Considering Co-ownership

[Ross Taylor]

11 hours ago, carusoam said:

6) When you were growing up... how did you feel about lending your stuff out... some of those same uneasy feelings come back... only the dollar values are much higher, and the safety issues run much deeper...

This made me laugh...and ponder my own perspective.  I was always happy to loan out tools to friends...usually with an offer to be part of the project, because I enjoyed it and because I could offer some guidance/help.  But I had the tools.  For me, I always preferred to buy a tool I needed over renting or borrowing.  I felt (still feel) that if I needed a tool, I wanted to get the one I preferred and that I'd need it again.  This wasn't because of deep pockets...but I definitely made choices to buy a tool (whether it was a small hand tool or a milling machine or lathe) instead of spending $$ on something else.  

For me, airplane ownership feels the same.  I make a choice to divert $$ towards the tool (Mooney) I want.  Does that mean I might have to spend more on the tool than if I rented or shared it?   Yup, but it's my tool.  I know its condition.  I know how I left it.  I know I can use it whenever I want.  But, because it's mine I can also loan it out if I want.

--------

On a more directly-related note, my father was a doctor and he had a 3-way partnership in a sailboat (kept in a slip in San Diego).  The other partners were all medical partners and their agreement was pretty loose.  Eventually, one partner moved to San Diego which meant he used the boat more than the others (still back in Phoenix).  Then my dad passed away and I inherited his 1/3.  And, as a youngish kid in my 20's I didn't have the financial means to match the needs of the doctors' partnership. Then one partner sold half of his 1/3 share...to two people.  As you can guess, it became a mess.  My point here is that IF you enter a partnership, even with friends or colleagues you trust, situations change...so have a strong written agreement.

[PMcClure]

I bought into an existing long term membership on a 69F model based at our home field for my 1st ownership experience. Since it was an existing partnership, I pretty much knew what I was getting into. The rules and cost sharing was laid out pretty well, but not in writing. There were 4 co-owners. 2 of us flew regularly. 2 flew less than 10 hours a year. Fixed costs were shared evenly, variable costs by the hour. I sold my share to another local pilot and went on to buy my own plane after a few years. The experience really helped me understand how to own and care for a plane. I left because I wanted more capability than the F had and there was no way to get buy in on upgrade costs especially with 2 owners only flying 1 time a month and local. We kept fixing the broken things but using 50 year old avionics and engine gauges got old for me. 

The key is the right co-owners and having a method laid out for cost sharing that is fair. Flexibility is important. 

[Austintatious]

23 hours ago, RobertGary1 said:

The issue I found is that anyone who has the resources to properly own a share of a plane just buys a plane. You need to find someone who can basically afford to buy a plane themselves but wants a partner to hang out with or keep the plane flying. A couple years ago my 1000 SFNEW engine came apart and set me back $40K  (no usable core). Can your partner write a check for 1/2 that?

-Robert

Did your insurance cover nothing? typically they will not cover the part that failed, but as I understand it they do cover damage as a result of a broken part.

 

IE: connecting rod breaks and goes through the case and damages the engine mount.... they dont pay for the connecting rod, but they pay for the case and the engine mount.

[RobertGary1]

Just now, Austintatious said:

Did your insurance cover nothing? typically they will not cover the part that failed, but as I understand it they do cover damage as a result of a broken part.

 

IE: connecting rod breaks and goes through the case and damages the engine mount.... they dont pay for the connecting rod, but they pay for the case and the engine mount.

They paid for the tie down at the remote airport I glided to. Had I put it down in a field they'd have covered any damage resulting from the off airport landing. Plus they would have paid a certain limit for recovering the plane. 

Honestly, I've found that one of the best parts of insurance (of all type) is that when something goes wrong they manage it. Just figuringing out how to deal with a wreckage takes time/money.

-Robert

[Boilermonkey]

In terms of finding partners:  1) Join and participate in local EAA chapters.  2)  Talk with local flight schools.  3) Put a flier at the FBO.  4) Put a yard sign near the hangars.  5)  Get involved in other aviation activities to meet people.

Attached is an expense template based on how we do things in our partnership.  We have several types of costs accounted for like:  monthly fixed cots, scheduled maintenance, non-scheduled maintenance, flying hours ($35/hr), credit for working on the aircraft, etc.  Some of those categories exist to determine what is paid out of the maintenance reserve versus what's not and charged to the partners for the month.  You can determine the reserve several ways, but it is good to write it into your partnership agreement.   We looked at an assumed 2000 prop/engine life and all of the scheduled maintenance over that period to determine our $35/hr reserve.  It's a balance on that fee...if your too low then the expense is deferred impacting the partners at the time of the maintenance, and the valuation of the partnership.  If your too high then you've tied up money that you could spend flying...

