Financing a Mooney

[Jamie]

How about if your mutual fund and realestate investments are outperforming, and perhaps significantly outperforming 4% (or 2.99% someone said is now available)?

 

Very interesting question. In a normal market, I'd agree. But the economy sucks, fundamentals do not support current valuations, the fed is losing the war, and planes are getting cheaper. Taking on leverage to buy a -depreciating- asset doesn't make sense. His built in 20% profit is eroding out from under him and that's before considering the economic environment into which he's taking on debt. It would make sense if the inflation the fed is attempting to create would work, and affect airplane prices. But that's extremely unlikely (you'd have to believe that, into a 1980 style inflationary period, people are suddenly willing to pay more for airplanes. Meh.)

 

Without going into the various scenarios I believe are likely coming, lowering the carrying costs of the airplane as much as possible (the amount you HAVE to pay, or you lose the plane) makes sense to me given my risk tolerance. If you wake up some morning, the market's 50% below where it opened last week, and you're laid off, liquidating investments to cover the loan is suddenly less appealing and good luck finding someone to buy the airplane from you at a profit... or at all.

 

I'm tons of fun at parties. Hourly and daily rates available.

[mooneyflyer]

Mike Jacobs, Mooney owner and Chairman of Pryority Bank does very good loans.

[carusoam]

The side benefit of using an aviation finance group.... They use guidelines that could be good for you...

(1) pre-purchase inspection...

(2) A/C valuation...

(3) purchase agreement...

(4) title search...And insurance (50 years of poor paper record keeping have been challenging)

and others...

Most people are not experts at A/C finance. The risks of buying and being stuck with a lemon are not minuscule...

Remember to read the documents. You want to be able to refinance at a later date. The dust will settle out. Refinancing at a lower rate is possible.

Overall, the initial loan is to get financing and protection during the exchange process. After a year or two, the plane works out... Lower rates can be the focus.

Do you plan on being at the PPI?

Best regards,

-a-

For an M20C, Jamie's advice is worth more than it's weight in electrons!

[phecksel]

I'm tons of fun at parties. Hourly and daily rates available.

Sounds like it.

 

I read zerohedge on a daily basis.  At some point it's going to come unraveled.  However, Japan has been playing this game for 20 years, they are still going.  When it comes unraveled, it will likely be very ugly, and frankly, nothing else is going to matter when it does.

 

But, I'm not going sit rocking in a corner sucking my thumb

[mike_elliott]

Mike Jacobs, Mooney owner and Chairman of Pryority Bank does very good loans.

 Mike has retired, but First of Pryority still is a top rated aircraft lender

[88drvr]

For what it is worth, I don't thing the thread starter was inquiring about the pros and cons of cash vs financing and certainly didn't give enough details for me to make a judgment about his ability to afford an aircraft.

I know with my dividend yields alone, that it would makes no financial sense to liquidate those stocks when somebody else's money can be had for much less.

[ArtVandelay]

Since the discussion is about financing a plane the other fixed and operating costs don't factor in as they would be the same whether you finance or pay cash.

You also haven't factored in rental costs in your calculation of what he could save. Assuming the same 40 hours per year he would spend around $5,000 per year to rent a plane which you would have to deduct from what he could save in a year.

He is also assuming the plane will be the same price...it's kinda of a buyer's market today...6 years from now?

As a potential future owner, I've given up trying to having buying a plane make financial sense...just becomes can I afford it and how bad do I want it.

[DAVIDWH]

In the words of John D Rockefeller when queried about the cost of his yacht, he replied,

 

"If you have to ask, you can't afford it".

 

A metaphor well taken.

[phecksel]

He is also assuming the plane will be the same price...it's kinda of a buyer's market today...6 years from now?

As a potential future owner, I've given up trying to having buying a plane make financial sense...just becomes can I afford it and how bad do I want it.

I bought my current primary residence, literally at the bottom, it was a deal I couldn't pass on

 

Long story, but bought an investment house for an amount of money I couldn't believe, it's currently being sold, at quite the tidy profit.

 

Financing would allow me to get into a bigger, better, faster plane, and NOT have to do immediate panel upgrades. and upgrades I might do would hold their value better than a lower grade plane.

 

What plane would realize upgrade value better, a C with a WAAS GPS, Stec autopilot, or a J?

[aviatoreb]

I know with my dividend yields alone, that it would makes no financial sense to liquidate those stocks when somebody else's money can be had for much less.

 

I agree.  That's what I was saying in slightly different words.

[Shadrach]

The math is harsh... I'm just the messenger.

 

Take a concrete example:

 

   Financed $94,000 (If you can't afford the plane you probably can't afford the sales tax, figure 4%).

   Interest: 4%

   Period: 20 years

 

   Monthly payment: $569.62

   Interest paid: $42709.00

 

Now using my numbers (for my plane):

 

   Insurance: $2000 / yr

   Hangar: $210 * 12 = 2520

   Annual: $2000 (min)

 

Total fixed costs of 2000 + 2520 + 2000 = 6520 / 12 = 543.33 per month. Without flying.

