[DocB]

I am leasing a 435GC and I am considering placing multiple security deposits in order to reduce the money factor. Current MF is 0.0013. Each deposit of $850 will reduce the MF by .0007. Has anyone else gone with this approach and is this generally a sound financial decision?

[EJL]

I really wish someone would sticky this somewhere.

Yes its a good financial decision. On my lease I put a deposit of 3500. I saved over 1200 in interest over the three years. Nice return on my investment.

[Oofie]

Originally Posted by DocB

I am leasing a 435GC and I am considering placing multiple security deposits in order to reduce the money factor. Current MF is 0.0013. Each deposit of $850 will reduce the MF by .0007. Has anyone else gone with this approach and is this generally a sound financial decision?

Doing it for a deal I'm looking to get. $3150 in MSDs will save me $38 / month (going from $438 to a flat $400) and save me a total of $1368 for the life of the lease. Not too bad since I dont think I can invest it in anything that will yield me more than 40% of my money in 3 years.

[P-Bass]

Originally Posted by Oofie

Doing it for a deal I'm looking to get. $3150 in MSDs will save me $38 / month (going from $438 to a flat $400) and save me a total of $1368 for the life of the lease. Not too bad since I dont think I can invest it in anything that will yield me more than 40% of my money in 3 years.

$3,150 @ 12.77% annual compound interest over 3 years would do it. Pick a good mutual fund and or stock and you can beat it. The stock market (S&P 500) was up 29% last year and 8% year to date. You can do it, I'd rather have use of the money.

[tturedraider]

Originally Posted by PSA955

$3,150 @ 12.77% annual compound interest over 3 years would do it. Pick a good mutual fund and or stock and you can beat it. The stock market (S&P 500) was up 29% last year and 8% year to date. You can do it, I'd rather have use of the money.

Not virtually 100% risk free, accounting for the beyond miniscule possibility that BMWFS could go belly up during the course of the lease.

[Dataready]

Yes it is the best investment you can do, if you have the cash to not use for the term of the lease. I put $ 5600 and saved close to $ 2000 for the life of the lease. I do not think I can make that much in three years if I invest the $ 5600. The risk is there but it is way less than going in the stock or mutual fund, do not forget the tax you will owe if you invest on your own, but here it is all worked out toward the reduction of the monthly payment. The reason BMW can do that and share a minimal amount of the return with you is because they get MSD from lease users and the money adds up, they turn around and lend it to other car buyers (standard loans) with a secured collateral (the car itself), here you go, you are talking biiiiiig numbers, if you know what I mean.

[Labeef]

I did the same. It's a really good return and you get your money back at lease end.

[cashewnut]

People seriously need to stop calling MSD's an investment. You should almost always do them, but they are not an investment. Putting money up front, in order to save money, is not an investment. You're not getting a return. You just spent less. You only get your money back. BMW inflates the money factor, takes an interest-free loan from you for 3 years with the MSD's you fronted to lower the money factor, invests your money for 3 years and makes a return from it, then returns only the MSD's to you at lease end. Great deal for them.

Putting up $5000 in MSDs in order to save $2000 over the life of the lease is not a 40% return. You didn't make $2000. You didn't make anything. Spending less money is not the same as making money. If you got a 40% return, you'd have $7000 at the end of the lease.

It's a good decision to do MSD's, but definitely not an investment. If I decide not to drive into NYC this weekend and save $100 I'd otherwise spend on gas, I didn't get a $100 return.

[jonkarn]

You have $7000 at lease end when you get your $5000 back plus the $2000 you saved. Not sure how that is any different. It's an investment whether you get a return or you save money. If you were going to spend over $700/mth on the payment either way, yet were able to pay $2000 less guaranteed over the course of the lease because you maxed out MSD's, seems like an investment to me. Investment purely means putting money into something that yields a monetary result. The monetary result is $2000 less spent over 3 years which makes you $2000 richer.

This is the same as if you invested $5000 in the market and made $2000, which you then in turn used to spend on your car payments. Except in this situation its better than the market bc it's guaranteed. The money will always be there in the end. It doesn't matter that BMW is making money in the deal. It only matters that you are $2000 richer if you so choose.

