Absolutely not covered under FDIC, but like others said, you’re holding banks property. Whomever takes over banks assets would likely have to consider the MSDs when either trying to collect the vehicle back (more likely at the end of the term, but I have no idea if they can cancel the lease early in the circumstance of the captive going under) or trying to get you to buy it out.
Exactly. More or less, if the captive or the parent manufacturer goes under, someone is buying those assets. THEY may get it pennies on the dollar, but you/we probably won’t even notice save for a different address to send the lease payment to, if even that (especially since only a luddite would pay monthly via a check/snail mail).
The only difference is, in the lease hypothetical, the bank has your security deposit and is contractually obligated to repay you.
That isn’t the case in a mortgage.
Things may have changed but many mortgages are resold bundled with others in short order. No one really wants that hot potato.
BMW is rated A1 and the yield for a note maturing in 2-3 years (but much more liquid) is much lower than MSD yield. You probably yield around 2.5%ish on the bond.
Regardless, I don’t believe a couple G’s is going to make anyone a substantial return elsewhere. If it does, it’s the equivalent of a lotto ticket. The only good reasons I can think of not to do MSDs is because you love to get in and out of these cars fast and don’t want the hassle or you simply are over extended and can’t afford the payments. Sadly I think the latter reason is the likeliest if I had to guess. In life, it’s always more expensive to be poor so the fact that they can’t afford it, makes the car lease even more expensive unfortunately.
Anyway that’s my 2 cents.
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I just want to contribute my real life scenario to the thread as I’m currently shopping for a new MB.
With $6,500 in MSDs, I would save about $77 a month, or roughly a 14% rate tax-free. I’m canvassing for good credit card offers now to put that on and have found this with the Chase Freedom Unlimited card:
3% cash back in the first year up to $20K and 0% intro APR for 15 months. So that’s like getting a free loan to earn a 17% return for over a year with only the minimum payment due each month. When the intro APR ends I’d just pay off the balance.
The $6,500 saved from the CC could be collateral for selling 5 FCX 2021 $12 puts to collect a $1,300 premium. If the stock is above $12 I keep that. If not then it’s like I got a 19% discount from today’s price.
How is selling a put and seeing the stock price fall the same as getting a discount off the price?
Imagine the possibilities if you just put it all on red instead.
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Is putting MSD’s on a CC a practice most dealerships allow?
The break even price on the contract is 19% less than today’s price. Obviously if the stock is lower than that I’m at a loss.
People have offered stocks as an alternative to doing MSDs. I thought it’s fun to consider an example of where you can do both.
I’ve charged over $5K for my Infiniti before. YMMV on the dealer but I’ve never been told in negotiations to make sure that I bring my checkbook when I come to sign.
I always tell friends to see what credit card offers might interest them because this is an easy way to get the minimum spend done to earn the sign-up bonus. If I traveled a lot I would consider one of the other cards that rewards hotel or airline points. But I don’t travel enough to make it worthwhile.
What’s the maximum you can lose?
If the stock goes to $0 then it’s $6,000 (500 x $12) - $1,300 = $4,700. But I wouldn’t ride it down to $0 if it’s doing so bad. The point is to pick a stock that has a better chance of going up or sideways than down. And the premium offers the cushion in the event I picked badly. You can always cover the trade at anytime to mitigate losses or even to take a gain.
There are other scenarios too. You buy a lower risk stock that pays a dividend and sell a call for your shares. Your stock could go down and the call could drop to zero whereby you close out the option at zero cost. All the while collecting a dividend. If you sold a longer term call initially, time could pass where the stock might go back up and you can either sell another call or sell the stock for profit. Rinse/repeat. Need some volatility and decent dividends and hope that the company you’re holding shares in doesn’t belly up. After all, any company can go belly up any time.
Option plays can be lucrative but if we are to talk about risk profile, they don’t even come close to MSDs. There’s no free lunch on the market…but MSDs are as close as it gets.
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I think it is all about capital allocation and what is the MF of your brand. Some are so low that I think you can get a better return of your capital after taxes in a investment account. In other the risk vs the return is not worthy and the MSD is the way to go (as long as you are buying form a dealership that allow you to do it, not in NY for example)
Hm…since we’re on Leasehackr, Ford has a 6% dividend yield. Go long 700 shares and sell 7 $10 2021 calls to collect $800 for net $6,200. Pocket another $630 in dividends before expiration. Hope the stock doesn’t tank and they don’t cancel the dividend! (It’s a slow day at work…)
@Mark.ca
I’m just having fun thinking of ways to have the MSD cake and eating it (stock) too. This was about what to do with the free float from the 0% Credit Card Intro offers. Obviously this would only be for someone who can float that MSD amount without batting an eye lash.
@Malbec
Yes, Infiniti is great at 0.00010 per deposit. BMW is only half that. At the end of the day I’ll take the certainty of the MSD tax-free savings over stocks if it has to be one or the other.
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Yes, but to be fair, if the MF is low enough, you’d put down less MSDs once you get to the point where you’ve maxed out the benefit, so it’s not like you’ll pay the same in MSDs and get less of a MF reduction. But I get what you’re saying otherwise.
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Truth be told I’d love it if you could buy down MF to be practically nothing and just pay depreciation. One pays sometimes come close to this.