Six percent of U.S. households have one or more leased vehicles, according to vehicle registration statistics from Hedges & Company. However, as the household income increases, that percentage goes up. The percentage of households that lease vehicles is 13 percent if the household’s income is $100,000 or more.
“Leasing is designed for the person who always wants to have the newest product out there,” says Jon Boardman, general sales manager at O’Gara Coach Co.
An automobile lease also can help a business owner receive some tax benefits, while dismissing any loss you may incur if the vehicle is damaged in an accident, as long as the vehicle is repaired to manufacturer specifications, he says. A bad Carfax report will not affect you when turning in a leased vehicle.
Smart Business spoke with Boardman about lease options, high-end vehicles, potential tax breaks and how to most effectively lease an automobile.
Why do higher income households lease cars more often?
Luxury cars are more likely to be leased. At O’Gara Coach Co., 87 percent of the luxury cars are leased, mainly because there’s a tax advantage. And let’s face it, there’s not a lot of tax breaks anywhere anymore.
However, mostly it’s a status thing. Generally, although not always, and even if people won’t admit it, you’ve got to have a nicer car than the guy down the street, your next door neighbor, the guy in the office. If you have a higher income, then you want people to know that you have succeeded. You are patting yourself on the back for succeeding, while you’re getting tax breaks.
A high-end luxury car is not sold because someone needs it. At a minimum, you need four wheels and a steering wheel and that will get you to and from wherever you may need to go. Super highline cars are not a necessity; they are desired. Society has dictated that a super highline car indicates that you are someone to be noticed, or that you are successful. People put that thought into their own heads, saying, ‘I have made it because I have a Rolls Royce or a Lamborghini.’
Does the market for leasing luxury cars change based on factors such as interest rates?
If you were to finance a car right now, on a super highline, you could get 3 percent, easily, and a lease is still calculated out at 4.5 percent. Four and a half is good for a lease, but relative to financing a car, it’s not.
If you go down a notch into Mercedes and BMW, then yes, interest rate specials are done on leases. Let’s say a car dealer has a loaded inventory of one particular model that it wants to move. So it throws a rate out there that comes out to be fairly low, it moves the extra 200 cars that it needs to, and then the rates come back up.
When shouldn’t you lease a luxury automobile?
A person’s use of the vehicle will help determine if leasing is right for them. If a luxury automobile is your lifelong dream and you only plan on buying one to fulfill that dream, then leasing may not make much sense. Again, you want to look into any tax benefit that you may be able to take advantage of, but if the car is going to be kept for a long period of time, the best bet is to get it paid off and owned free and clear.
Why are mileage limits so important, and how should you pick your limit?
Leases are designed for you to rent the car for finite usage. When getting into a lease, one must decide the months or term you are looking for and mileage you intend on driving — this way when the lease is over, there are no fees due from the lessee. When picking your limit and your fixed time usage, you need to consider:
• The length of warranty on the car;
• Number of miles you have been driving for the last few years; and
• Payment you are willing to make, as it usually goes down the longer you lease.
What financial advantages are available when leasing a car for business?
The only way to know if you can benefit financially from a lease is to speak to your CPA. Some businesses have the ability to write off the entire payment, any maintenance performed and fuel, while others cannot write off anything.
Are there certain luxury brands that are better to lease for your company?
No brand is better than another to lease when you are looking for a tax benefit; you either can use a car as a write-off or not. Again, talking to your CPA is a must. Depending on the size and income of the company, the government may not see an issue with a $1,000 payment, while a $5,000 payment opens quite a few more eyes.
What should or shouldn’t be included on your lease?
A lease should include Guaranteed Auto Protection (GAP) insurance; if it is not on the lease, then you need to buy it. GAP protects you, in case of an accident or if the insurance company comes up with a replacement value less than your payoff.
Other than GAP, everything else on a lease is very cut and dried. There are no surprises that can come up during a lease term; what you see on the contract is what you get.
Jon Boardman is the general sales manager at O’Gara Coach Co. Reach him at (310) 659-4050 or email@example.com.
