When I look to lease a new vehicle, I try to choose one that can be flipped for a tidy profit.
Yep:
When my lease is about to end, I do not turn it in. This is a mistake most people make when their car lease ends.
Instead, I sell it to the highest bidder for a fast and easy profit.
WARNING: If you are looking to end your lease soon and get into a new lease, read my popular posts here first. It is CRUCIAL to have your newly leased car sitting in your driveway before you turn in (or trade) your car in.
This might come as a shock, but it is true: we do not have to turn in a leased car at the end of the term.
Now, car dealers want us to turn it in… because they have the option to secretly buy the vehicle from the leasing company and flip it for a fast and easy profit.
We can flip it for profit, too
As long as we lease the right vehicle at the right price and at the right time, we can ALWAYS flip a leased car for profit – at any time during the lease.
“Come again, Markus Allen – you flip leased cars? I thought we could only turn them in or refinance them at the end?”
I know, I know. The myth that we have to “turn in our leased cars” has been around since leasing became popular in the 1950s…
Leasing is the ultimate hedge
But the truth is we have many options as our lease is coming to an end. This includes:
– Turn the vehicle in and walk away…
– Buy it outright and keep the vehicle…
– “Flip it” for profit.
Most vehicle leases are known as a “closed-end lease” or “walk-away lease”. For example, we lease for 36 months, then walk away from it – turning it in. And then we get into another vehicle.
These leases include the buyout amount (in small print on the lease contract).
This amount is exactly the same as the vehicle’s Residual Value at the end of the lease term:
We can easily calculate the total cost of buying out a leased car at any given time…
We just need these 3 amounts:
– Current dollar amount of the remaining payments owed +
– Residual (or buyout) value +
– Purchase option at end of lease term
In the above example, if there are 6 payments remaining on my lease, the maximum cost to buy this car right now is:
$2,739.66 (i.e. 6 months @ $456.61) + $22,483.65 + $350.00 = $25,573.31
(I say “maximum”, because we do not pay interest on the remain 6 months. So we might save a few dollars.)
So:
If I am able to find someone to buy my 30-month old leased car for at least $25,573.31, I make a profit.
How much profit can I make flipping my leased car?
I know people who regularly buy end-of-lease cars and sell it for more than $5,000.00 profit.
One Canadian flipped her Toyota Tacoma when her lease ended and netted over $10,000.00 extra.
Speaking of Toyota, the FJ Cruiser now retains a 98% value, because it is popular (and no longer manufactured). Many report flipping these and making over $15,000.00.
The flip side of the flip
On the “flip” side, Hyundai and Kia just recalled over 1.5 million vehicles a few days ago. This could plunge the value of the entire brand – causing our leased car to be “underwater”… valued less than what is owed on the car.
The good news about leasing is we can skip the flip if this happens and just turn the car in and walk away.
The downsides of flipping to the general public
So how much can we profit on a flipped lease car?
Of course, the answer is, “It depends”…
It depends on how we sell the car (and how much the car sells for).
For example, I might put an ad in Craigslist to attract possible buyers. It is 100% FREE. And most people I know say it is the best way to attract potential buyers.
Yes. This invites a bunch of strangers to our house…
And yes, it is a major hassle…
But:
It is the fastest way I know to make thousands and thousand of dollars on the flip.
Of course there is a massive downside of selling a vehicle direct to the public…
If we sell a faulty vehicle and refuse to warrantee it, people will get angry. And they might go postal on us.
Even if we babied the car – if a buyer perceives that we sold them a lemon, they will get angry. And since they know where we live, it probably will not end well.
The safer way to flip a leased car
We make less profit selling our leased car at any used car dealership or car-buying service.
Since they are in the vehicle-flipping business, they will payoff our balance and write us a check, too…
For this convenience, our “flip” is less profitable.
On average, we bank about half of what we would profit selling our leased car to the public.
The big advantage of selling our leased car to a dealership is cash flow and lack of hassle….
They have lines of credit that enable them to pay off the balance owed to the leasing company. Plus they have cash to pay us for our leased-cars extra equity – usually in the form of a company check.
And the process could not be easier – they appraise our vehicle in writing. If we agree to it, they buy out our car on the spot. They pay off the balance to the leasing company AND write us a check for the equity left in our leased vehicle.