The AOPA partnership template is a good place to start.  That way it looks less biased to someone your talking to.  Pay particular attention to the death clause.  Should something happen to you the last thing you want your family to deal with is trying to negotiate a way out of an airplane partnership and valuations.  It needs to be spelled out in detail and valuations should be written down annually so there is no argument.  It should also have some time limit that either forces the remaining partners to buy the deceased' share of the partnership or liquidate the partnership.  

 

Partnership Expenses.xlsx

[jwilcoxon78]

14 hours ago, Austintatious said:

IE: connecting rod breaks and goes through the case and damages the engine mount.... they dont pay for the connecting rod, but they pay for the case and the engine mount.

Slight correction in this regard.  With respect to an engine, it is usually considered that, if any part of the engine fails, it is a failure of the whole engine so the case would not be covered.  However, if the rod damages the cowling, the cowling should be considered for coverage. 

 

One of the easiest ways to think about what is covered is, if it were a brand new airplane and something happened (name the scenario) who would you call first, the manufacturer (warranty) or your insurance carrier (accident).

[pevanscfi]

After doing a little more research into this, I am considering structuring a partnership (maybe not the right term) a little like Diamondshare does. I would own the aircraft and cover all fixed costs, and the other members of the partnership would pay per flight hour with some minimum time per year with commitments on a yearly basis.

Pros:
1. No worries about partners not being able to cover unexpected repairs.
2. Much easier to accommodate partners coming and going if/when they have to.
3. Don't have to worry about being forced to sell the aircraft due to a partners death or illness.

Cons:
1. On the hook completely for scheduled and unscheduled maintenance.
2. Still have to share the plane.
3. Uncertainty with potentially more partner turn over.

I think this could work out well for me given that I could afford to own the aircraft on my own and have enough on hand for an unexpected engine overhaul/replacement, but for now would not be able to fly it enough for it to really make sense to own.

Running some quick numbers, it looks like I could buy for ~$100k and I could set aside a $30k maint reserve. I am looking to fly about 50 hours a year. If I can get 150 hours a year out of 1 or more partners, I could offer something like $165/hour wet and only end up ~$3k out of pocket each year for my 50 hours. (before any unexpected maint). That is assuming a $20/hour engine and prop reserve, $20/hour maint reserve, and about 1000 hours before overhaul.

Do you think this kind of partnership would be appealing to anyone?

Numbers are very preliminary, but attached the work sheet I was using to account for costs.

Edit: Calculated price per hour as wet, just because it was easier to work out. As mentioned below, would probably just subtract the fuel costs and make that an equivalent dry rate.

aircraft-ownership.pdf

Edited May 6, 2020 by pevanscfi

[Bob - S50]

Just now, pevanscfi said:

After doing a little more research into this, I am considering structuring a partnership (maybe not the right term) a little like Diamondshare does. I would own the aircraft and cover all fixed costs, and the other members of the partnership would pay per flight hour with some minimum time per year with commitments on a yearly basis.

Pros:
1. No worries about partners not being able to cover unexpected repairs.
2. Much easier to accommodate partners coming and going if/when they have to.
3. Don't have to worry about being forced to sell the aircraft due to a partners death or illness.

Cons:
1. On the hook completely for scheduled and unscheduled maintenance.
2. Still have to share the plane.
3. Uncertainty with potentially more partner turn over.

I think this could work out well for me given that I could afford to own the aircraft on my own and have enough on hand for an unexpected engine overhaul/replacement, but for now would not be able to fly it enough for it to really make sense to own.

Running some quick numbers, it looks like I could buy for ~$100k and I could set aside a $30k maint reserve. I am looking to fly about 50 hours a year. If I can get 150 hours a year out of 1 or more partners, I could offer something like $165/hour wet and only end up ~$3k out of pocket each year for my 50 hours. (before any unexpected maint). That is assuming a $20/hour engine and prop reserve, $20/hour maint reserve, and about 1000 hours before overhaul.

Do you think this kind of partnership would be appealing to anyone?

Numbers are very preliminary, but attached the work sheet I was using to account for costs.

aircraft-ownership.pdf 37.76 kB · 0 downloads

That sounds more like a business or club with rental rates, potentially for profit to me.  If you want total control of upgrades and maintenance, you might consider something like this:

Small buy in for partners.  Something around $5000 to $10,000, fully refundable when they exit, provided they don't owe you anything.  If they damaged the plane through carelessness, or haven't paid the hourly rates, or haven't paid you monthly fees; what they owe you comes out of the deposit and they get the rest.

