depending on whether or not this is a first machine. take my case for example, I previously owned a 565 NH skidloader that was leased by my father for the purpose of, first off "need" and then second his tax situation was such that he was nearing retirement and did not need any more loans to follow him into retirement. Granted Dad DID pay more in the long run but it forced the tax preparer to deduct the expense on a yearly basis instead of looking for deductions and then taking it all in two years as which is what he would have wanted to do. Bottom line it went like this five years payments, buy out at the end, depreciation for him for the remaining time as he deemed necessary. the remaining portion was depreciated as well as the interest deducted . What this did was to allow some deductions without having to sink the business into further debt by looking for another purchase two years after the 565 was purchased. So then when I took over the operation I bought the 565 as personal property and paid x dollars which amounted to about 33% of new, I depreciated the purchase in two years, traded the purchased machine for about 33% of new applied that money to the down payment and it works out that I will pay the same with the lease because of the trade in as I would have if I had purchased new right from the start. Now......why did we do it this way........it all comes back to the assets and liablities statements at the bank. Purchasing the personal property on private deal and making payments to Dad put a strain on my liabilities and total equity portion of my statement. With the lease I am only liable for that years portion of payments which are treated differently and viewed differently by the bank. The only reason this worked out for us was because first Dad was willing to make the investment in the 565, he needed some deductions, and did not want to have to make two purchases in the same five year time period only to sell the second purcahse to me as well, and put further strain on me for the intitial personal property purchase. this allowed me to work into it more slowly and cautiously. In short, for those out there reading this and for the record I do agree with Hendrick in that an intitial long term lease is more expensive!!!! by far!!! This was just one of those sacrifices that a father made for his son to continue the operation, limit liability, and allow me to have something of some value to trade when I was ready. as for the 2008 L 170 NH. I leased it solely for the purpose of again limitations of liability, beacuse of my current debt load, but because I had purchased the 565 earlier I was able to trade for the 170 and will pay same as anyone who buys the same machine outright. If I had the choice I would rather have traded the machine for a purchase. but my 565 was getting pretty wore out, and I depend on it daily for an average of 6 to8 hrs a day! but...........my debt situation was not agreable with the total purchase and added liability. Of course in about 18 months I will free up aprrox 7,000 a month in operating capital and the next time I trade that skidloader it will be for a purchase. I know it sounds like funny money, but given the circumstances it was our only option, and we needed a skidloader we could depend on .
And thinking ahead as to the questions coming down the road here, "Why didn't we buy used?" same scenario as a purchse, depreciate in two to five years only deduct interest, still liable for full value of purchase.
"could we have fixed old machine?" yes and no ..........my old machine had bad hydros, tons of hrs, and broken loader boom that kept reacurring. (which I kept fixing as best I could.) bald tires, bad radiator. all repair costs would have been more than the loader was worth.
"what was the trade in value" If I had bought new, my trade in would have been about 2500 to 3500 dollars. but because of the higher amount of a dealer finance network to profit I was afforded about $8500.00 for the lease.
Again, I will reiterate I do not personally like the long term lease, but I had to manage things in such as way as to allow me to not exceed that 55% debt to asset ratio on any given year until I was done with buying personal property. Thanks to Hendrick to challenge my decisions here, I appreciate a good discussion, and I do agree with him that a purchase is still the way to go, but sometimes banks and current asset statements do not always meet eye to eye.:usa:Banghead
