Financing that purchase

[Broompilot]

If one is able to finance the purchase have you considered the following?

These are not true #s but should spell out the idea.

One puts 20% down on a $100K truck, has a payment of $1,850 with $600 being intrest on the first month the remaineder is principal. The intrest is 100% deducatable, the principal is all taxable including S.S., state and fed. Sure you get deprieication but the principal has to be put back onto your bottom line. One may think Wow I cleared $55K, but no add back in all that principal and now you cleared 70K big difference in the tax bite.

As you pay the note down your tax rate continues to rise with the increase in pricipal. Do not forget this in your calculations.

With this said this is the one of two ways I would ever buy a truck, finance it with a min of 20% down or pay cash. NO LEASE, AND ABSOLUTLY even if you do not have the $ I would never ever do a Lease purchase with an Individual, if you cannot afford the down payment than most likely you will find out later you cannot afford to be in this business.

 

[tazman]

Hi,

As a truck sales consultant (and notice I said "consultant" and not salesman)....I think you can't NOT consider a leasing option especially a TRAC lease)........
Having said this I will agree that it may not be the best thing for everyone... OK ???

This is however the way many large fleet operators/companies purchase their equipment......
Some do full service leases as well..(and tie them to a TRAC lease)
With a lease you are not showing a liability on your books...you are "renting" your equipment......and equipment that will depreciate in trade value quicker than most items...becuase of the special bodies and equipment and the high mileages

By the way,TRAC lease TerminalResidualAdjustmentClause...is a true lease....anyway...their are different situations for different applications/people......

Bottom line I tell people.....
When you enter this (no any)type of business...the 1st thing you need to expense is the advice of a good tax accountant and a good lawyer......Wisely spent money IMHO....

When you are purchasing a truck or any piece of equipment....have all the options available.......and be sure that the Finance guy knows what he is doing.....it's the downfall of most deals....

Just my opinion ....

Thanks for listening...

Frank in Pa.

"The Beast in the East"

 

[Broompilot]

Please prove me wrong and spell out what a TRAC LEASE is. I have never heard of this.

I agree a lease for a owner with quite a few trucks turning them over every 2-3 years might be in a companies best intrest. But for an individual O/O I would appriciate you explaining the ADVANTAGES and in your opinion the disadvantages....

In a couple more months I own my truck free and clear, where in the world did I go wrong or how would you have put more $ in my pocket? My truck will be two years old in Nov I look forwrd to your response for others to see.

 

[davekc]

Here is a basic idea on leases. Taz can correct this if I am in error. This is year old information on trac leases I had.







First, a review of Open End Leases:

Open End Leases can be structured as a "true tax lease" (operating lease) and the payments can be expensed up to 100% and treated as "rent" payments for federal income tax purposes.

Open End Leases can also be structured as a "finance lease" (capital lease) and treated as a loan for tax purposes with a bargain purchase option as low as $1.00. The lessee takes depreciation instead of writing off payments as "rent".

Open End Leases have none of the penalties associated with other leases.
NO Mileage Limits or Charges NO Body Damage Charges
NO Sign or Lettering Restrictions NO Paint Scheme Restrictions


TRAC Leases

Open End Leases containing a Terminal Rental Adjustment Clause are known as TRAC Leases. TRAC Leases are limited to motor vehicles and trailers used at least 50% of the time for business purposes.

TRAC Leases are unique in that federal tax rules permit a Rental Adjustment (cash rebate) back to the lessee at lease termination and still be treated as a "true tax lease".

How TRAC Leases work:

At the beginning of the lease a Residual Amount is chosen that will be used to determine monthly payments.

- Higher Residual Amounts = lower monthly payments = higher purchase options
- Lower Residual Amounts = higher monthly payments = lower purchase options

At the end of a TRAC Lease you have 4 choices:

1. Purchase the vehicle for the Residual Amount.

2. Trade-in for a replacement vehicle. Apply any equity to the new vehicle.

3. Extend the lease by financing the Residual Amount.

4. Turn in the vehicle and be eligible for a Rental Adjustment based on the lessor's sale proceeds over the Residual Amount. If the vehicle sells for less than the Residual Amount you are responsible for the deficiency... purchase the vehicle for the Residual Amount and there is no further obligation on your part.

Example of a TRAC Lease Cash Rebate at Lease End

Original Cost Of Vehicle: $ 25,000
Residual Amount: 5,000
End of Term Sale Proceeds: 6,000
Terminal Rental Adjustment:$ 1,000 Cash back to lessee.