 

Fly 4 hours a month @ 10 gal / hour * $6/gal = $240.00 a month.

 

With financing, he's looking at 570 + 543 + 240 = $1353 / month for not a whole lot of flying in a year, but it's average, apparently.

 

1353 * 12 = 16236. In a little less than 6 years at that rate, he could pay cash.

 

Financing a toy is dumb.

 

(that's harsh, but wtf.)

 

((Oh, and notice that this is -best- case. No maintenance, nothing broke, no oil change. The magic perfect airplane. ))

 

 

I believe that airplanes will continue to be a depreciating asset well into the future.  While I appreciate the "Ramsean" point of view. I'm not sure that it is for everyone. I would amend this way of thinking to say that I think that one should have the equity to buy their toys, but I don't necessarily believe it should be dumped into the toy. 

 

The numbers are what they are for sure but if that 90K is put into an even moderately performing investment (say 3.5%) it will double in the same span of time as the term you've laid out. So while financing will cost around 40K for 20 years, the cash for this purchase invested elsewhere would likely easily offset that cost and in this case would probably yield a return considerably more than the cost of financing.  

 

In order for your numbers to "work" someone must risk averse to level of considering their mattress to be the best alternate use for the cash. The simple question is what is the likelihood that the capital invested will yield a better return than the interest paid. If interest rates were 8 to 9% then I'd be much more in favor of a cash purchase, in this case I don't think it's hard to make the case that financing is the smarter course of action.   If wealth building is not a concern, then go ahead pay cash for a depreciating asset.

 

I'd also mention that giving someone who has asked about AC financing a lecture about personal finances on an aviation enthusiast website while arrogantly assuming that they cannot come up with 4 grand to pay the taxes on the purchase price is in poor taste if not a bit arrogant. 

[Jamie]

I'd also mention that giving someone who has asked about AC financing a lecture about personal finances on an aviation enthusiast website while arrogantly assuming that they cannot come up with 4 grand to pay the taxes on the purchase price is in poor taste if not a bit arrogant. 

 

 

Welcome to the internet. You must be new here.

 

The guy's excited about getting back into flying, and is asking for loans on a great deal with built in upside. Sure, it's just a guess, but the probabilities are in favor of him not considering every aspect of ownership in his rush to be airborne.  It's advice, it's free, and he's free to ignore it. He also got plenty of relevent answers and he can make his own decisions.

 

Where are you getting a tax free return of 3.5% for 20 years? What do you invest in that, in the current market, you can refer to 3.5% as "moderately performing"? Don't say stock... that's not a gain until realized.

[phecksel]

but the probabilities are in favor of him not considering every aspect of ownership in his rush to be airborne.  It's advice, it's free, and he's free to ignore it. He also got plenty of relevent answers and he can make his own decisions.

I'm looking to make a small fortune in aviation... just don't quite have the large one to start with

 

Taking into account all financials, who of us can really say we have?  But, prior owning a Mooney for over a decade exposed me the negative financials as well as the fun.  I did make the mistake of adding up all the expenses of that 10 years of ownership to really putting a damper on the doubling in asset value.

[Shadrach]

Welcome to the internet. You must be new here.

 

The guy's excited about getting back into flying, and is asking for loans on a great deal with built in upside. Sure, it's just a guess, but the probabilities are in favor of him not considering every aspect of ownership in his rush to be airborne.  It's advice, it's free, and he's free to ignore it. He also got plenty of relevent answers and he can make his own decisions.

 

Where are you getting a tax free return of 3.5% for 20 years? What do you invest in that, in the current market, you can refer to 3.5% as "moderately performing"? Don't say stock... that's not a gain until realized. 

 

 

 

I've been on the webs a while and on MS about a year and a half longer than you. I did not take issue with your post (just the assumption about the OPs financial ignorance and inability to come up with 4K to pay taxes). I mearily pointed out the part of the equation that you omitted. If a 3.5% after tax return seems outlandish to you, I understand your way of thinking.

[benpilot]

 

This is a good discussion. As I look to buy my first airplane, I am weighing cash versus finance as well. I can pay cash but would end up with a lesser plane or finance a fancier plane.

[88drvr]

I've been on the webs a while and on MS about a year and a half longer than you. I did not take issue with your post (just the assumption about the OPs financial ignorance and inability to come up with 4K to pay taxes). I mearily pointed out the part of the equation that you omitted. If a 3.5% after tax return seems outlandish to you, I understand your way of thinking.

With this I would agree. A good read on this subject is "Get rich with dividends" by Marc Lechtenfeld. (Anything but a get rich quick book and past performance is no guarantee of future results) Basically a refresher course in compound interest (dividends) and the effect it has on an ever increasing principle balance. May help some understand why borrowing may be the best "choice."

Great.. Now I have contributed to moving this thread further off course

[phecksel]

 

 

 

I've been on the webs a while and on MS about a year and a half longer than you. I did not take issue with your post (just the assumption about the OPs financial ignorance and inability to come up with 4K to pay taxes). I mearily pointed out the part of the equation that you omitted. If a 3.5% after tax return seems outlandish to you, I understand your way of thinking.

