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:
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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.
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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.
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