This information is based on accepted accounting principles and interpretations. It is intended to help you understand Commercial Leases. This is not to be considered tax or legal advice. Always consult with a qualified tax or legal advisor regarding any aspect of the federal tax code.
















Davekc
owner
22 years
PantherII
EO moderator

 

[tazman]

Dave,

Thanks for the stepping an explaining...you "dun good" ....

As to Broom's request:
I have been asked before to "prove" this out....and unfortunately I need a good set of parameters to do that ....
Things like selling price and down payment among other items....need to be weighted against the lease.

TRAC's also have varying percentages based on the residual at the end...
We usually put in 10-15% on a 60 month lease...and 20-25% on a 48 month term.......
What I stress to people entering into this lease arrangement is that you keep the units in good condition throughout the term...
That way if you do want to let the lessor move you truck at the end ...you may come out with a + balance.

TRAC's generally also lend themselves well to "speciality units"...

I think for purposes of this discussion...I'll stop here....
For a person/owner-operator buying 1 unit... this may not be the best option..."nuf said" .....

Frank in Pa.
"The Beast in the East"

 

[Broompilot]

Thats what I was look'n for one truck may not be the best option. I agree like I pointed out earlier a couple of trucks yes I agree your gona run em and turn em in. But with one truck I did the math I came out further ahead purchasing than by Leasing and by more than 10K.

100K truck for poops and giggles
35K down lets say a loan (two years ago) 7.25% finance charge no lease purchase...

There ya go.

125K a year in mileage very well maintained overly maintained might better say.

 

[tazman]

OK.....lets play the numbers

Source: GMAC Commercial Services TRAC rates (currently the highest in the US)

Price: $100,000 (includes all taxes and fees for comparison)
Loan Rate: 48 months
Down Payment: $35,000
Finance Amount: $65,000 (simple interest loan)
Interest paid to term: $10,074 (and change)
Payment/month - $1564.00
Total payments - $75,072 + $35,000 = $110,072
Miles on units at end - 500K

TRAC Lease

Net Cap Cost - $100,000
Down Payment - 1st month $2318.65
Residual Value at end - $20,000 (or 10% standard for GMAC)
Payment per month - $2,166 + $151.69 (assume 7% tax)
Total of all payments - $111,295.20 including tax
Miles on unit at end - 500K

So, on the surface you would think that the truck is cheaper to buy.
based on the monthly payments....
However you need to calculate depreciation and the loss of revenue on the $35,000 you had to shell out to start with
What will $35k in the bank net you in 48 months ???
Will the truck bring more than the $20,000 residual at the end...perhaps more revenue in your pocket.

Couple of other items:
My spreadsheet also calculates the depreciation on the charges in this fashion:

Base monthly payment - $2,166.96 (notax)
Times term 48
Total payments $104,014.08
Less :depreciation 80,000.00 (remember 20k residual)
Total lease charges $24,014.08
or roughly $500/month

Other factors : You own the truck after 4 years vs. owing $20,000
to buy it (note: no reason to buy)
Assuming you are still in business...will it trade for the $20k or will you be "upside down"....

We can probably debate this further...but at lease we have some numbers to crunch....

Also you will be hard pressed to get 7.25% on a truck loan in todays market...(IMHO)

Now you need to hire that accountant and take the numbers to him/her and let the games begin !!!

Comments...!!!!

Frank in Pa.











"The Beast in the East"

 

[Broompilot]

I do come out much further ahead, WHY? There are no T-300 less than 5 years old 4-5 that I have ever seen like the one I own for 20K it would dissipear in a second not minute.

Last year I purchased another one with no APU just over 500K for 28K and it was a bargin for that price in that condition. Ran it a year with less than 2K in repiar and PM. Add an APU and other options I have on mine she should bring roughly 35 37K at that age and mileage.

I know of others who have paid 35K for 5 year old trucks close to specs with close or just over 500K.

Instaed of walking away or purchasing for 20K I can sell mine outright for lets say 35K for a quick sale. Does this not prove my point I am ahead by 35K or another two years of semi dependablity truck since I know Rich M got almost a Million, and two other drivers I know of are driving T-300s with over a Million on them.

Thanks this has been a fun debate appriciate your #s.

 

[tazman]

No problem,


I guess I have to have the last word....(29 years of marriage allow me).