Now if you are using the MSD advantage to then get a more expensive car, or more options than you may have gotten otherwise, then yes, you are not really "investing" intelligently.

Originally Posted by cashewnut

People seriously need to stop calling MSD's an investment. You should almost always do them, but they are not an investment. Putting money up front, in order to save money, is not an investment. You're not getting a return. You just spent less. You only get your money back. BMW inflates the money factor, takes an interest-free loan from you for 3 years with the MSD's you put up front to lower the money factor, invests your money for 3 years and makes a return from it, then returns only the MSD's to you at lease end. Great deal for them. Putting up $5000 in MSDs in order to save $2000 over the life of the lease is not a 40% return. If you got a 40% return, you'd have $7000 at the end of the lease.

[P-Bass]

Originally Posted by jonkarn

You have $7000 at lease end when you get your $5000 back plus the $2000 you saved. Not sure how that is any different. It's an investment whether you get a return or you save money. If you were going to spend over $700/mth on the payment either way, yet were able to pay $2000 less guaranteed over the course of the lease because you maxed out MSD's, seems like an investment to me. Investment purely means putting money into something that yields a monetary result. The monetary result is $2000 less spent over 3 years which makes you $2000 richer.

This is the same as if you invested $5000 in the market and made $2000, which you then in turn used to spend on your car payments. Except in this situation its better than the market bc it's guaranteed. The money will always be there in the end. It doesn't matter that BMW is making money in the deal. It only matters that you are $2000 richer if you so choose.

Now if you are using the MSD advantage to then get a more expensive car, or more options than you may have gotten otherwise, then yes, you are not really "investing" intelligently.

As cashewnut said and I agree, this is not an "investment". Yes you are lowering your monthly payment. You are giving up the opportunity to make a higher return on the cash you are giving BMW. As I pointed out in my last reply, 12.77% compounded annually over 3 years. You guys don't seem to understand basic time value of money concepts. I can do that in an S&P 500 Index mutual fund standing on my head. Risk? There is always risk in anything involving money (leaving it in cash is an opportunity risk, inflation risk etc), giving it to BMW instead of investing it yourself is a risk. Last point, we are all spending money on a depreciating asset. If that's an investment I'm Mario Andretti.

To each his own, but I agree, please stop calling this an "investment".

[nicknaz]

OP, I put down max MSDs on my lease. I like the money it saves on the monthly car expense with no effort on my part once the lease is signed.

The one thing to keep in mind is that if you try to sublease, you will likely use the MSD since most sub leasers don't want to have to put any money up front

[hill]

Now if you discipline yourself to put the money that is the amount that your monthly car payment has been reduced by applying multiple MSDs at the inception of your lease into stocks or other investment vehicle THAT money would be an investment.

Otherwise all you're doing is changing the terms of your lease expenditure.

[md]

Originally Posted by PSA955

As cashewnut said and I agree, this is not an "investment". Yes you are lowering your monthly payment. You are giving up the opportunity to make a higher return on the cash you are giving BMW. As I pointed out in my last reply, 12.77% compounded annually over 3 years. You guys don't seem to understand basic time value of money concepts. I can do that in an S&P 500 Index mutual fund standing on my head. Risk? There is always risk in anything involving money (leaving it in cash is an opportunity risk, inflation risk etc), giving it to BMW instead of investing it yourself is a risk. Last point, we are all spending money on a depreciating asset. If that's an investment I'm Mario Andretti.

To each his own, but I agree, please stop calling this an "investment".

You can't make more than 12% in the stock market within 3 years without taking on significantly more risk than that of BMW refunding your MSD. The S&P 500 has had negative returns in about 25% of it's 43 years, and some of them were quite significant. I don't mean to imply that it is a poor decision to put the money in the stock market instead of MSDs, but I feel it's very misleading to imply that doing so is almost guaranteed to significantly beat the MSD savings. You are just taking significantly more risk for potentially more reward.