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Used car prices have been rising at an incredible pace.
Consumers who leased a new car within the last 2 or 3 years could be looking at a potential profit of several thousand dollars if they buy and sell the car at lease-end.
According to Manheim, a company that specializes in car auctions, wholesale used car prices hit a record high last month, up 5.9% compared to a year ago, and up nearly 26% compared to December 2008.
If you leased a vehicle within the last couple of years, chances are the residual value (or end of lease buyout price), is significantly lower than the market price.
When you lease a car, the leasing company basically guesses as to what the wholesale value of the car will be when you turn it in at the end of the lease.
They use algorithms and industry guides to come up with that figure, but sometimes they are way off.
2 years ago, no one expected used car prices would rise to record highs today. Now you can take advantage of this.
One person we spoke to leased an Audi A4 two years ago. Their lease comes to an end in February with an end-of-lease buying price of $18,500.
The retail value of the car is $24,000 - a $5,500 difference.
These opportunities do not come about very often, so if you leased a car 2 or 3 years ago, you should seriously consider buying it at the end of lease and selling it to a private party.
Some states allow you to avoid paying taxes if you buy and sell the vehicle within a set amount of time, and some leasing companies also allow 3rd parties to pay off the car at lease-end and take possesion that way.
In the worst case scenario, you would have to buy the car AND pay taxes before selling it to someone else. This would make sense if the buy-out price is significantly below the retail value.
Make sure you call your leasing company and also find out what the tax options are in your state before trying to use this method.
You'll also want to have a buyer lined up before you take the car back from the leasing company.
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