Having a higher value unit at lease end "helps you and the numbers"...
as you "pocket" any overage if the truck goes back to the leasing company or even if you sell it yourself....That extra $15k will go a long way to pay down the lease cost and still allow you to keep the original $35k you would have plunked down on the truck....and accrue some interest along the way ......
You could also set the residual at say 35% and lower your outlay over the 4-year period.....and still walk away clean....

Enjoyed the conversation ....

Frank in Pa.

"The Beast in the East"

 

[Mudflap]

One advantage to an ammortized lease through a bank is if you intend to keep the truck for a long time, let's say 5-8 years sor so, you can write off the lease payments for the term of the lease. After the lease period expires, you can depreciate the residual value of the truck on your taxes. Denny

 

[kwexpress]

KW Express
o/o till i die

IMHO there is no reason to lease a truck or finance one.
cash is king and I prefer to buy trucks that make me money not a finance company.

I want my truck to cost no more than what I can gross in 1 month

I gross between 10-22k in a month depending on time of year
so if im buying a truck and its january I wouldnt pay over 10k
if I am buying a truck in the 4th quarter I would go as high as 20k

no matter what time of year it is its less invested than what my downpayment would be to lease or buy one of these fancy nancy trucks
that put in a situation to lose.

my last truck cost me 6,500 and ive had around 2k in maintance
I have paid around 10k in insurance and just work for me when I want to.I got the truck last febuary by march the only thing I had to pay was fuel and insurance payments.so I can sit at home all month as long as i do 1 run

 

[Broompilot]

KW your talking about JUNK, just like the one you called me on last year on investing in. I would never buy JUNK only quality trucks that a carrier is willing to put on, unless its a junk company that does not care about its repuation. My carrier does not carry junk to begin with in its fleet.

As for married 29 years your only ahead of me 4 years, and if you care to throw away 35K cause you have no out of pocket expense says alot of ones business sense.... Yes cash is king but 100K carriers alot of Kings and one needs to be smart about all angles of ones investment. Sure I do not walk away, I walk away with a darn decent truck with having the CHOICE remember choices are difference between a wise business man and a dumb one, that I can either sit down and make a deal for a new one or continue with the dependablity of what I have been driving for either staying in it or trading it for a new or newer one......

Just my opnion, remember people I am not salesman here but I am ahead 35K for the same amount of $ investeed that if I took a lease I would have out of pocket. I now have less much less cause I paid off the LOAN not lease early so my investment is even much less than stated. A lease is set up for a bank or invesmtment company to profit from and not you. It is leaving the uneducated (you and me) feeling like we have won when acutally we have lost. Cash is King the poster is absolutly correct on that just have enough and enough cash flow to make it work, cause if ANYTHING goes wrong your gona get stuck or should I say screwed and you will never get rid of that feeling or credit wrecking ball. Also remember nothing bad ever happens to anyone in this business, ever....

 

[tazman]

Broompilot,

I think you got KWEXPRESS and Tazman mixed up in the same response...
I was the one that said I was married for 29 years...
(KWEXPRESS is has a similar log to mine..I've been around longer so I hold seniority on the TAZ logo...anyway)

I thought our debate was a good one regarding the lease vs. purchase... Will you go back and re-read the posts and the responses ???

Thanks,

Frank in Pa



"The Beast in the East"

 

[Mudflap]

Sure cash is king if one has it. It is also 100% possible and logically so to finance or lease equipment for certain business scenarios, and make profit in doing so. I have done it, have been in this business 10 successful years, and for what I have wanted and needed to get out of the business has worked perfectly well for me.

I do not buy new equipment, it is not necessary in this business at all. I buy like new class 8 repossed low mileage equipment, and it is fully gone over by myself and my mechanics. Whammo- 25% saved right off the top in off the lot depreciation. My equipment is not junk. It is top notch stuff rated to run 1 million miles or more. Some of it might not look so pretty with a scratch or dent here or there. That does not hinder it from delivering freight, or doing its job in the proper manner. The equipment is initially leased, (through bank, NOT company lease purchase, those are totally different things!) then depreciated, and runs an 8-10 year life course this way. Every individual's business scenario is different, so look at the big picture rather than what works for you when preaching what you think is best. Denny

 

[Ladytrucker1950]

Great posts guys! I'm new to this group and have been reading as much as I can. I've been dragging a 53' for about 5 years and have decided that an expediter is what I would like to do now. I have leased trucks in the past so read your debates closely. At this point I'm still somewhat confused and don't know the best way to break into this industry. Any suggestions would be greatly appreciated.