Most business owners are not in the real estate or contracting business. So, when they’re relocating, building or renovating, they probably have limited resources or knowledge when it comes to managing this time-consuming process. They have a choice: go it alone or align with a professional that has the technical expertise to manage the delivery of the project within clearly defined scope, schedule and budgetary requirements.
“Whether it’s a ground-up new building construction project or the renovation and remodeling of space, project managers are subject matter experts that can drive value in their ability to identify opportunities and mitigate potential project risk events,” says Eric Verh, director of Project Management at CBRE, Cleveland. “They can properly manage and coordinate teams of multidiscipline design, construction and vendor professionals and provide strategic consulting through all phases of the project’s lifecycle.”
Smart Business learned more from Verh about the value of project management, whether you’re facing a new building construction project, renewing a lease and renovating, or looking for new space and considering landlord turnkey or tenant-controlled improvement projects.
When should a user or owner of real estate hire a project manager to assist in the design and construction process for a proposed project?
The simple answer is the sooner you bring a project management professional in to manage a project the better. During the pre-construction phase, typically where only 20 percent of the project cost is incurred, 80 percent of the value creation can be realized in value engineering, design efficiencies and speed to construction that a project manager can lead if brought on board at the conception of an idea for new space or renovation or contraction. Full-service companies such as CBRE offer strategic consulting through business and conceptual planning stages of a project before the design actually takes place. CBRE Project Management offers clients up-front assistance during their space and building search. By providing comprehensive financial and qualitative analysis of alternative sites or buildings, our clients understand overall budget and scheduling implications associated with each site and, therefore, are better positioned to negotiate more advantageous lease or purchase terms with prospective landlords and sellers.
Further, through proper planning and strategy development early on there are many unforeseen scheduling and budgetary missteps that can be avoided. Understanding roles and responsibilities of those involved in a project and clearly defining the approval process for critical issues are often overlooked. If understood early on, extra time can be planned into the schedule and an expedited process for time-sensitive matters can be developed by a project manager to reduce time and expense.
What types of building owners or tenants are best served to retain the services of a project management professional?
Small, medium and large companies that have single building project needs to corporate and institutional owners and users of real estate on a regional, national or global basis can benefit from the services of a project manager. For example, companies looking to lease or own real estate can focus on their core business while allowing the project manager to oversee their best interests in managing a specific construction project that aligns with the company’s expectations in terms of quality, cost and timing of delivery.
On the other hand, corporations that may be rolling out national rebranding initiatives that either fully outsource or supplement their existing staff with a project management representative can benefit from local market experience and relationships. It runs the full gamut, from small companies to large corporations, whatever their real estate project management needs may be.
Even on small lease renewal projects involving simple renovations of just new carpet and paint, users of real estate may not understand the full implications of what that may mean. For example, the type of carpet selected can lead to the need to tear down, reinstall and re-cable workstations and the moving of employees and their contents, all of which can significantly add to project costs and employee disruption. Project managers can help companies identify these implications up front and to make decisions for alternative material selections or scheduling adjustments to mitigate such costs and disruption. So even on small projects, it’s beneficial.
Does the value offered by a project manager offset the associated costs for these services?
It is a win-win situation in the sense that a full-service project manager can represent a client’s best interest, while concurrently offering value engineering suggestions and efficient project planning, scheduling and design consultation from project inception through furniture, fixture and equipment selection and move services. For instance, at CBRE, our project management platform often saves our clients on average $2-$3 for every dollar spent on project management fees. It’s our ability to offer up strategic project solutions and best practice methods, as well as our preferred national vendor pricing for building materials and systems that are passed through to our clients in the form of cost savings from day one.
How can a business reduce operating costs through project management?
It comes down to details and aggressive and proactive planning in design early on that the project manager can help manage that process to reduce operating expenses within a tenant space. Selecting appropriate types of construction materials and design, as well as types of finishes, lighting, building controls and water usage can all lead to a more efficient building, which costs less to maintain and operate. Sustainability is big these days. For instance, LEED-certified projects can include environmentally friendly solutions that provide cost savings over time. Project management can not only help clients get into a new building or space, but also going forward have the savings of operational efficiencies.
Eric Verh is director of Project Management at CBRE, Cleveland. Reach him at (216) 363-6455 or firstname.lastname@example.org.
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