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Thread: Lease vs Cash vs Hire Purchase

  1. #1
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    Lease vs Cash vs Hire Purchase

    Hey team

    I'd like to be one of those KBers who can reply to technical stuff in the mechanical forums etc. but alas, business and numbers are my strengths!

    I wrote this reply to the SV1000 lease forum - but I think it could be useful in general for some KBers considering a new bike purchase. There's a guy who back in April was advertising leased bikes (Brand new SV1000 for $100 p/w over 3 years). I think it's a great idea and didn't feel the forum feedback on his venture was fair. So I ran my own numbers, and in my opinion think his prices are not too far off. Have a look:

    ************************************************** *******


    There are three basic options to getting your SV:

    1. Lease
    2. Buy with cash i.e. your own capital
    3. Buy with a loan i.e. hire purchase

    Each option has its own financial pros and cons depending on the applicants circumstances - but here's the gist (and let's ignore the pipes and insurance for all three options and assume maintanence costs are consistent across all options):

    ********Option 1 - Lease
    52 wks x 3 yrs x $100 = $15600 (total cost)

    *A self-employed or business owner with a little tweaking of the books could technically claim the 'leased bike' as a tax-deductible operating expense i.e. company vehicle. Therefore at the end of the three years, the savings to your tax bill would amount to around $5000 (at 33%), GST potential could increase this even further...
    *Plus you have effectively not had to hand over $12500 in one hit which therefore means if you were a cash buyer, you could have alternatively chucked that money in the bank earning 8% interest for 3 years. After withholding tax this would have accured to around $2000 in interest over 3 years give or take a few bucks.
    *Another advantage here is you are not stuck with the burden of trying to sell the SV at the end of three years, nor arranging servicing etc. (not that that is too hard). What figure do you want to place on this? Let's say your time is worth $30 an hour and you have to spend 10 hrs pissing around trying to sell your bike and listing fees and call charges... another $350?

    So potentially the 'end cost' of our leasing option could be as low as $15600 - tax($5000) - loss of potential interest (2000) - your time and hassel ($350) = $8250, or $52.88 p/w

    Of course this is somewhat an idealistic scenario (being tax deductible) and how many people pay cash for a bike these days?

    So worse case: lease cost is $15600 - $350 = or $97.75 p/w

    ********Option 02 - Buy With Cash

    Bike $12500
    Tyres $1650
    WOF/REG $620
    Repairs/ maintanence $1600

    + opportunity cost of not putting $12500 in the bank at 8% for 3 years = $2000
    TOTAL: $18370
    Less assumed sale price of $8000

    TOTAL COST $10370 or $66.47 p/w

    *********Option 03 - Hire Purchase

    Bike $12500
    Tyres $1650
    WOF/REG $620
    Repairs/ maintanence $1600

    + Cost of finance: (Assume 14% over 3 years and $150 application fee)
    = $2782 + $150 = $2932
    Total = $19,302
    Less sale price $8000
    TOTAL COST: $11, 302 or $72.45 p/w

    So chaps, the numbers speak for themselves. If you are in a position to claim your bike as a business expense, leasing wins. If you have $12500 in cash - buy the bike straight out, and if you're like most unfortunate souls in NZ nowadays and resort to hire purchase, well good luck.

    ************************************************** *****

    One other thing too, from this leasing guy's point of view:

    Simplistically he needs to make enough money on a leasing deal to pay back all of his money spent on the bike and servicing and to earn a bit of profit (obviously).

    By our own calculations the bike, parts, servicing WOF & REGO cost approx $16000. This guy needs to come up with that amount and have it tied up for three years. Plus he has busines overheads (accountant, lawyer, phone, email internet, staff etc etc) Maybe that adds up to another $1000 per bike...?

    So just to be breakeven after 3 years he would need to earn:

    *$17000
    *Inflation on 3 years at 3% = $1576
    Total: 18576

    Take off the $15600 he gets for the lease = $2976 still needed to earn to breakeven.
    Sell the bike for $8000
    Lessor's profit: $5024 or ROI of 29.5%

    I think a return on investment of 29.5% is pretty fair considering the amount of risk this guy is taking on leasing out crashable, stealable bikes. Of course, he probably gets the bike cheaper than $12500 and may be able to acquire tyres and servicing etc cheaper.

