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In this chapter:

1. Cap Cost Is Important

Your estimated net operating income is $24,000-$5,800 = $18,200. You then divide your net operating income by the property's current fair market value (we'll use the list price of $325,000) to get the cap rate: $18,200/$325,000 = 5.6%. Capitalization rate (or 'cap rate') is a real estate valuation measure used to compare different real estate investments. Although there are many variations, a cap rate is often calculated as the ratio between the net operating income produced by an asset and current market value. Net operating income (NOI) / Cap rate = property value. If you know your NOI is $30,000 a year, and you know your cap rate is 10%. 30,000 /.10 = $300,000 property value. The cap rate shows the potential rate of return on a real estate investment. The higher the rate of return, the better it is for the investor. Sep 01, 2016 We investigate the current use of public revenues which are generated through both carbon taxes and cap-and-trade systems. More than $28.3 billion in government “carbon revenues” are currently collected each year in 40 countries and another 16 states or provinces around the world.

Don't let the dealer tell you not to worry about the cap cost because it doesn't affect you. It does! It makes a difference in your payments. They keep quoting monthly payments as a distraction. Pay attention to the value of the entire deal.

2. How Your Monthly Lease Payment is Calculated

There are 3 components:

Monthly Depreciation Fee = ( Net Cap Cost - Residual ) ÷ Lease Term
Monthly Finance Charge = ( Net Cap Cost + Residual ) x Money Factor
Sales Tax (Depreciation Fee + Finance Fee) x Tax Rate

In states like Illinois, Texas and a few others, they tax you according to the gross cap cost up front. This is very unfair because you are only using about 50% equity then returning the vehicle.

Example

Assume you lease a car for 36 months, with an adjusted cap cost of $35,000. They give you a residual of 54% after 36 months ($18,900). You can verify this too if you have the ALG Lease Residual Value Software. They disclose the money factor is .00333 (equivalent to 8% APR).

Monthly Depreciation Fee = ( $35,000 - $18,900 ) ÷ 36 = $447.22
Monthly Finance Charge = ( $35,000 + $18,900 ) x .00333 = $179.49
Sales Tax = ($447.22 + $179.49) x .06 (Florida Tax is 6%) = $37.60

Total Monthly Payment = $447.22 + $179.49 + $37.60 = $664.31

Over 36 months it will cost you $23,915. If you buy the car at the end at its $18,900 residual value, your total cost would be $42,815 + up front fees (bank fee, dealer service fee, security, etc.) Buying is usually cheaper in the long run. If you had bought the car with 8% APR over the same 3 years your monthly payments would be $1,162.57, but your total cost is only $41,852.84.

Lease Calculator Spreadsheet Download

I created an Excel spreadsheet to calculate your lease payments (click here to download it). I based it on the FTC's Regulation M Model Lease form with several enhancements. I highly suggest that you download it and get practice with it on an old lease or some of the examples on this page. The enhancements I made are the inclusion of the money factor and lines for other closing costs like dealer acquisition. It will show you how much the entire lease will cost you. This is what dealers never tell you. The instructions are on the 'Instructions' tab. Even better than this spreadsheet though, is the Expert Lease Pro Software that has the ALG Residual Values built right into it. You will need this software to accurately calculate Ford leases which are slightly different due to their 'hidden' money factors which makes my spreadsheet off for them.

You'll notice in the spreadsheet I made no cell for you to enter MSRP. You never want to see MSRP listed on the lease because you want a negotiated cap cost that is less than MSRP. The only thing MSRP is used for is calculating the residual value but the spreadsheet just allows you to enter the calculated residual value.

3. Real World Example #1

Here's one from a visitor who emailed me to say how they got scammed. Before going in, the buyer researched all the prices and calculated the numbers in the table below. The dealer also calculated the numbers and showed them a lower monthly payment. Good deal right? Wrong! Examine the costs in the table:

Item	What the buyer calculated	What the dealer calculated
MSRP	$22,600	$22,600
Best Deal	$20,800	$23,000 ($400 over MSRP!)
Registration Fee	$500	$500
Gross Capitalized Cost	$21,300	$23,500
Residual (% * MSRP)	$12,430 (55%)	$14,012 (62%)
Down Payment	$3,500	$4,297
Adjusted Cap Cost	$17,800	$19,203
Depreciation during lease	$5,370	$5,191
Money Factor	.00316 (7.58%)	.002844 (6.82%)
Monthly Payment (incl. 7% tax)	$262	$257
Total Cost Of Lease (cash down + payments)	$12,932	$13,549
Total Lease (if car is bought at end)	$25,272	$27,598

This is a textbook scam. Notice the items in red? The salesman overcharged them. The monthly payments were less, so the salesman had the buyer's attention focused on the payments, instead of the big picture. The buyer had no idea the dealer charged him $400 over MSRP! Also, the dealer required $797 additional cash down which reduces the cap cost even further. The buyer's loss is $617 on the Total Cost Of Lease in the table. How are the payments lower? They increased cash down to $4,297, artificially inflated the residual value so the depreciation would be less and used a slightly lower money factor.

Real World Example #2

Here's an ad for a 30 month lease. At least they disclose what you need at inception (over $6,490 to close). This high down payment is used to reduce the cap cost, thus making you think your payments are low. They divert your attention to 'low' monthly payments. Why would you want to put down so much cash on a car that you don't own?

I filled out my Regulation M Model Lease spreadsheet for this example. Click here to download it and view while you read the comments below.

The fine print in ad mentions the 'sale price' of the car is full MSRP ($61,640). I researched and found dealer invoice was only $54,495! They also get a 2% holdback from the factory of $1,232. This means the dealer only paid $54,494 - $1,232 = $53,263 and they'll profit $8,377! Are you seeing red yet?

Also, the fine print says the 'payment excludes taxes' so add Florida 6% tax to $740. Now your real monthly payment is $784. The fine print says you are limited to 25,000 miles during the 30 month lease, which is how they hide the ridiculous 10,000 mile/year limit. Also, you have to pay a $250 termination fee when you turn in the car. What do you think are the chances that you'll get your $750 security deposit back? They could find $850 worth of excess wear and tear. And here's my favorite, 'subject to credit approval.' This means it's unlikely you'll enjoy this great deal.

Let's check their math by looking at the spreadsheet I filled out. It was pretty easy, but they did not supply us with the money factor so let's figure it out.

Monthly Depreciation Fee = (Net Cap Cost - Residual) ÷ Lease Term

($56,640 - $41,299) ÷ 30 = $511.37

Subtract this from the $740 pre tax monthly payment to get the Monthly Finance Charge $740 - $511.37 = $228.63

Next,

Monthly Finance Charge = (Net Cap Cost + Residual) x Money Factor.

$228.63 = ($56,640 + $41,299) x Money Factor

Now remembering algebra Money Factor = $228.63 ÷ $97,939

So, the Money Factor is .002335

Now you can see everything jibes with their numbers, including the monthly payment and the total of all the monthly payments in the brown section.

Look

How Much Is A Cap In Real Worlf Money