Tuesday, August 06, 2002

Leasing VS. Buying

With my car lease nearing its end I've been considering the pros and cons of leasing vs. buying, both with cars and homes.

Many people I've talked with, concerning leasing a car, say something to the effect that I'm throwing away money. To a certain extent they are right, but with autos you loose money no matter what. You don't invest in a car.

When you lease a car you get a brand new vehicle that is under warrantee. At the end of the lease period you have options. Trade in for a new car, walk away or buy the car. As long as the car is in good condition and your miles are not over the agreed amount the dealer will be happy to lease you a new car again or let you walk away from the car Scott-free.

Of course those are ideal conditions. In my case I'm going to be over my miles and may need to have some minor door dings and interstate chips touched up. Even with those problems you have to consider the benefits. Leases always have a much lower monthly payment. I got into a small fender bender (not my fault) a couple years ago. The car is fine, but I can see the small imperfections that the body shop left behind. If I trade it in for another its gone, someone else's worries, unless of course I was deemed responsible for fixing it prior to turn in.

The other side of the coin is that the car, a new style 1999 VW Jetta, is a great car and has never given me a lick of trouble. The few minor issues that cropped up were easily and cheaply fixed or covered under warrantee. The buy out on the car is less than the current retail or trade-in value, so I'm getting a very good deal if I choose to buy it. I can also sell the car myself at my own leisure, at a profit even, and get a new one later. Actually that is what I've already decided to do.

What will I do next time? I'll lease again. Eventually the car, as great as it is will need more and more attention and repairs. I've driven too many older cars to want to go back to that mess. It's not like the car is going to increase in value some how and be worth more if I hold on to it. It'd still take me 4-5 years to pay it off at the rate I'm paying now. Buy the time it is mine free and clear it's not going to be worth nearly as much to me and will still continue to cost me monthly in maintenance. If I lease however I constantly have a newer car that is under warrantee. at least 50-75% of the lease duration, depending on the length of the lease and/or warrantee. I've been looking at those new Mini Coopers, they have a 4 year warrantee. That means if I chose another 4 year lease, the car would be covered from the first day to the last day of my lease. You cannot tell me that isn't a compelling reason to at the very least consider leasing.

In case you are curious I have a 99.5 VW Jetta GL and I'm considering for it's future replacement either a new Jetta GLI or a Mini Cooper S. The jury is still out on the Mini Cooper S at this point for me though. I've read both good AND bad reviews and I don't want to get burned. I leased my Jetta only two weeks after the new model types were released however I got lucky! Usually the first runs are a little flaky until they work out the kinks. As it turns out I didn't have any kinks but for a small recall due to some potentially flammable insulation used on one small spot. When I got the car back all was fine and I didn't even know they touched it.

This brings me to the next lease vs. buy scenario, the house. The game is a little different because houses retain their value and increase in most cases, baring major geographical disaster or severe socio-economical shifts. In other words your house ends up in the slums, next to the new landfill or a volcano erupts in your back yard. You might want to consider moving regardless if you have a volcano by the way.

Because of the possible gains buying a house can be a smart thing to do. Unlike cars, leasing a house/apartment is often more expensive per square foot than a house mortgage. Mortgage rates can be renegotiated. Leases cannot and inevitably increase annually or biannually, depending on your lessor and lease agreement.

Homes, once paid off generally do not deteriorate quickly and can be maintained at a reasonable financial loss. Apartments and leased homes can have varying levels of upkeep, from exceptional/like new to run down and scummy. Then again so can houses on the market for sale.

Buying a run down home for a low cost and renovating it and reselling it can be a good way to profit from real estate but you must be dedicated to this way of life. It can be hard and dirty. My parents made it where they are today doing this and I'm proud of them being able to struggle up that slope. I also learned a lot about rebuilding and construction this way, as I was often put to work helping renovate the homes we lived in. This isn't for everyone however, including me.

I have no desire to come home from a hard day at work to find thick layers of drywall dust and boxes of nails on the floor. I don't want to go into the bathroom, turn on the faucet and see rust colored water come out and be reminded I need to replace those pipes. Been there, done that, no thanks.

Don't get me wrong, I don't mind a little bit of hard work and there is a great deal of satisfaction to fixing something in your home, or your home itself. At the same time I would rather spend my free time exploring the things I like now rather than having to wait until retirement. Who says you can't enjoy life now? Why must we wait until we are too old to do the things we like? Granted most of mine are indoor things, but that isn't the point.

I may pay more per month, but I don't have to mow and water the lawn. I don't have to paint the outside. There is a pool and I don't have to worry about its chemical balance. If the garbage disposal breaks I don't have to replace or fix it, I call maintenance. The place is sprayed for bugs periodically.

On the flip side, I can't do much to the appearance. If I paint I have to make sure to paint it while again before I move out. There is little incentive for me to install better fixtures or appliances. I may have to deal with noisy neighbors. Parking might be a pain. The landlord/management company may be difficult to work with.

Currently I'm in a place where management genuinely cares about its tenets and that means a lot to me. The place is also only a few years old so everything is in good shape. I was very aware of these qualities when I checked the place out and that is why I chose it.

I'm a single guy. I'm not worried about kids right now. I don't want to make time to do house chores right now in my life. My dad has suggested buying a run down old place and remodeling it, but frankly have no interest in that.

Perhaps I'm tossing my money out the window, but I believe it's more important to enjoy life pursuing those things you enjoy, not money, unless you like money that is. Personally I hate money. I don't like it one bit. Leasing works for me. I'm not saying it'd work for everyone, but for me it works. Until I'm ready to invest my time into a more static and stable situation, this is the best thing for me to do. I like Nashville a lot, but I don't know exactly where I want to live.

A home loan is often for 30 years. How many people can honestly say they know where they'd like to live for the next 30 years? Maybe 50-100 years ago that question would be easier to answer, but toady's generations are much more mobile. My siblings and family are all over the U.S. This isn't a unique trend. Many more people are moving away from the towns and states the grew up in.

Take a close look at your situation and decide what is more important. Maybe I don't look forward enough, but enjoying each day is pretty damn important to me. Carpe Diem!

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