Tag Archives: leasing

How to put your vehicle on a Budget

By Gary Bordeaux

Special to the Financial Independence Hub

Everyone who owns a car or truck knows that there are regular maintenance and not so regular repair costs. For some vehicle owners, it seems their car is always breaking down. But what if you could cut the overhead on your vehicle significantly? The good news is you can! In the following paragraphs, we’ll discuss ways in which you can dramatically reduce the money it costs you to operate your vehicle.

Maintain, Maintain, Maintain

The first thing you want to do is to read your owner’s manual. If you don’t have one, then look online for one, or check with your dealer. The reason this is so important is that the manufacturer will tell you exactly how and at what intervals to perform or have services performed on your vehicle. Changing the oil at regular intervals is just part of it. Are you using the right kind of oil for your vehicle? It is wrong to assume that the more expensive oils are right for your vehicle. Read what the manufacturer recommends and adhere to their standards.

This doesn’t just go for oil, but for all the fluids and tires too. Not all tires require the same amount of air pressure. Use the kind recommended for your vehicle, and keep them inflated to the recommended psi.

Use only OEM parts

When you need to replace a part on your vehicle, insist on only OEM parts. Original Equipment Manufacturer parts are guaranteed to fit, and they will likely last longer, saving you from replacing the same part over and over. Make sure only certified technicians work on your vehicle, so you can rely on stellar work and new parts. While it is actually fun for some to go to a parts cemetery and find your own parts at a substantial savings, you won’t have the peace of mind you will have when you stick to the manufacturer’s recommendations.

Be mindful of the way you drive

Do you really need to beat the next guy to the red light? Often, that’s what happens when a car weaves in and out of traffic. Nothing is gained, and when you drive that way, you risk getting pulled over or injuring or killing innocent people or yourself. Expressing road rage is another way that some people carelessly treat their cars and their fellow citizens on the road. Just driving the speed limit and driving defensively will help protect you and your car. Many insurance companies offer cheap car insurance for safe drivers and those discounts and savings alone could be worth a lot.

Don’t ignore squeals and other sounds

You wouldn’t believe the difference in cost between a simple brake pad replacement and an entire brake job, with new calipers and rotors. Continue Reading…

Loaning, Leasing and Owning: Know the Differences

By Sia Hasan

Special to the Financial Independence Hub

The terms “lease” and “loan” are often used in conversations about personal finance, and you may not be sure of the difference between them. You may have even less confidence about when you should take out a loan, lease an item or just buy whatever you need out of pocket. By finding out the differences between these options, you can figure out which choice is best for your situation.

Loan

A loan is an amount of money that you borrow from a bank or another financial group. They give you the money and you agree to pay it back over time, almost always with interest. A loan is right for you if you need to make a payment on something that you cannot afford all at once or that involves education or another kind of service.

Within this broad term are many specific kinds of loans. Loans can be classified as secured or unsecured based on whether the recipient has to provide a piece of property for collateral. Loans can also be closed or open. If a loan is closed, the person borrows a certain amount of money and then pays it back without taking out more money from the same lender in the process. Student and mortgage loans are often closed. If a loan is open, the person can continue to borrow more money from the same lender. Credit cards are a common type of open loan.

Another type of loan is a solar loan. If you want solar panels but cannot afford to buy them flat-out, you can borrow money that is specifically for your solar panels. When you take out this kind of loan, you can have solar panels installed without having to have all the money necessary to purchase them flat-out. Using this kind of loan does not prevent you from participating in any incentive program the government creates to promote reusable energy. All you have to do is remember to make your monthly payments so that eventually you can own your solar panels without having to repay the money you initially borrowed.

Lease

While loans involve one party lending money to another, leases involve a lending of possessions between two people. One person gives another a certain sum of money and in return, he or she receives the right to use a piece of property. Farmers may lease equipment from larger corporations that own their land. If you have rented an apartment or another dwelling place owned by a landlord, you have participated in a lease before. Leases are less open-ended than loans because they cannot be used to pay for any expense but instead involve a specific piece of property. Continue Reading…

Residential Buy- and Sell-back Agreements: a new option for Boomers?

sell-and-lease-back-boomers-resizedBy Penelope Graham, Zoocasa

Special to the Financial Independence Hub

In today’s real estate market, buying a house is less a traditional rite of passage and more a Herculean feat, especially for Millennials scraping together a down payment in Toronto or Vancouver. To them, the concept of owning a detached dwelling, complete with yard and picket fence, is a faded – and financially unfeasible – memory.

