Rent to Own Auto Turn-Key Program Presented by Arceri & Associates, Inc

PRINCIPAL RTO ADVANTAGE Increased CASH FLOW!  No UPFRONT sales tax in most states  RTO down payment can be a security deposit eliminating income tax  No sale, therefore no “gain on sale” profit recorded, so no income tax  Build profitable business sustainable through weak demand periods.  On a typical $4,000 cost vehicle sold for $8,800, AFTER TAX CASH INCREASE > $1,300

BHPH Sale vs. RTO Cash Flow Comparison Assumptions: Acquisition Cost$4,000 Sale price / Cap Cost$8,800 RFC Discount35.00% Down payment/security deposit$1,000 Income tax rate40.00% Sales tax rate 7.00% ”Related Finance Company.” To reduce the income tax liability on the “gain on sale”, typically the dealer establishes a wholly owned “Related Finance Company” to which the vehicle can be sold at a loss. However, the discount rate in the sale must reflect the true market value and cannot create a tax loss.

BHPH Sale vs. RTO Cash Flow Comparison – Cont’d RTO Cash Calculations: Flow Savings Initial Sales Tax$ 616$ 616 Sale Price to RFC$5,720 Profit on RFC Sale$1,720 Income Tax on RFC Sale$ 688$ 688 Total After Tax Cash Savings$ 1,304 (Only 100 vehicles) x 100 $130, vehicles - $260,800 Savings 300 vehicles - $391,200 Savings

Security Deposit vs. Capitalized Cost Reduction Capitalized cost reduction (down payment) is taxable on sales tax, and federal and state income tax Security deposit is non-taxable on any level and can be used to reduce tax exposure and increase cash flow Security deposit can be used for default, excess mileage/wear or for repairs/maintenance

State Sales Tax Options Monthly on payments collected: 33 states Upfront on Capitalized Cost (similar to sale): 9 states (CO, IL, MT, NC, SC, TX, VA, AL*, DE*) Upfront on monthly payments: 6 states (IO, ME, ND, NY, OH, SD) Upfront on depreciation: 2 states (NJ, VT) * Both on cap cost and monthly payments

Acceleration of Accounting Income Accounting rules (FASB 13) allow RTO to be treated as a “sale” for accounting purpose even though a RTO is (not a sale) for tax purposes. HHUGE acceleration of income FFull $4,400 mark-up is immediate income with NO TAX LIABILITY

Acceleration of Accounting Income (cont.) BBHPH sale: finance books are SAME as tax books RRTO: finance books have ACCELERATED INCOME while tax books have tax deferral from accelerated depreciation BBanks and finance companies have used this tax deferral advantage

Advantages of RTO No loss of prepaid sales tax on defaults (in most states) Eliminates the need for an Related Finance Company Better control of vehicle (e.g., increased security deposit for excess mileage during the lease) Greater flexibility in program design (e.g. early termination, collateral substitution, vehicle maintenance and repair)

Advantages of RTO (cont.) Bankruptcy protection Reduced customer disclosures Reduced State and Federal regulatory requirements compared to Reg. Z and MVRISA on sales No APR or Reg. Z disclosure No usury limits

RTO Implementation You Receive: Program Handbook on all policies and requirements including residual values RTO agreement + all forms/documents Marketing plan Sales system, training and collateral Insurance selection and purchase

RTO Implementation – cont’d You Receive: Lessors Contingent Liability Insurance Independent Insurance Tracking Physical Damage Insurance to protect your collateral Payment Assurance / Asset Tracking –Starter Interrupt, & Payment Reminder

Getting Started 1.Complete, sign & return the RTO License Agreement 2.Complete, sign & return the Contingent Insurance Application 3.Complete, sign & return the Physical Damage Insurance Set-Up Form Arceri & Associates (504)