How the Butler Lease Works

[rick imby]

I have worked in the Leasing business a little bit---Here are my thoughts.

Lets say the Butler is 70k new.

The leasing company makes the bet. They believe if they buy the van, you rent/lease it for $28,800 ($799 per month) for three years.

The leasing company side.
The Leasco has interest on that 70k of probably less than 2% (they are pretty much a bank) for 3 years of $4200 (actually less because you are paying down the principle with each payment).

70,000 + 4200 -28,8000 = $45,400.

Butler might sell to the leasco for 5k less than they will sell to you. The leasco is their biggest customer. That brings the number to $40k to break even.

The lease company might have a guaranty from Butler to buy the van at the end of the lease for 50k.

The lease company also knows if you have been using a porty, a garage tm or an old worn out TM a new Butler will probably increase your productivity and work quality. It will easily increase your revenues by $800. No risk.

The leasing company is an expert on Butler TMs and know the used market for Butlers.

Butler likes the deal
They sell the machine to the leasing company and get paid, no muss no fuss.
They might have a couple of side deals with the leasing company--Butler might be able/required to buy back for a specific amount.

They know in 3 years you will have run with a pristine Butler and are quite likely to buy or lease another. And in 3 years you absolutely must buy something.

If they have a buyback guaranty with the leasco then Butler will have used machines they can sell to get people into Butlers for less than the price of new.

Why the deal is good for the Broke Dik
Much easier than going to a bank.
The lease company puts you on the hook for 29k. Whereas a bank would have to put you on the hook for 70k. It is easier to get Broke Diks approved for 29k over 3 years than 70k over 5,6,7,or 8 years.


In 3 years the new price of Butlers might be 80k and the value of the used one might be $10k higher also. Anywhere from 45 up is a win for the lease company. With the Standard Chevy van issue likely to be discontinued these units might be worth even more of a premium in 3 years.

If you finance at 70k 4.5% for 8 years your payment is $869 per month. You might get that rate if you have great credit.

This lease is possible now because of Low interest rates and also because of the very high residual value of 3 year old Butler TMs.

 

[hogjowl]

Yeah, but you get a hollow shell with no reels or shelves, no pumpout and the basic tanks for that $799.

 

[Mikey P]

Getting back into the biz Rick?


Great post!

 

[rick imby]

No, I'm headed overseas. I think I am starting another business web related in the Philipines. I just wanted to think the lease thing through and put the numbers on it.

$800/24 days work per month is $33.33 a day for your TM.

There are times when leasing is a great option. It probably would have been a better financial deal for you Mikey with your new project except you got a great deal on your used van.

Butlers huge residual value after 3 years makes this a great opportunity for a leasing company. Most commercial equipment is only worth 5 to 30 percent of it's new value after 3 years. 60-80% after 3 years would be my guess on these Butlers.

I think it is a pretty safe bet the Butlers in the old style vans will hold their value very very well.

If I were a multi truck outfit I would jump on this deal. I believe several things make this a great deal. There will probably be significant inflation in vehicle prices, interest rates will probably go up, the standard van is almost a thing of the past. The Van mfgs do not want truckmounts running off their motors for warranty purposes. And it is still a great deal if things do not change.

Thanks for the compliment Mikey. I like to think things through and write.

 

[rick imby]

@Brian H

I would bet Haggopian has loaded up on new Butlers....
Have you reduced the average age of your fleet?

 

[rick imby]

Yeah, but you get a hollow shell with no reels or shelves, no pumpout and the basic tanks for that $799.

Kinda like your wife having to work with a hollow shell---Look how great a job she did of making you well rounded...

 

[Brian H]

@Brian H

I would bet Haggopian has loaded up on new Butlers....
Have you reduced the average age of your fleet?

We are working on reducing the age of our fleet as well as increasing the number of Butlers we own.

As far as leases are concerned, we lease our vehicles for 5 years with a $1 buy out at the end of the lease.

 

[FB7777]

Lots of good info there Rick, Butler definitely benefits for offering these leasing programs. It gets more people into their systems affordably and their stellar reputation and resale value makes leasing companies want to do business with them


Marty is correct however, your initial math is off as there is NO WAY you are getting a 70K Butler for $799 / month for three years without a down payment

There are quite a few variations of financing options with the Butler

 

[rick imby]

@Fred Boyle
I was shooting from the hip on the $70k. I was just thinking it through and thought I would write about it.

