Rental Rate

[redraider]

Hello All,

I have a trusted friend that is a former CFI and experienced Mooney pilot that has not flown in a while.  He now has distant clients and wants to get back into flying.  He has inquired about buying a portion of my bird ('78 M20J 201).  I don't want to do that but would rather he simply rent the plane from me.  I would only rent to him and not put it out there as a general rental. I suspect he would only rent it on an occasional basis, once a month or so. 

Anybody have experience with this?  I am really looking for a market rate rental rate formula.  What should I rent it to him for?

'preciate any input.

[clh]

If you rent the plane or put it out for hire, you open a real can of worms as far as regulations and insurance.  You may want to sell him a share in an LLC (with the appropriate restrictions to assure you can get the share back)  and put him on your insurance as a named insured.   

As to  rental rate, I would just tally up your expenses and reserves, etc and use that as a basis for the rate.  

 

[DXB]

I was wondering the same thing- I wonder if this activity might be best defined as "letting a buddy who meets the requirements of the open pilot policy on your insurance use your plane."  Any cash monetary transaction between you is an unrelated matter...

[Danb]

Dev well said.

[Bob_Belville]

No problem until something happens... 

AOPA should be a good resource for what to potential situations you need to provide in advance for. E/g/, you may need to do one 100 hour inspections if the are "renting" the plane. It might be different if the named pilot is just buying the gas. I'm not saying, I'm suggesting you want to know before the fact. 

[Yetti]

I would think the "partner"  "Co Owner" agreement with appropriate reimbursement rates is a better way to go.  Those reimbursement rates would be in the $120/150 an hour dry rates... A new cylinder is $2000.00    

[aviatoreb]

Is leasing yet a different kind of ownership contract which expires?  Would that be allowed?  Seems like a fixed hour lease - say lease to him 50 hours?  Maybe this would be all good with your insurance?  I bet they could help you find an agreable structure.

[Jerry 5TJ]

You said you don't want to sell a share, but that may be a better and safer deal for you as others have suggested.

You could put the plane into an LLC, sell him a minority share so you retain majority ownership and rights.  Each of you leases the plane from the LLC at a fixed dry rate.  Agreement says you share maintenance costs based on percentage of use.  If he flies 50 and you 100, then he pays 1/3 of the fixed costs like hangar rent, maintenance.  Insurance you can have the company allocate to each pilot so that a newbie pilot does not cost the experienced partner higher premiums.  As others suggested AOPA has boiler-plate partnership agreements that are a good starting point. 

I've done shared ownership of this sort in the past and with a good partner it worked great. 

One major disadvantage of such a set-up:  You will know exactly how much it costs you to fly.

 

[Tom]

1 hour ago, aviatoreb said:

Is leasing yet a different kind of ownership contract which expires?  Would that be allowed?  Seems like a fixed hour lease - say lease to him 50 hours?

A rule of thumb on leases is to have the lease period be for at least 31 days in duration.  For one discussion on this see:

http://www.schnader.com/files/Publication/c179e7e7-266b-4f3b-bb17-08cc3df8b414/Preview/PublicationAttachment/6f396354-1bf6-4484-997d-08024d58028a/AIA_Conference_Paper.pdf

FWIW I would not do this "rental" agreement outside of a properly operated LLC and then only with the other individual, of course, named on the policy.

 

49 U.S.C. § 44112(b) provides:

(b) LIABILTY. - A lessor, owner, or secured party is liable for personal injury, death, or property loss or damage on land or water only when a civil aircraft, aircraft engine, or propeller is in the actual possession or control of the lessor, owner, or secured party, and the

personal injury, death, or property loss or damage occurs because of-

  (1) the aircraft, engine, or propeller; or

   (2) the flight of, or an object falling from, the aircraft, engine, or propeller.

 

§ 44112 applies to U.S. registered civil aircraft under leases of at least 30 days duration. §44112, and its predecessor, 49 U.S.C. § 1404, have been in effect since the Federal Aviation Act was enacted in 1958.

Edited May 9, 2016 by Tom

[steingar]

I'd take the guy as a partner and do the LLC thing just like the other fellow said.  I'd split fixed costs right down the middle, just work out a wet rate.  Costs the same to hangar and inspect no matter how much each flies.

[bonal]

Unless you need the money I think would be not such a good idea. Partnerships are set up by contract so should keep issues from becoming a problem. If he only needs to fly occasionally is there no other source for a legitimate rental available. There are certain absolutes in life 3 come to mind no you can't ride my bike no you can't fly my airplane no you can't ... Anyway things like this can ruin even the best of friendships.

[DrBill]

If you rent/lease your plane is subject to 100 hr inspections and other insurance requirements.

I'd sell a percentage as a partner and let him pay the difference for insurance as well as expenses based on hrs flown.

Thats how I had my partnership with my Sundowner although it was 50 %

Bill

 

[Hank]

You can also take him on as a non-equity partner. Buy in at a low price, split fixed costs and everybody pays their own operating costs. Your agent can split out the insurance costs for each. Should be possible to determine his amount if proposed annual usage and figure the buy-in rate based on that. You could even make the buy-in payable in monthly installments, which would still not be "rent."

Just another idea . . .

Good luck. Let us know what you find out.

[aviatoreb]

2 hours ago, bonal said:

Unless you need the money I think would be not such a good idea. Partnerships are set up by contract so should keep issues from becoming a problem. If he only needs to fly occasionally is there no other source for a legitimate rental available. There are certain absolutes in life 3 come to mind no you can't ride my bike no you can't fly my airplane no you can't ... Anyway things like this can ruin even the best of friendships.

ESPECIALLY if you need the money I think it is not a good idea.

[Bob - S50]

Add me to the list that would go with the LLC partnership (that's what we have).

If you rent, do you have to consider that on your personal income tax returns?  Income is easy (rent paid) but how do you show expenses to offset that income?  Could increase your income tax.

If you form an LLC, you can set the rules just about any way you want.  Or you could even do the same thing in a partnership even if it isn't an LLC.  We pay monthly dues to cover fixed expenses like hangar, insurance, annual, subscriptions, as well as to build a reserve to fix things when they break or to install new equipment.  We charge a dry hourly rate to cover things that are hourly related like engine overhaul, oil changes, magneto IRAN, prop overhaul, etc.  We each buy our own fuel.  There are 4 of us and we use $250/month each if our 'unallocated' reserves are under $5000 and $200/month if they are over $5000.  We charge $25/hour dry.

You can even set the rules so ...you... get the final say in what modifications get done and whether or not your partner pays for them.  Just put it all in writing and agree to it in advance.  When he buys his share, put the money in the bank so you can use it to buy him out if he changes his mind.

[Dave Colangelo]

According to the FAR's you dont need the 100 hour to rent it to a buddy you only need that in the case of using the plane for hire (e.g. charter operations but you will need at minimum a commercial ticket for that as well). There is a pretty interesting discussion here on the matter. I agree that LLC is the way to go here, you are going to want to insulate your self against anything that may happen. Most importantly insurance is the big issue that will have to be sorted you would not want a situation where his mess up raised your rates. 

 

Dave 

[irishpilot]

When I was looking at renting my insurance rate would have increased from $55/mo to $250-300/mo. That did not include solo flight for non-CFIs. That, plus the 100 hr inspections plus other wear & tear didn't make financial sense. I would start by calling your insurance co and see what they say.