    Phew! That's enough from me.

  2. #2
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    Jeez, Cowpoos. How many accounts do you need on this forum??

    Seriously though, thanks for the info.
    Quote Originally Posted by rachprice View Post
    Jrandom, You are such a woman hating cunt, if you weren't such a misogynist bastard you might have a better luck with women!

  3. #3
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    Quote Originally Posted by Mully View Post
    Jeez, Cowpoos. How many accounts do you need on this forum??

    Seriously though, thanks for the info.
    I can't punctuate and spell that well!!

    And Thanks Macstar...the venture is still going...the road bike leasing was semi popular when we were pushing it hard...and your right it wasn't greatly recieved on these forums for a number of reasons...but it is definatly a very valid option for bike ownership...and gives people another option!

    There are more pointed arguments to use against the anti-brigade...but its not worth the debate I found...as to many people on this forum can't be wrong...and you know what they say about the customer always being right??
    Quote Originally Posted by Drew View Post
    Given the short comings of my riding style, it doesn't matter what I'm riding till I've got my shit in one sock.

  4. #4
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    Very well done, it should be a sticky
    To every man upon this earth
    Death cometh sooner or late
    And how can a man die better
    Than facing fearful odds
    For the ashes of his fathers
    And the temples of his Gods

  5. #5
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    useful info there Macstar, sometimes you just need to look at the numbers and see what suits you best.
    Remember everyone is special in their own little way...including wallets

  6. #6
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    I think if you are going to claim the lease as a business expense through some "tweaking of the books", then you should apply the same to the other two options. Which will make it all look a hell of a lot different.

  7. #7
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    or option 4 and a very viable one if you can do it

    add it to your mortgage at 8% instead of 14 - thats what i'll be doing (soonish) (hopefully) (tell me if you see my wife around here ok?)
    F M S

  8. #8
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    Quote Originally Posted by dnos View Post
    I think if you are going to claim the lease as a business expense through some "tweaking of the books", then you should apply the same to the other two options. Which will make it all look a hell of a lot different.
    True true. An operating lease is classified as an expense vs. asset purchase which you can claim the depreciation. Only catch is when you go to sell the bike, if you sell it for a price higher than the book value i.e. the rate you've been depreciating it at then you have to pay tax on the balance!!! So, leasing is arguably more desirable and easier.

    For the other guy (YOD) thinking about chucking it on the mortgage. Ever heard the expression, "Laughing all the way to the bank?". It's actually the other way around... the banks are laughing at us. This is a popular misconception, that a mortgage is a cheaper source of finance. The interest rate is lower (8%) but you're paying it off over 20 years instead of 3 years therefore you end up paying an astronmoical total interest bill of 4-5 times what you would have paid if you had of just HP'd it in the first instance. Sites like www.sorted.org.nz can help you make a better decision.

  9. #9
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    Quote Originally Posted by Macstar View Post
    For the other guy (YOD) thinking about chucking it on the mortgage. The interest rate is lower (8%) but you're paying it off over 20 years instead of 3 years therefore you end up paying an astronmoical total interest bill of 4-5 times what you would have paid if you had of just HP'd it in the first instance. Check it out yourself at www.sorted.org.nz
    sorry, should have explained better

    yeah you're dead right - if you left it on 20 years or whatever (i think ours is like 17 or something) the interest would be ridiculous, but most banks (if you have enough equity) will let you loan additional funds at mortgage rates but they are paid off as a separate principal, and i think you can just pay it off at your own speed too??
    F M S

  10. #10
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    yes, i agree in case of lease it's great if you can stuck it under business expense. However this is easier said than done, because
    1. it would be hard to write off 100% of it as business expense
    2. realistically assume you write off 50% of the lease as business epxense therefore your tax writeoffs are 50% smaller aswell
    3. if you aready have eg. car being written off as business expenses in 100% you can no longer write off 100% of it.
    4. you dont have follow abouve points, but you are running a risk of being investigated and 'pinged' by ird and that's never nice.

