Is resale value a myth?

Submitted: Thursday, Jul 01, 2004 at 21:54
ThreadID: 14301 Views:2603 Replies:11 FollowUps:16
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Consider this. People often purchase a far more expensive vehicle because it will "hold its value better". There is no doubt some makes have better resale than others. But at what cost?

Consider the medium sized 4 wd market.

A premium brand with the fruit will cost $60k, whilst a similarly equipped budget brand with the same level of fruit, will set you back $40k.

Assume premium will be worth 70% ($42k) after 4 years and budget just 50% ($20k) .

Leasing, and you have to finance it some way (over 4 years with 40%residual) will cost you $49,968 for the premium and the budget will set you back $33,312.

At the end of 4 years you have $16 equity in the premium and only $4k in the budget. However it has cost you $16,656 more to finance the premium. Net effect is that the budget has saved you $4656 over 4 years.

Then of course there are the various taxation issues, sure you can write off a portion of the extra leasing costs with the premium, but also have to pay a tax bill on it when you get $42k for something that only owes you $24k.

It's a complex issue, but paying extra for something that will be worth more later isn't as simple as it sounds. It also depends on personal circumstances, tax advantages, personal tax rates, business deductability if you're self employed et al.

And before some of you say I didn't need to finance it, cosider what that money could have yielded you in a decent investment portfolio, you'll find it would earn you more than you lost in finance costs.

Jim.
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