 

Wow

 

Now I'm really confused, where did I ever say I had an inability to come up with 4k in taxes... and financial ignorance?  Just WOW.

[phecksel]

 May help some understand why borrowing may be the best "choice."

Great.. Now I have contributed to moving this thread further off course

Leveraging is a fantastic, albeit dangerous tool.  Corporations leverage every day of the year.  Our entire global banking system is leveraged (fractional reserve).

 

Housing through the late 90's until '06ish was a fantastic example of how to leverage growth without risk.  It's interesting to note, that everyday normal people were getting in on this gig, and it worked well, right up until it didn't.  It's the until it didn't is the negative side of leveraging.

 

Dave Ramsey would tell you that interest is a stupid tax... tax on people too stupid to save their money.

 

Jamie's point is well made, if this (as in current global financial status) comes unwound, it's going to be disorderly.  It's better to not beholden to anybody.

 

This took the exit ramp a few posts ago

[phecksel]

 

 

This is a good discussion. As I look to buy my first airplane, I am weighing cash versus finance as well. I can pay cash but would end up with a lesser plane or finance a fancier plane.

 

Cash is also king.  If you were to seriously dent financial reserves with the purchase, then there is nothing for the unexpected expenses.  Being your first purchase, talk to some people about normal and unusual expenses.  I went for years without touching my maintenance reserves... right up until a whole series of unexpected repairs one on top of the other.  As my plane reserves quickly dwindled, and not having the ability to restore them, I made the decision to sell, and walked away with a tidy profit on the asset.  However, when I added up all my expenses, it was a very large scary number.  This will cost, and it will cost a lot, but if you go in with eyes wide open, you should be ok.  Planes, unlike autos generally hold their value.

[Shadrach]

Wow

 

Now I'm really confused, where did I ever say I had an inability to come up with 4k in taxes... and financial ignorance?  Just WOW.

Wow just wow, you are confused...unless you're taking credit for Jamie's post, take a deep breath; I've not addressed or quoted you in this whole thread. 

[paulwireless]

If I may jump in to this relevant (to me) discussion, given the expected further depreciation in aircraft values would the group recommend a new pilot purchase a $90-$120k Mooney now because it is completely depreciated over a more recent $250k+ aircraft. My thought process is focused on glass vs. non glass instrument flying for recreation use for 400NM max missions I plan to work up to over the next 5-8 years. I'm 48 and have under 25 hours. I'm back into GA after 14 year hiatus where I just paid AOPA dues (late). I will continue to rent beyond training for a while but I'm curious what the group has to say about buying the older plane vs. the one you think you'll never outgrow.

BTW, I joined yesterday and this my first post.

[carusoam]

Welcome aboard Paul...

A steam gauge outfitted Ovation 1 is an excellent plane.

Overall, Buy a plane that fits your mission for the longest period you can foresee.

Best regards,

-a-

This post has been edited for brevity....

[fantom]

Welcome, Paul....

There is no plane that you won't eventually want to upgrade from.

My advise is to continue renting, training and learning. As the urge to own starts to overwhelm you, look for a non glass Mooney, maybe a nice 201, that you can flip relatively easily, and not have all your capital tied up in.

You flying tastes, the regs, avionics, engines, fuels, our skies will all have dramatic changes over the next 5 to 8 years. Your situation may also look much different.

Life is what happens to us while we're making other plans. Good luck.

[PMcClure]

If I may jump in to this relevant (to me) discussion, given the expected further depreciation in aircraft values would the group recommend a new pilot purchase a $90-$120k Mooney now because it is completely depreciated over a more recent $250k+ aircraft. My thought process is focused on glass vs. non glass instrument flying for recreation use for 400NM max missions I plan to work up to over the next 5-8 years. I'm 48 and have under 25 hours. I'm back into GA after 14 year hiatus where I just paid AOPA dues (late). I will continue to rent beyond training for a while but I'm curious what the group has to say about buying the older plane vs. the one you think you'll never outgrow.

BTW, I joined yesterday and this my first post.

Welcome!

 

My advice to anyone looking to buy a first plane is to start small and make sure ownership is for you. Then buy the best you can easily afford if ownership really is for you. Small could be a $40k vintage model or $100k J model or more. Just about any Mooney (or any plane) can fit the 400NM mission. I would also rent until I started taking trips, then ownership usually is a better deal. Looking at newer models, a G1000 Ovation is about $50k more than a 6pack Ovation.  If money is an object, $50k is a lot. A 430 WAAS plane with GPS steering and a good autopilot can be had for less then $100k. Add an iPad for redundancy and you have a lot of avionics and a well tested airframe. You might be able to find an older nice Ovation for $160k and the newer ones reach $220-$250. It's hard to find a glass equipped Ovation for least than $300 but I have occasionally seen them as low as $250k. 

 

Hope you enjoy aviation for many years!

[aviatoreb]

 Sad to say it so directly, but if that happens ... and there's no changing her mind ... My beautiful C is probably going on Trade-a-plane!

 

But isn't having a plane you love and flying it because you want to fly it and because you have it, isn't that a mission all by itself?