phrogpilot73 Posted August 29, 2020 Report Share Posted August 29, 2020 (edited) Long time lurker, first time poster... My wife and I have been planning on buying an airplane for a while, and my father had said that he wanted me to purchase a plane with my inheritance. We were looking at Cherokee 6/300's until Dad died, Mom got the estate... And quickly started changing all of the beneficiary allotments to favor the grandkids over the kids. So - our price point has changed for shopping. Anyway, a friend and coworker of mine owned a 1962 M20C and offered to sell it to me. I didn't have a medical at the time, and didn't have a timeline to get it back (long story) so I turned him down. He ended up selling it to another friend/coworker. Once I got my medical back, started flying with him and he added me to his insurance. Well the insurance underwriters came back and said I can't even buy fuel unless I'm a part owner (min 10%). The hull value of the plane is $32,000 so I have to spend $3200 to become a 10% owner. It just finished up its annual, and outside of engine mounts that needed to be replaced - it's in good shape. Engine and prop have about 800-ish hours until overhaul. He and I talked a long time about it, and I told him that I'm only doing this because I expect that he'll be selling the plane in 3 years (work related stuff), and that if he isn't planning on selling the plane within 3 years, then I'll go in another direction. He told me he plans on selling the plane within the next 2-3 years. So, the 10% ownership will give me the opportunity to be the first to buy it. Am I crazy, or am I making a decent decision? My thoughts are that I am NEVER going to find an M20C where I am intimately familiar with maintenance/upgrades that were performed for the last 6 years, as well as know that the same A&P has been working on it, and he does all the Mooney work in the area, for the price he will be selling it to me for. Only thing I can think of that would screw me is if he doesn't decide to sell... What does everyone think? Edited August 29, 2020 by phrogpilot73 Quote Link to comment Share on other sites More sharing options...
LevelWing Posted August 29, 2020 Report Share Posted August 29, 2020 Insurance and partnership stakes aside, if the plane meets your mission and the maintenance is something you are comfortable with, it seems like a good decision. I would suggest, however, that you not be afraid of other aircraft just because you don't know it as well as this one. Many, if not most, of us have bought planes in different locations that we weren't familiar with. A thorough pre-purchase inspection is required to ensure it is safe and meets all the mechanical requirements you have. In fact, a mechanic who hasn't worked on the plane is often recommended to conduct the pre-purchase inspection because it's a fresh look at the plane. That doesn't mean that the mechanic who has been working on it is wrong or has overlooked something, but they have become familiar with it and a second pair of eyes never hurts. That said, if this plane meets your mission and you like it, then it doesn't sound like a bad idea. Just don't be afraid to walk away if you need to. Quote Link to comment Share on other sites More sharing options...
carusoam Posted August 29, 2020 Report Share Posted August 29, 2020 3 hours ago, phrogpilot73 said: Long time lurker, first time poster... My wife and I have been planning on buying an airplane for a while, and my father had said that he wanted me to purchase a plane with my inheritance. We were looking at Cherokee 6/300's until Dad died, Mom got the estate... And quickly started changing all of the beneficiary allotments to favor the grandkids over the kids. So - our price point has changed for shopping. Anyway, a friend and coworker of mine owned a 1962 M20C and offered to sell it to me. I didn't have a medical at the time, and didn't have a timeline to get it back (long story) so I turned him down. He ended up selling it to another friend/coworker. Once I got my medical back, started flying with him and he added me to his insurance. Well the insurance underwriters came back and said I can't even buy fuel unless I'm a part owner (min 10%). The hull value of the plane is $32,000 so I have to spend $3200 to become a 10% owner. It just finished up its annual, and outside of engine mounts that needed to be replaced - it's in good shape. Engine and prop have about 800-ish hours until overhaul. He and I talked a long time about it, and I told him that I'm only doing this because I expect that he'll be selling the plane in 3 years (work related stuff), and that if he isn't planning on selling the plane within 3 years, then I'll go in another direction. He told me he