They also handle the dirty work… including all the paperwork and money transfers.
Even better, we can have our vehicle appraised by different used-car dealerships. Hells bells… we could get dozens of appraisals and sell it to the highest bidder – if we have the time.
(Each appraisal takes about 40 minutes.)
Most important, they do the flipping for us.
This includes investing money to fix minor issues, advertising our leased vehicle – even arranging financing for the buyer.
When we sell our vehicle to a used-car dealer, they pay off the remaining balance on our lease, cut us a check for the equity… and that is it. It is almost too good to be true.
How to find the right vehicle to flip
Some vehicles are more “flippable” than others.
And there are several ways to guess at the profitability of each lease-end vehicle.
Most look to published RVs…
RV stands for Residual Value. And Residual Values are dependent on RPs (Residual Percentages).
For example, a Toyota Tacoma might have a 70% Residual Percentage in 36 months. That means a $23,000 Tacoma estimated trade in will be a Residual Value of $16,100 3 years from now.
Typically, any vehicle with at least a 55% Residual Percentage holds its value well. And this is usually a good thing.
The dirt little secret about RVs (revealed)
But:
Just because it holds its value does not guarantee its a good candidate to flip.
Why?
Because some manufacturers like BMW and Mercedes inflate their Residual Values. This gives us a secret discount on their leased vehicles (without sounding like they are discounting).
The problem is the Residual Values at the end of the lease term are usually inflated, too. And when RVs are artificially inflated, we will probably have a vehicle underwater when the lease ends.
The other problem is Residual Percentages change a lot. They change based on how many months we lease a vehicle. They change based on our credit Auto FICO score. And they even change when dealers get sneaky and change them for no clear reason (I see this a lot).
The virtually bulletproof way to flip a leased vehicle
The good news is we can virtually guarantee that our flip will succeed.
First, we need to get a good estimate of our vehicle’s worth when the lease ends.
Sure, there are lots of lookup websites that check the value of our vehicle…
But the problem is they are often off by thousands of dollars.
What I do is crowdsource the values.
I visit CarMax.com – look for the vehicle I want to get… and search for it used and under 40,000 miles and 3 years old.
Take a look at these listings for a Chevy Traverse LTZ:
As we see, the average selling price for this used vehicle is around $30,000.
That tells me we can flip this car and sell it to the public for at least the same – maybe more.
Of course, some of us do not want to be hassled with selling our vehicle:
So the second-best option is to flip it to a car dealership or used-car buying company and make about half the profit.
How to know in advance if a flip is profitable
As I said before, knowing the Residual Percentage and Residual Value is an estimate.
Because there are too many “unknowables” until we pick the exact vehicle we want with the number of months and number of miles.
And then the dealership needs to run a credit check on us.
There is only one guaranteed way to know the EXACT buyout amount. We need to get a draft copy of our lease agreement.
For most, this is virtually impossible to get ahead of time. This is on purpose. Car dealerships are HIGHLY reluctant to let us inspect a lease agreement. Instead, we only see it seconds before we sign the paperwork.
But:
My clients get a draft of their lease paperwork sent to their email inbox in just a mouse click. This gives us unlimited time to look it over.
If you are a KTL subscriber, it is email template #3. Send this email to the dealership. Within a few hours, the dealership will reply back with a lease agreement draft – which includes the exact buyout amount.
Then it is simple math:
To figure out the likely profit potential of our vehicle’s flip, take the average CarMax price minus the buyout amount.
FAQs
What is the safest way to sell a car – I have heard of “cashier’s check” scams?
Arrange the meeting for payment inside the seller’s bank so we can watch a cashier’s check being drawn and issued directly to you.
If paying cash, we can meet at a police station.
What if my car is underwater, and I am over the allotted mileage? Can I still flip my lease for profit?
I would visit at least 3 different dealerships and used-car buyers and ask for an appraisal on my leased vehicle. Each amount will be different. We could get lucky and come close to break even. I know of a lot of people thinking they were underwater, but came away with a small profit when the dust settled… especially when selling their car via Craigslist.