 

[tazman]

Thanks for joining in....

You said you have leased trucks in the past....I'll assume you are referring to tractors since you said you were dragging a 53' box around behind you....

What was your experience with leasing...??? can you explain what you leased and the terms etc.... I think it would go a long way to help others understand the process....pitfalls and positives...

Thanks,

Frank in Pa.


"The Beast in the East"

 

[kwexpress]

KW Express
o/o till i die

Broom like they say one mans junk is another mans treasure.
if you want 100k trucks thats fine for your biz.but I would rather own class 8 junk as you call it than be stuck with payments for 5 or more years.if I want to change I can. A dealer never gives you anything.oh and by the way my I have been offered 2 times the amount for my junk than what I paid for it.had the junk dyno tested in MT.Vernon last month the junk is still putting 400 hp to the ground


im rolling over my profit from the last 2 months into a 2000 century class piece of junk.I suppose thats a mistake to seeing the 70k miles on the new engine will only last me another 4 or 5 years and im paying less for it than a downpayment on one of your fancy nancy trucks to.and to set the record straight I doubt that I called you.you may have responded to an add that I had on here at one time or another but you will notice I have stopped posting adds dont need anyones help to do anything I am able to get things done on my own again thanks to my junk

Happy trails

 

[Broompilot]

Than why did you ask me to be a partner Last Year on purcahsing a piece of crap? I am in the business of delivering freight, not reselling JUNK. Congrats on finding a sucker for your used worn out truck.

While you were negoating and returning phone calls I was making $ delivering freight. You choose your path I choose mine, one thing for sure my plan is working just fine and choose to do one thing at a time and as good as I possibly can.

 

[Broompilot]

And yes it was you who contacted me the Post is still in my private E/O mail box. I am imiagining things it is your phone # and it was your voice mail I called back.

And once again Congrats I am gald it works for you, most people that buy that old of a truck spend more in repairs than I would ever spend in payments.

 

[Broompilot]

I have gone on and on and on, and to those of you I have offended I apoligize. I am deeply convicted on my believe that to much debt is the single most money robbing mistake people make in life. Only 3% of Americans have saved enough $ to not depend on any assistance upon deciding to retire, thats a true stastic that scares the pants off of me. 53% of Americans are behind on one bill at home and 70 something % live from paycheck to paycheck.

We all make decisions and live in a country that we can do anything we want, I am often amazed how first generation immmigrants come in here and own a large % of the small business in this country. Why are we not as second-to-tenth generations doing this ourselves? Could it be the "I gotta have it now attitude" I deserve it now with no $ down, and than we decide after years at a job we no longer like, that we want to purchase a truck for a business the same way? (Could be any business just using this as an example).

As for buying an old truck, yes there are a few out there and if one has the knowledge such as KW has than it works great for him. I am sure he is also one heck of a repair man (I am not) and would venture that most of us are not that handy either. Thus gambling on an older truck like the one explained could be the single biggest mistake one could make. Almost as bad as over financing one as both end up effecting the bottom line if things do not pan out or if Murphy comes visiting.

KW has a strong reputation here has been a member for a long time, how he runs his business is no business of mine. The statment I am trying to send to the readers here (newbees) is I do not feel that them buying older trucks would be a wise decision. Most companies will not sign on a truck older than 7 years, and if they do and it begins to show problems one might find themselves with a truck without a Carrier.

My delivery was in poor taste, but I stand behind my point so to those I critized I apologize. As for a fancy nancy truck, sure its nice, it is also profitable. If I can get 7-8 years out of it than the true cost per year is $12,500 I am sure I make a profit on that number. I do not see where this truck is to much truck for the $ spent and it was not financed for a long term. I was very Blessed prior to deciding to do this and always knew this was something I had to try in my lifetime, but I worked two three jobs to save enough $ to get into this. I sacrificed alot, the fruits of my labor seem to paying off. I did alot of eliminating any downsides and keeping Murphy in a closet, things will and do go wrong, one needs to be prepared.

If doing this over again, knowing now what I did not know two years ago, I would probably have purchased a two year old KW, for somewhere in the 60-70 range and put 20K down. With a payment of less than 1K you have alot of cash flow and options without being a prisoner to ones truck. Being a newbee looking back I know I made the correct decisions in doing what I did, and I will accept the fancy truck as a compliment. I take Pride in my Ride and am the first to admitt it or I would not spend so much time at home cleaning it everytime I go home. I will add this has been an enjoyable Post to have been writing in.