Car Equity to Invest?

[Michael Mulroy]

You always here the back and forth debate about buying or leasing a car. I personally have never leased but am considering it, given the following details.

Car Value ~16k

Car Loan ~ 6k

Equity: $10k

Payment $485/mo

Would it make sense to sell the car and use the $10k towards my next property and get into a $0 down lease with a similar payment? I have a year left of payments and it would take 20 months of saving the payment, after it's paid off, to recoupe the equity that I can gain today. I am Not one to drive a car into the ground, and I would most likely use the equity towards my next car purchase a year or so after it's paid off. Given that, I feel I would make better use of the money and if it returns $250/ mo cash on cash, it seems like a no brainier, right?

[Tyler Weaver]

Personal finance "experts" all agree that a lease is a bad deal. It is also nice. Knowing you have already contracted to trade in a vehicle every 3 years. Not being bogged down mentally about owning a depreciating asset. Being honest with yourself that the vehicle is just an expense.  A lease is just a luxury product in my opinion. 

Now the equity in your car is also "dead equity." It is not earning you anything.

The concept of thinking in terms of how many houses it will take to pay for a new car, house, boat, jet is covered in Rich Dad Poor Dad. Also 4 Hour Work Week for that matter.

If you were able to buy a property that has a cash on cash return equal to the new lease payment. Great! You used your equity to basically lease a vehicle in perpetuity. But wait, theres more! Over time you reap the benefits of principal paydown, depreciation write off, and appreciation. Over time the rent should also go up. In this case, so will your car payments so its kind of a wash.

The only problem I see with this plan is that 10k equity might not be enough to buy enough cashflow to lease a similar vehicle to what you have now.