Passive Income by Leasing a Car?

I love thinking about new and creative ways to make passive income. It may be fun to talk about how close I am to investing in real estate, but it’s even more fun coming up with new ways that I haven’t heard of (at least in a while, if ever). Recently, I have been on a mission to help a close friend lease a car. At the beginning of this journey, I didn’t even know how to lease a car, but I learned quickly. By the end of the few weeks of investigating and doing research, I starting asking myself if there was a way that I could earn some passive income by leasing the car to my friend.

My friend was set on the type of car that she wanted. She didn’t want anything fancy, but she did want to lease a 2012 Honda Fit. To get a new Honda Fit with nearly the basic options is about $17,000. Let’s imagine I had the cash to buy the car outright for $16,500 (I expect them to give me a little bit of a deal) including all taxes and fees.

She was willing to trade in her car, which I could sell for around around $3500-$4000 and then pay a monthly payment of $200 for 24 months. If I were to buy the car, I would basically be paying $12,500 out of pocket and earning $2400 each year in income. That’s a 19.2% return per year on the initial investment. But, that doesn’t factor in the depreciation of the car.

Another way of looking at it is to determine how much money I would have made at the end of the two years. After investing $12,500, at the end of the two years, I would have received $4,800 in monthly payment and would be able to sell the car. Looking at the value of Honda Fits from 2010 with about 24,000 miles (I would have a 12,000 mileage limit to protect my investment), they are listed at about $13,500 minimum. This gives me an idea of what the 2012 will be valued at in 2 years.

This tells me that I can expect to have about $5,000 profit before the fees (like registration, etc). Earning even a clean $4,000 in two years on a $12,000 investment seems like a great deal.

While it does seem like a great deal, there are too many uncertainties. I am not interesting in figuring out how to do a private leasing agreement or a contract that would mirror a lease. More importantly, I am planning on getting into real estate soon and would hate to tie up my liquid assets in a car, which is depreciating in value. While the profit margin may be favorable, I would much rather invest in real estate that is probably going to stay the same value or increase in value.

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