Monthly fees to cover fixed costs.  Hangar, insurance, annual, subscriptions and registrations.  Make an estimate of the monthly cost per person, then increase it just a bit to ensure you'll have enough to cover those costs.  At the end of the year, compare what you took in vs what the actual costs were, and refund the difference (no profit).

Dry rate rental to cover expected future costs.  Engine, prop, magnetos, oil changes, SB282, etc.  All things that are hourly/use driven.  Again, if you wish, you could choose to refund the difference between what you collect and what it costs.  By renting dry, it gives each partner a chance to control costs by controlling how they run the throttle and mixture as well as where they buy the gas.  It also allows you to not worry about the fluctuating cost of gas.  If I were renting at a wet rate I'd be running as fast/hard as I could to minimize my costs and wouldn't care how much gas cost where I filled up because you'd be paying for it.

Fill the plane with gas to a specified level.  We've recently changed ours to 50 gallons because our useful load allows us to do that and still carry 705 lbs of payload and it makes filling/preflight checking easy.  Or you can get a FuelStick Master or a digital fuel gauge with Cies floats and fuel to some other level like we used to.  We have a log for flight time and fuel on board before and after flight.  If someone brings the plane back with more fuel than it had when they left, they get a credit.  If they bring it back with less they get charged.  We use the current local fuel price at the end of the month when doing that.

You still need to spell all this out in writing and specify operating procedures.  How does scheduling work?  How do you solve a conflict?  Can you land at any airport or are there surface type and runway length requirements?  ROP or LOP?  Specific pre or post flight actions required (like cleaning off the bugs)?  How much notice do you have to give them before taking the plane out of service for an upgrade?  For the annual?  Can you kick them out even if they don't want out?  If so, under what circumstances?

Just my two cents worth.

[kortopates]

5 hours ago, pevanscfi said:

After doing a little more research into this, I am considering structuring a partnership (maybe not the right term) a little like Diamondshare does. I would own the aircraft and cover all fixed costs, and the other members of the partnership would pay per flight hour with some minimum time per year with commitments on a yearly basis.

Pros:
1. No worries about partners not being able to cover unexpected repairs.
2. Much easier to accommodate partners coming and going if/when they have to.
3. Don't have to worry about being forced to sell the aircraft due to a partners death or illness.

Cons:
1. On the hook completely for scheduled and unscheduled maintenance.
2. Still have to share the plane.
3. Uncertainty with potentially more partner turn over.

I think this could work out well for me given that I could afford to own the aircraft on my own and have enough on hand for an unexpected engine overhaul/replacement, but for now would not be able to fly it enough for it to really make sense to own.

Running some quick numbers, it looks like I could buy for ~$100k and I could set aside a $30k maint reserve. I am looking to fly about 50 hours a year. If I can get 150 hours a year out of 1 or more partners, I could offer something like $165/hour wet and only end up ~$3k out of pocket each year for my 50 hours. (before any unexpected maint). That is assuming a $20/hour engine and prop reserve, $20/hour maint reserve, and about 1000 hours before overhaul.

Do you think this kind of partnership would be appealing to anyone?

Numbers are very preliminary, but attached the work sheet I was using to account for costs.

Edit: Calculated price per hour as wet, just because it was easier to work out. As mentioned below, would probably just subtract the fuel costs and make that an equivalent dry rate.

aircraft-ownership.pdf 37.76 kB · 0 downloads

As an instructor in the country's largest and most successful flying club, what you are  actually describing fit a leaseback to club perfectly. Co-ownership usually involves equity sharing, of which we have several small co-ownership clubs locally too. Such clubs as ours get insurance for the fleet where you as the owner pay for your insurance and then take care of scheduling, payment and dues collections. But typically your income is limited to rental rate minus fuel cost and insurance. So in such a lease back you would charge an hourly rate to cover all your expenses including maintenance, tie down or hangar etc. Market competition will determine if a leaseback can be profitable or just subsidize your ownership cost. Typically though only trainers flown daily can be profitable while less flown higher performance x-country aircraft only popular on weekends tend to only subsidize owner cost. 

Your biggest con as an owner is you get in line to reserve/schedule your aircraft but you get significant help at subsidizing its cost and can claim depreciation and business expenses. Be aware though that insurance cost for renting your plane out are MUCH more expensive than a small number of "owners".

Edited May 6, 2020 by kortopates

[Lance Link]

I think the "Diamondshare" model is hazardous from a liability perspective when done by us average folk.  And in any event, you are on the hook for all unscheduled maintenance.  That's the killer.  Ask me how I know.  If you lose the engine, for example, the non-equity partners are not obligated to help beyond what they have contributed for reserves.  On the other hand, as was alluded to above, there is no rule that a true equity partnership has to be in equal ownership percentage amounts, or that the buy-in be equal.  Just be sure that everyone involved is an actual owner (I prefer LLC's), and is on the hook for equal amounts of the fixed expenses and unscheduled maintenance (and unscheduled maintenance expenses can be apportioned based on hours flown).  I think this is dicey stuff.  If we have enough assets to fly airplanes, we have enough assets to protect them carefully.  Scott Williams Esq Camarillo CA. This is not a job for backyard lawyers. 