But it was a reality for Canada’s 9.6 million Baby Boomers, many of whom bought in their early 20s, and are still living in the family home. And, given the explosive surge of housing prices over the decades, a fair share of those Boomers have seen their investment grow by hundreds of thousands of dollars. Consider this – according to the Toronto Real Estate Board, the average Toronto home sale price was $75,694 in 1980, compared to September 2016’s average of $755,755 – an 898% increase!

These homeowners face a choice: sell while the market is hot (especially as new mortgage rules designed to cool demand go into effect), or stay put. For many, it’s not an easy decision.  They may feel cashing out isn’t worth parting with the beloved family abode. Others may wish to sell, but dread navigating bidding wars and other competitive tactics when buying their next home. For some, “downsizing” may just be a dirty word. So, what options do these Boomers have?

Sell and Lease-back agreements offer an option

To address this conundrum, some seniors have turned to what is traditionally a commercial real estate practice: buy- and sell-back agreements. In these transactions, a home is sold to an investor buyer while the previous owner continues to live in it as a leased tenant. It’s a method growing in popularity, and can seem the best of both worlds, but it certainly comes with its pros and cons. Here’s what Boomers should keep in mind if considering a sell and lease-back agreement:

Pro: It’s attractive for Investors

Continue Reading…

A strategy for leasing a car in retirement

nissan2
2014 Nissan Versa Note

One of the features of the Decumulation years is making limited funds stretch. Below, early retiree and Montreal resident Michael Trani shows his analysis for his decision to lease rather than buy late-model cars for 20- and 30-year periods following his early retirement at age 55. He uses income from an investment to fund the lease, a strategy that lets him drive a new car every four years. He says he’ll never buy outright again. 

 

By Michael Trani,

Special to the Financial Independence Hub

A few months ago, for family-related reasons, I was forced to retire from my job at the relatively young age of 55. Yes, lucky me, I was now living the Freedom 55 dream! I was well aware that in this new phase of my life, my future earning capabilities would be severely restricted. Wishing to provide stability to my financial affairs, I embarked on a mission to essentially fix all the present and future costs I could control.

My first order of business was to develop a low-cost strategy to provide me with a car for the next 20 to 30 years.  While employed, I had saved quite a bit of money to purchase and carry out the required maintenance on a new car. However, now that I did not have the safety net of a job, I knew that once this money was spent, it would be gone for good. I certainly would not be able to replace it. I had been buying cars at 10-year intervals, and for my potential future car in 2024, things did not look good.

The solution to my predicament was simple. Why not simply invest the money I had saved in an investment that returned regular, monthly, tax-advantaged income,  then use this income to finance a car lease in perpetuity?

With the aid of a spreadsheet, I compared the cost of purchasing a new car for “cash” every ten years with a car lease financed strictly with the monthly distributions of my investment. My comparison looked exclusively at the 20- and 30-year timeframes, as these represent my future driving years. I also factored in the necessary tax treatment for the monthly distributions and the residual value of the investment.

The investment I used to finance my car lease strategy is: Investors Group Allegro Balanced Growth Canada Focus Class –T J DSC. This is a special balanced mutual fund that distributes 7% yearly on a monthly basis. The distributions are treated as a Return of Capital, and when all the capital has been returned (in approximately 15 years) the distributions become capital gains. I am sure that other well-established financial institutions will have similar products available.

In the following table I have summarized the findings of my comparison.

Comparison of car strategies for 20 and 30 years

Car: 2014 Nissan Versa Note

Duration of lease: 48 months

 

Car strategy 20-yr strategy; cost per month  20-yr strategy; total cost 20 years 30-yr  strategy; cost per month 30-yr strategy; total cost 30 years
purchase “cash” $300.60 $72,144.00 $300.60 $108,216.00
lease strategy $119.08 $28,579.76 $119.53 $43,030.76
savings of lease over “cash” $181.52 $43,564.24 $181.07 $65,185.24

 

Note 1: The lease includes the dealer-offered free scheduled maintenance for the duration of the lease (in this case 48 months) and a $600 winter tire credit ( ufficient to purchase 4 brand-new Michelin X-ICE tires)

Note 2: With the purchase “cash” strategy there is no free scheduled maintenance and no $600 winter tire credit

I was totally blown away by these results. Certainly, I had made assumptions in my calculations, but, nevertheless, it is clear that the leasing strategy considerably reduces the cost of financing new cars, in perpetuity I may add. The cost reduction is not trivial when I can lease a car with only a third of the money required to purchase that same car.

