrari is unfortunately going to have to wait a bit longer ;)

    N.
     
  17. Here_To_Learn

    Here_To_Learn Well-Known Member

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    Definitely I am interested in what others are doing to again try and MINIMIZE loss.

    There are so many options ! Surely others can share.

    Nigel - can I ask ... what is the rational for coming up with the 5% ? :confused:
     
  18. Nigel Ward

    Nigel Ward Team InvestEd

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    An arbtrarily low figure... :D

    Seriously, I reckon 5% is enough fun factor...

    A millionaire can buy a $50k car and you have to be the $6m man to buy a $300k car...

    Hey maybe it's more like 8%, but shouldn't* be more than 10% for sure!

    N.

    * warning - value judgment! :p
     
  19. Rickson

    Rickson Well-Known Member

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    Nigel
    On the same basis as your 5% car calculation - do you have a figure for PPOR as a % of net worth?
     
  20. TryHard

    TryHard Well-Known Member

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    HTL - Not to second guess Nigel, but I'd reckon 5% would be the maximum amount of your nett worth you'd want going backwards, not to mention the service and parts costs generally being proportional to the purchase price :) I think any true luxury item is a significant drain on anyone's wealth creation efforts.

    I looked at the Lexus RX330 too (salivate) and am now eagerly awaiting the Subaru Tribeca and the Audi SUV coming later this year, although I really like the diesel BMW X5. Man don't they depreciate quick though !

    Usually when it comes to the crunch, even though I technically * could * lease a flasher car, common sense usually prevails. After test driving everything I eventually bought a Suzuki Grand Vitara last year with all the options (which for a novice like me, is identical to Toyota Prado Grande or Pajero Exceed but about 80% of the size) for $36K on the road. Its got seven leather seats, sunroof, ABS, climate control air, airbags, cruise, 6 stack CD etc. The Suzuki badge doesn't get any envious looks, but its a comfortable quiet safe car that is affordable, and is actually a 'proper' 4WD, and falls below the luxury car tax.

    Still, if your first thought every morning is "I want one of those" then it might just be better for your soul to go out and get it ;-)

    Wasn't there a thread on here in the early days about leasing a flash vehicle ? - oh here it is :
    http://www.invested.com.au/forums/showthread.php?t=329&highlight=lease+vehicle

    Good luck !
    Carl