[carusoam]

All the simple cost logic goes out the window...

When the hobby becomes a business...

You need a lawyer to protect you from the random acts of other people...

Your insurance needs to cover more than you...  in this case it needs to cover many people, and their surviving families...

 

What was the reason for considering the partnership?

Do you have ownership experience already?

We have an insurance guy around here that can give advice how partnerships can be covered...

PP thoughts only, not a lawyer or insurance guy...

Best regards,

-a-

 

[Jfdi2020]

I'm interesting in a co-ownership.  I would welcome any information about this.  Whether setting up a Corporation and what else is recommended.

Also are there any Facebook pages for Mooney Enthusiasts?  

 

 

[carusoam]

Welcome aboard JFD...

This can get you started...

https://mooneyspace.com/search/?q="Shared ownership"&updated_after=any&sortby=relevancy&search_and_or=or

Yes there is a Facebook Mooney group too.  Just not directly connected to MS.  Some people will visit both locations...

Best regards,

-a-

[Shiny moose]

I say getting into a partnership is the easiest part, everyone excited, it will only get harder. The hardest will be when someone wants out of the partnership or the person is asked to leave the partnership, I find this true in most contractual agreements. Have rules that are Very easy to understand, The exit strategy needs to be very simple and clear, you should NOT need an attorney for someone to exit the partnership. 

 have partners that can easily afford the agreement,  everyone follows the rules always, no exceptions, contingencies for people not following the rules( Not paying the monthly costs, not paying the hour rate, not filling airplane, not cleaning the bugs off, leaving trash in airplane, leaving on 1 day trip that turns into 2 weeks,  not filling tires, not filling oil, working on airplane when not certified to to that work) It all needs to be written down and agreed upon.

 if you find an A&P to be a partner treat them right, that A&P is very important, needs to be paid or credited the Very close to the going shop rate that you would have had to pay had they not been a partner(its a cost your going to have either way) dont be  a CB here

My .02 No airplane partners but have HAD business partners and many written agreements with people.

[carusoam]

Moose,

That is interesting experience that you shared...

Kind of eye opening for what is needed for a plane partnership.

Thanks for sharing it.

Best regards,

-a-

[pevanscfi]

On 5/6/2020 at 11:43 PM, carusoam said:

What was the reason for considering the partnership?

The biggest reason for me considering a partnership in order or importance are:
1. I have not owned an aircraft before (besides a quicksilver ultralight I bought/rebuilt back in high school.) The ideal partner for me, would be someone that I can learn the ins and outs of aircraft ownership from. Honestly, I am a little concerned about jumping into ownership headfirst, and I think a partnership could be a good way get my feet wet.
2. It is very difficult to find hanger space around my area.
3. Although I could afford the aircraft, fixed costs, and operating costs on my own, it would be nice to be able to reduce those costs if possible. My wife and I have our first child on the way, and any large budget items are a negotiation. I could probably justify spending a little more up front on a nicer/better equipped aircraft if my costs where shared.

Additionally, I don't think the con's of a partnership are that big of a downside for me right now. I don't have a need to take the aircraft on short notice, so scheduling conflicts are less of an issue for me. My use case for the aircraft would be to fly enough hours to maintain currency and proficiency, and to make a few cross country trips per year to visit family or go on a vacation. I make my own work schedule, and can work from pretty much anywhere with an internet connection.

 

Edited May 9, 2020 by pevanscfi

[carusoam]

p,

you may want to add some data to your avatar area...  very visible on iPads, and PCs... hard to imagine on a phone screen... but it is there.

it allows people to see where you are, what you are looking for....

 

• The coolest thing about MS... it covers ownership 101, 102, and 103... 201, & 202 daily... 
• the coolest thing about being able to work from anywhere... no fighting bad weather to be home by Monday morning! 
• We got our M20C days after the last child was born... daycare costs way more than airplane ownership... 
• Driving to see grandma was tough...  flying to see grandma was a breeze...
• We got pretty good with predicting the weather two days out...

PP thoughts only...

Go Mooney!

Best regards,

-a-

[irishpilot]

I've done both. Both have their pros and cons. A good partnership allows you to have more purchasing power and splitting mx costs is very nice. However, you need to be able to buy out your partner or you risk selling at a loss if the market goes soft. Perfect example is current conditions due to CV19.

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