I thought $70k was about where the Butlers started.

Wanna lease a Bicycle?

 

[Brian H]

@Fred Boyle

I thought $70k was about where the Butlers started.

I think you have that number a bit high. A 2500 series van, with the 1, 2 and 3 preferred packages is around $60,000. Go to their website for more info.

 

[hogjowl]

The one I almost bought was $74,000. It had everything I could imagine ever wanting on it.

Except room.

 

[FB7777]

I don't have the exact figures either Rick

I was out at Butler last week and saw the leasing flyer

Like Bryan said , I believe the $799 lease is based on a 2500 Van with the 3 packages which comes to just under $60k

Most Butlers when outfitted probably approach $70k with a higher leasing price tag

 

[Chris A]

Fred is right on the packages. Although the van price seemed a little high for a 2500. I bought my 3500 6.0 extended with all options for 30700 and that was using Kips (the same leasing agent for Butler) fleet discount. I bet if you did go with a standard 2500 that payment could come down some more

 

[rick imby]

I don't have the exact figures either Rick

I was out at Butler last week and saw the leasing flyer

Like Bryan said , I believe the $799 lease is based on a 2500 Van with the 3 packages which comes to just under $60k

Most Butlers when outfitted probably approach $70k with a higher leasing price tag

I was just working with ball park numbers. But thinking how this would work out for all different parties to the sale.

 

[rick imby]

I think you have that number a bit high. A 2500 series van, with the 1, 2 and 3 preferred packages is around $60,000. Go to their website for more info.

Yes Brian we believe you pay the website price for Butlers----not...

So do you normally keep your Butlers for about 5 years? I will ask but understand if it is none of my business--what is the average age of your fleet? How many Butlers in the Fleet?

How long since you had anything but a Butler in your fleet?

Do you have Box trucks too or just vans?

Kinda nosey ain't I...

 

[rick imby]

The one I almost bought was $74,000. It had everything I could imagine ever wanting on it.

Except room.

What they were going to charge you doesn't matter. Your reputation preceded you....

 

[Todd Millar]

Yeah, but you get a hollow shell with no reels or shelves, no pumpout and the basic tanks for that $799.

Not true I clicked on the link it comes with all 3 preferred equipment packages= tanks,shelves and reels. But it does not have the big blower or high heat.

 

[rwcarpet]

Now Rick, how do you write this off as a business expense? The full lease for 3 years? If you keep it, do you purchase or re-lease it? How do you write that part off? And if you sell, do you have to recapture the write-off deductions you took?

I've got my Pro1200 and pretty satisfied with the lease.

 

[rick imby]

I have played at a lot of different things in my life---I majored in accounting and hated it when working as one for a few months. My advice is worth what you pay for it.

If you leased it you can deduct all lease payments in the year you make them (this depends on if you are on accrual or cash basis)--another issue talk to your accountant. It must be a qualified lease but I doubt anyone would sign you to a lease for commercial equipment that did not qualify---ask your accountant.

I was looking at the numbers and working out how this lease would work out and thought I would write about it.

I am always a buyer, not a renter. A true lease is just renting. I am certain Butler has a lease to own programs also. The difference is the lease to own ends up with a very small payoff (residual) for you to own the TM.

Leases and Purchases are treated differently tax wise and also on your balance sheet when you go to borrow money.
Leases are considered rent so are completely deductible.
Purchases need to be depreciated over the approximate life of the asset---this will be set by the IRS.
Or Purchases can be depreciated rapidly with different Accelerated depreciation schedules---Your Accountant again---

Regular 3 year leases are easier to qualify for because as I stated earlier you are on the hook for 800 x 36 which is a much smaller number than what you are on the hook for with a purchase of a 60/70k machine.

For the selling company they get paid right away either from the finance company for your purchase or the other finance company for the lease.

Normal Leases have a 5 to 10 percent lower payment. (this may not be true of a Lease to own payment) This is for a couple of reasons. You are renting and not going to own the machine. So in theory you are not paying down the balance on the equipment, you are not building equity in the machine.