    other issues I see...
    5. which bank offers 8% ? i think rabo+ offers 8.20%pa...but then you neither have your initial cost ($12500) because you had to put it to the bank neither the weekly payments....
    6. i dont really like to include my time and hassle in those calculations. That's beacause... unless you have a job (or severl jobs) that allow you to work when you can and how much you can you can only work so much. In case you a re a normal employee you got plenty of spare time on your hands for these things... if you are business owner then it's fully deductable

    Still leasing is a great option for business owner/sole trader. regular employee (most of ppl in NZ i believe) cant really benefit from that option.


    just my random thoughts...

  11. #11
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    Quote Originally Posted by Macstar View Post
    True true. An operating lease is classified as an expense vs. asset purchase which you can claim the depreciation. Only catch is when you go to sell the bike, if you sell it for a price higher than the book value i.e. the rate you've been depreciating it at then you have to pay tax on the balance!!! So, leasing is arguably more desirable and easier.
    Yes, but to look further you can claim all the GST at time of purchase, and claim all running expenses, and depreciation of 26% (31.2% if its new). You will most definitely have depreciation recovered at time of sale as you said, but then you have had the benefit for a couple of years before that. When you sell you have GST to pay and all that, but you still get the proceeds of the sale as cash.
    Leasing may be easier but its not as simple or as advantageous as made out. Probably only better for cashflow. And I wouldn't be too keen on arguing a motorcycle as 100% business use in either case, but I'm sure it happens.

    So after writing all that I'm not really sure who I'm trying to convince , but maybe I should set up a motorcycle courier business for one day a week and buy that new bike????

  12. #12
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    Motorcycle courier business or maybe stick an advertising flag on the back of your bike for KB i.e. a mobile advertising business...

  13. #13
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    Quote Originally Posted by dnos View Post
    I wouldn't be too keen on arguing a motorcycle as 100% business use in either case, but I'm sure it happens.
    anyone can start a company... how about DNOS RACING LTD ... DONS racing is a company that races motorcycles...[enter in the drags once or twice or enter in some club rounds with vic club or something...you don't acctually have to show up]... DNOS Racing will require bikes,will require tyres,etc,etc...can claim GST,etc...fuel to get to meetings...fuel in general...trackdays/test days are a cost of being in bussiness...can depreciate your bike/s or if leased and tax deductable cost of being in bussiness...there may or will be away to lessen your own personal tax liability by way of sponsership/donations to DNOS racing from yourself...the possibility's are there...

    You seem like a reasonably smart fella...get your calculator out and work out the possible savings of that concept...and theres alot more depth in the lease ver's own ver's HP argument than whats been brought forward here so far...
    Quote Originally Posted by Drew View Post
    Given the short comings of my riding style, it doesn't matter what I'm riding till I've got my shit in one sock.

  14. #14
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    Hell yeah, DNOS RACING LTD has a nice sound to it.

    There is a hell of a lot more stuff to consider about which is the best way to pay for the bike. But each way there are some savings possible.
    In order to claim the expenses it's either have the bike as a business vehicle or have some personal use, method would depend on the entity - company or sole trader, and just how creative you want to be with your accounting. But it would still work out beneficial to claim expenses, when I get a chance to get a new bike I will definitely get out the calculator and see what I can wangle.

  15. #15
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    Quote Originally Posted by dnos View Post
    Hell yeah, DNOS RACING LTD has a nice sound to it.

    There is a hell of a lot more stuff to consider about which is the best way to pay for the bike. But each way there are some savings possible.
    In order to claim the expenses it's either have the bike as a business vehicle or have some personal use, method would depend on the entity - company or sole trader, and just how creative you want to be with your accounting. But it would still work out beneficial to claim expenses, when I get a chance to get a new bike I will definitely get out the calculator and see what I can wangle.
    hehe you could give up your "boring" desk job and go do something practical with that degree! Who knows, you might become a miiiiilionare!
    "Some people are like clouds, once they fuck off, it's a great day!"

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