How close do the residuals used in lease contracts come to the actual value vehicles will have at the end? Looking only at vehicles that end up with the expected mileage and in the expected good condition do the residuals get close on average? I’m looking at this from the perspective of leasing vs. buying and wondering if it makes sense to use the lease residuals as an estimate of the value of a car I buy three years from now. To make matters a little tougher, I’m also doing this for a model which has only been around about a year.
Alternate question: any better ideas for estimating what a car will be worth in three years if the model has only been around for one year?
The TL; DR answer to this is, pretty much every lease that is very attractive will have a completely unrealistic RV (cough…BMW…), which means they will rarely be worth buying at the end.
The primo cars to lease will have inflated RVs as well as significant incentives, which is effectively depressing the value of that car from day 1.
What model are you looking at that has only been out one year? You can probably look at the brand generally speaking to judge what the depreciation will probably be.
Anecdotally, I would say that on average for the God knows how many leases I’ve had over the years, all of the “good ones” had the car underwater by $10k or more at termination. I think the worst may have been an i3 I had a few years ago where the buyout was $33K, and the cars at auction were in the high teens.
I’m looking at a Genesis G70. There’s a 0% financing offer on the remaining 2019s that I’m trying to compare to the leases on 2020s which don’t look great.
Being a Korean car (Not saying it isn’t a very nice car, BTW), I’m going to say No. Don’t buy a car to try and “turn a profit” by thinking you’ll have equity in 3 years. The bank sets a residual. That residual is your protection. If used car values plummet in 3 years for whatever reason, the residual doesn’t change. If it is found that The Terminator takes over 2019 Genesis G70 diagnostics & computer systems (the T1000 can’t hack the 2020s) and the 2019 G70s, the residual doesn’t change. Depreciation is the highest cost of automotive ownership, the bank is willing to finance a certain depreciation percentage over a fixed amount of time.
It’s very challenging to turn a meaningful profit on any new car.
I think there are used cars you could purchase, drive for years, and find that you drove it for much less than expected.
A non daily driver Porsche for example. Hold it for years, put few miles on it, and you may just find it hasn’t depreciated much.
Or for a potential profit-
Jeep Wranglers. I have flipped my fair share of Wranglers buying low, adding a few things, and selling high.
There’s always a market, high miles don’t scare people, and good wheels and tires sell the car (which can always be found used). Just be sure the frame is clean clean clean, and some of the other Wrangler quirks have been sorted.
I really was joking about turning a profit. What I want to do is estimate (maybe guesstimate) the total cost of buying then selling the car in three years and compare that to the total cost of the lease. And I would need to factor into that comparison the fact that the lease puts the risk regarding the future value on the leasing company while it is on me in the purchase scenario.
I would speculate that, with rare exception for certain cars which simply do not lease well and or have certain special status, the three-year cost of ownership will tend to be less when leasing versus buying. When you factor in the insurance of sorts (by having a known residual value), if one knows they are going to sell the car in three years, anytime I have looked at this leasing was always the smarter choice.
If one can find an older car (that is more or less operating on the plateau with regard to depreciation), buying and then selling can be wise.
Not many cars on the newer end which seem to fit this criteria. The only one I can think of that is even close might be a civic type R (if one could buy it new at MSRP…A couple of years later with reasonable miles, some seem to sell pretty close to original sticker).
I’ve always had really nice luck w the Wranglers. The 4.0 that ended in '06 was bulletproof. You can’t go wrong with a TJ.
But, if you want the more modern, I think it is 09 and up JKs that make the most sense. I flipped an 07 and first year of that engine was not great. I also remember it pissing coolant all over my passenger side footwell. That is a BEAR to fix due to the location. Heater core if I recall correctly.
Either way, everyone fixes them, parts are everywhere, and there are buyers all 4 seasons
When I have tried to do that comparison in the past, I’ve ran the numbers a few different times, assuming that the lease end value is equal to the RV and that it’s +/- a few percent. That answers the question for a few different scenarios, remembering that if the vehicle holds it’s value and is higher than the lease RV, you can reclaim the equity in either scenario, but if it’s negative, you don’t have to eat it on a lease.
It happens on rare occasion. I got a Hyundai Azera in 2012ish. Had the lease bought out after about 2.5 years and it had about 2k in positive equity on it.