The good news is the average over-the-mileage wholesale cost is about 9 cents – no matter what vehicle. And when we sell back our leased vehicle, it goes down in value at a wholesale rate. This is WAY cheaper than the retail rate of 15 cents… 25 cents – heck, I have even seen $1.00 over-the-mileage fees.
And I would not “wait it out”. I would do it immediately. The faster we get out of a bad lease, the faster we can get into a great lease.
Reading that it’s possible to sell a car near the end of a lease to a dealer turned on a lightbulb over my head, but I was confused about how much value this posed for the dealership.
Obviously the greater the value, the greater the opportunity they’d have for granting me concessions. So my question keys on whether the dealership pays me the full residual value directly, and I pay off the car company, or does the dealership instead pay off the car company directly at the wholesale price of the car, which would be lower than the residual value, and in turn offer me a check that’s a percentage of the spread between the wholesale price they’ve paid and what they anticipate they’ll get by selling the car at retail?
Let’s say I have a Lexus with a $30,000 residual value and the market average retail sale price for this particular car is $32,883. If a Lexus dealership only has to pay a wholesale rate of $25,000 or less for my car, they’d have room to either pay me some cash or grant me concessions on the new Lexus I’d like to lease. I’m especially interested right now because local dealers are advertising factory incentive leases for $419 for 36 months with $4499 due at signing. These rates are lower than their usual 2018 RX 350 lease rates and this promotion ends January 31. So I’m wondering if my super-low mileage version might induce them to wave the $4499?
Let me answer in reverse about your lease equity question:
The $419 for 36 months with $4499 due at signing will cost you more than $600.00 a month when the dust settles. Because when you factor in that HUGE down payment, hidden fees (and rent charge), it adds more than $180 a month to the final payment.
Bottom line: I NEVER look at advertised “deals”, because they are missing thousands in fees and extras. And they need massive downpayments (which are totally unnecessary to pay).
Also, I anticipate the manufacturer incentives to become sweeter next month and the month after. That is how the timing works in the car leasing industry. One month the deals are so-so, then better the next… even better the next – the cycle lasts 3 months. Rinse and repeat. So I would not get trapped in Lexus’ pressure tactics of rushing into something this week.
About your lease-equity question – specifically in your situation:
Anyone with a pulse and $30,000 can buy out your lease. If you buy it out early, you add the remaining payments plus $30,000.
There is no wholesale rate that I am aware of. With that said, a Lexus dealer (or anyone with the cash) can ask for a reduction in the buyout as a standard operating procedure – which is like getting a wholesale rate. (See more about this below.)
I recommend contacting Lexus Financial Services and request a 10-day payoff. We can request one as many times as we want. Hells bells, we can call every 10 minutes if we want. Why would we keep calling? Because situations change – and Lexus Financial Services might lower the buyout price because of “circumstances”. (They can also raise the price back up to the residual value plus remaining payments).
What “circumstances” might come up?
Perhaps they do not want the car to go to auction and might be willing to lower the buyout amount.
Or:
Like in the case of Volkswagon, their recent emissions scandal is plummeting the value of their cars.
Or:
Electric cars are taking a huge hit to their resale value. Electric batteries need to be replaced in as little as 36 months. And they are often not covered under warrantee. And they are super expensive to replace. So the leasing company might drop their buyout amount significantly. I see this happen a lot with Chevy Bolt electric vehicles.
Also:
I always ask for a 25% discount on the buyout amount. The worst-case scenario is they say no. There is nothing lost for trying. Asking for a discount often gets the leasing company to lower the buyout amount.
Now:
As I said in my “flip” tutorial, dealerships LOVE buying off-lease vehicles. Since we treat them well (and keep the mileage low), they do not have to invest much to flip them on their used-car lot. Typically, they aim to profit $2,000 to $6,000. So, they are going to low ball us with an offer. Sometimes, this low-ball offer might net us hundreds of dollars. Other times, we might owe hundreds of dollars. Of course, being over the mileage allotment means we might owe thousands.
The real profit comes when we sell the car privately – especially if we can lower the buyout amount by at least 10%. Of course, private selling is a bit of a hassle. In most states, someone pays off the leasing company’s buyout amount. Next, the lessee gets the title in the mail. Then we have to transfer the title to the new owner at the DMV (or notary) – usually within 10 days to avoid paying local/state sales tax.