Leasing yields a new car every four years

Sure enough, I followed through on my plan. I implemented my investment strategy and recently leased a Versa Note. Now every four years I will have a new car. I realize that at the end of 20 or 30 years, I certainly will not own a car, but will instead own the units of the Allegro fund, which will continue to generate monthly income. I believe I succeeded in my mission to devise a low-cost strategy to finance my future car requirements. I will never buy a car outright again.

As a side note, while negotiating my car lease, I learned that car dealers are willing to give away quite a bit of goodies for free. I negotiated four years of free scheduled maintenance and four really good, brand-name, winter tires for free as well. What more could I ask for?

The following table I details all my calculations, to permit easy verification.

Fund: Investors Group Allegro Balanced Growth Canada Focus Class – T J DSC

Date: June-27-2014

Unit Value on this date: $10.8492

Monthly Distribution: $0.0616 per unit

To generate $332.50 monthly requires 5,397.7273 units or $58,561.02 to be invested in the Allegro fund (the initial cost)

20-year strategy          

Purchase price of a 2014 Versa Note:                  $19,072.00                   cash payment in full, assume value of trade-in cancels the sales tax

Average maintenance cost per year:                  $1,700.00

Total cost for 10 years:                                    $36,072.00

Total cost of purchasing per month:                  $300.60

Total cost for 2 cars over 20 years:                  $72,144.00

 

Leasing a 2014 Versa Note for:                   $332.50                  per month                                                                        line 1

Maintenance expense:                                    $0.00                  per month, free scheduled maintenance                                    line 2

Insurance for replacement value:                  $17.51                  per month, $840.40 for 48 months                                    line 3

Insurance for end of lease protection:                  $19.79                  per month, $950 for 48 months                                    line 4

For 20 years this will cost:                                    $88,752.00

The actual cost of leasing:                                    $67,513.02                  A. the initial cost of the Allegro fund + ((lines 2+3+4) x 240 months)

The capital gains tax:                                    $4,987.50                  B. to be paid on the distributions from years 15 to 20

The net cost of leasing for 20 years:                  $72,500.52                  C. defined simply as (A + B)

Residual value of the Allegro fund:                  $43,920.77                  D. value of the Allegro fund after all return of capital has been used up and units theoretically sold

The “true cost” of leasing for 20 years is:                  $28,579.76                  E. defined simply as (C – D)

The “true cost” of leasing per month is:                  $119.08                  F. defined simply as (E / 240 months)

30-year strategy

Purchase price of a 2014 Versa Note:                  $19,072.00                  cash payment in full, assume value of trade-in cancels the sales tax

Average maintenance cost per year:                  $1,700.00

Total cost for 10 years:                                    $36,072.00

Total cost of purchasing per month:                  $300.60

Total cost for 3 cars over 30 years:                  $108,216.00

 

Leasing a 2014 Versa Note for:                  $332.50                  per month                                                                        line 1

Maintenance expense:                                    $0.00                  per month, free scheduled maintenance                                    line 2

Insurance for replacement value:                  $17.51                  per month, $840.40 for 48 months                                    line 3

Insurance for end of lease protection:                  $19.79                  per month, $950 for 48 months                                    line 4

For 30 years this will cost:                                    $133,128.00

The actual cost of leasing:                                    $71,989.02                  A. the initial cost of the Allegro fund + ((lines 2+3+4) x 360 months)

The capital gains tax:                                    $14,962.50                  B. to be paid on the distributions from years 15 to 30

The net cost of leasing for 30 years:                  $86,951.52                  C. defined simply as (A + B)

 

Residual value of the Allegro fund:                  $43,920.77                  D. value of the Allegro fund after all return of capital has been used up and units theoretically sold

The “true cost” of leasing for 30 years is:                  $43,030.76                  E. defined simply as (C – D)

The “true cost” of leasing per month is:                  $119.53                  F. defined simply as (E / 360 months)

Montreal-based Michael Trani can be reached at michael_trani@hotmail.com.