KEY POINTS:
What you really pay on a car is the cost of ownership (COO)
When you own a car, COO has three variables – the entry, the hold, and the exit
Calculate your potential COO on a car with the formula below
Compare this number to a lease of a like-car to see which route you should go
We’ve established that cars are losses, no matter how you put it. But, as you can imagine, the losses can vary based on a number of variables.
VARIABLE #1 – THE ENTRY
We define this as the vehicle you buy and the price you buy it at.
For example, a 2025 BMW X3 xDrive 30i for $58,500 OTD (out the door- includes all taxes/fees).
Variables – which car do you buy? How do you pay the right price?
VARIABLE #2 – THE HOLD
Any costs related to your ownership period is the “hold.”
From something as common as tire replacements to extreme items like a transmission change.
Variables – how expensive is it to maintain? How long do you hold the car?
VARIABLE #3 – THE EXIT
How much money do you get back when you sell the car?
You can trade in, sell wholesale (to
Carvana, for example), gift it, or sell privately.
Variables – how you sell it and how much you sell it for.
THE COST OF OWNERSHIP MATH:
Assume the following:
ENTRY:
2026 BMW X3 xDrive 30i
OTD: $58,850
HOLD:
Hold it for 5yrs and 60k mi
Maintenance costs: $5000 (tires x2, brakes (front and rear), fluid changes- pretty standard stuff)
EXIT:
Trade in: $19,000 (based on current auction estimates for a 5yr old X3 with 60k mi)
Cost of ownership: $44,850, or $747.50/mo.
HOW TO UNDERSTAND THE COO NUMBERS
In the case above, you can see how there are a multitude of variables:
If the car were a Lexus, it would’ve held value better. But if it were a Maserati, it would’ve lost even more value.
The maintenance costs could’ve been cheaper, or more expensive.
You can hold the car longer to stretch the costs out, but also potentially incur more costs because you hold it longer/drive it more.
You can get more money by privately selling the car at the end.
All that to say, when you buy a car, the most important number to look at is this cost of ownership number. Why?
Because leases only have 1 variable- the lease payment.
LEASING – A HACK TO COO?
When you lease a car, you only have your payments and minimal maintenance costs, if any. The exit cost is usually almost nothing.
In the example above, if one person averaged $747.50/mo for that BMW X3, it would’ve been the same as leasing the car at $747.50/mo (all-in), which is not impossible.
FOOD FOR THOUGHT
Always consider COO numbers before making a decision on a car. Some cars are worth leasing, some cars are worth buying- but do not make that decision based on data-less emotions. Base that decision off of actual logic and data.