An advantage to a Lease to the seller is the interest rate does not have to be stated in a lease.--- Some government red tape is removed.

The repo laws are much better for getting a lease back than getting a sale repo'd.
With a lease the title stays with the leasing company.

Even how Sales tax is handled can be different with lease vs sale. In most states the sales tax is only paid as the lease payments come in. In some states the sales tax on the whole contract is due when the contract is signed.
In most states the Sales tax on the complete sale amount is due when you sign the contract.
This can be a huge difference in the required down payment on your purchase.--ask the seller or your accountant

I have studied the Lease to Own car business and it is much different than the Buy here pay here sale model in most states.

What to look for when leasing?
A critical number besides the payment is the Residual value. You want to negotiate this as low as possible in case at the end of the lease you want to purchase. If you do not put much usage on your machine you might want to purchase at the end. Many leases will have this significantly higher than is realistic so they force you to turn the item over to them at the end of the lease.
Another Critical item would be mileage or usage overage charges. With car leases it can be as high as 50 cents a mile extra for miles over your alotted miles.

I do not know if there is an overage charge on the butlers or your 1200 for hours on your meter or mileage. It will have to be very clearly stated in the lease paperwork. I cannot imagine there is not an overage charge.

So in summation, if you leased your machine on a 3 year lease you are probably better off at the end of the lease to not buy it or re-lease it. This you will have to determine as the time gets close.

 

[rick imby]

If you purchase it after the lease that is a separate purchase and can be depreciated. Probably not accelerated depreciation---ask your accountant, these laws keep changing.

If you sell it for more than it's depreciated value then yes you will have to recapture the depreciation.

 

[Nampa Carpet Cleaning]

$799 is not a bad deal but who wants to have a 45 blower? On the Butler; I would have the High Heat and Big blower. I think it only cost extra 3k for Both

 

[Sir James]

I'm looking at lease to own Butler this early spring. What is wrong with a 45 blower? I work alone and do mostly residential. I would seriously consider the upgrade to the bigger blower and heat if I saw a realistic need for it. Am I missing something?

 

[Nampa Carpet Cleaning]

Nothing wrong with a 45 blower. I just figured if your going to spend 60k just spend the extra 3k for the big blower and high heat package. If not, you are going to have the performance of a midsize slide-in

 

[Mikey P]

What is wrong with a 45 blower?

nada.

 

[rwcarpet]

I paid cash for my Genesis 59, but should have financed and kept the cash.

 

[Sir James]

Nothing wrong with a 45 blower. I just figured if your going to spend 60k just spend the extra 3k for the big blower and high heat package. If not, you are going to have the performance of a midsize slide-in

Understood.

 

[Brian H]

I'm looking at lease to own Butler this early spring. What is wrong with a 45 blower? I work alone and do mostly residential. I would seriously consider the upgrade to the bigger blower and heat if I saw a realistic need for it. Am I missing something?

The only thing wrong with a 45 blower would be resale. I learned from my boating days that you can have 2 identical year and model boats, the better equipped one ALWAYS sells faster and usually for the asking price.

 

[Brian H]

Yes Brian we believe you pay the website price for Butlers----not...

So do you normally keep your Butlers for about 5 years? I will ask but understand if it is none of my business--what is the average age of your fleet? How many Butlers in the Fleet?

How long since you had anything but a Butler in your fleet?

Do you have Box trucks too or just vans?

Kinda nosey ain't I...

Rick,
With a few tough years in our market we let the fleet get a little older than I would like. I've been working on improving that the last couple of years. The average age of our fleet right now is a tiny bit less than 3 years.

We normally keep the Butlers about 6 years. It depends on the hours and mileage.

We have used Butlers exclusively since about 1984.

We did get a Butler in a box truck several years ago when we were doing flood restoration work. ( as a matter of fact it's for sale right now. 2006 cab over cube with 163k miles on the truck and 1522 hours on the machine.)

 

[rick imby]

So do you try to sell your Butlers before the 100k mile number in mileage?

Is there a magic number as to hours.

 

[Brian H]

So do you try to sell your Butlers before the 100k mile number in mileage?

Is there a magic number as to hours.

No Rick, there is no magic number though low mileage/hour vehicles we will keep as spares for an extra year.