plans on selling the plane within the next 2-3 years. So, the 10% ownership will give me the opportunity to be the first to buy it. Am I crazy, or am I making a decent decision? My thoughts are that I am NEVER going to find an M20C where I am intimately familiar with maintenance/upgrades that were performed for the last 6 years, as well as know that the same A&P has been working on it, and he does all the Mooney work in the area, for the price he will be selling it to me for. Only thing I can think of that would screw me is if he doesn't decide to sell... What does everyone think? Welcome aboard Phrog... Everyone thinks it is up to you to determine what you are comfortable with... 1) your insurance company explained to you (sort of) the legality of sharing expenses related to flying... Sounds like the shared expenses rule... 2) the 10% ownership rule is new to me... 3) cost of operations is very large compared to ownership costs... 4) How do you feel about sharing expensive objects that require maintenance and housing? 5) how do you feel about not being in control of this project? If I had unlimited access to an M20C for 10% of its current value... call me happy... You would have to call me long distance because I left already... With an M20C, I’d be halfway across the country by now... OK some things sound too good to be true... So... write down your outline of co-ownership and share with your potential co-owner(s). Don’t accidentally mess up a good work relationship... Good luck, make it happen... Then convince the grandchildren how important a new Ovation is to their future.... it may take a couple of years. PP thoughts only, not a plane match maker or writer of wills... Best regards, -a- Quote Link to comment Share on other sites More sharing options...
ZuluZulu Posted August 29, 2020 Report Share Posted August 29, 2020 28 minutes ago, bluehighwayflyer said: If the plane truly is airworthy and has been properly maintained it doesn’t sound like you have a lot to lose. In fact, a 10% ownership interest in a such a M20C for only $3,200 sounds like about as inexpensive entree into GA ownership as you can get. Especially in light of the relatively low engine and prop times. I say go for it! But negotiate and execute a proper co-ownership agreement first, both to avoid any misunderstandings and to protect both of your interests. I’d also recommend a title search for the same reasons. https://www.aopa.org/go-fly/aircraft-and-ownership/buying-an-aircraft/pilots-guide-to-co-ownership/ Make sure that agreement outlines what happens if he decides after three years NOT to sell. 2 Quote Link to comment Share on other sites More sharing options...
carusoam Posted August 29, 2020 Report Share Posted August 29, 2020 Membership has its advantages.... AOPA has plenty to know about co-ownership details... -a- 1 Quote Link to comment Share on other sites More sharing options...
ZuluZulu Posted August 29, 2020 Report Share Posted August 29, 2020 Just now, carusoam said: Membership has its advantages.... AOPA has plenty to know about co-ownership details... -a- It sounds like the OP is relying on a lot of assumptions and conversations. Those will not help if this goes sour. Another example: a 10% ownership stake somehow giving him first dibs at buying it. Only if the agreement says so! The AOPA legal plan does not cost much and would be well worth it here, IMHO. 1 Quote Link to comment Share on other sites More sharing options...
phrogpilot73 Posted August 29, 2020 Author Report Share Posted August 29, 2020 WOW! Thanks for all the quick replies... The 10% rule was what the insurance underwriters said. That they wouldn't cover a loss if I've paid for anything, unless I'm a minimum of a 10% owner. I've been debating about an AOPA membership for a while, and I guess now I'll have to pull the trigger before I put any money down. No money has changed hands yet, and I even told him that if I do buy a stake - it's going to be a cashier's check going direct to the lien holder. We've been talking a lot about what each of us would be willing to agree to with regards to shared costs/use of the plane. Even further back story - he's an active duty Marine (I'm retired) who was passed over twice for Major. Normally, that means in 6 months - you are involuntarily separated (jobless). The Marine Corps is now offering automatic continuation, so three more years of active duty. That's why in 3 years, he's likely going to be in a position that he's forced to sell. He just executed orders to Camp Lejeune, NC and the aircraft is hangared in Norfolk, VA. Since he's deploying for a year in a couple of months - he doesn't want to move it, not to mention his girlfriend is still up here so he comes up every weekend. He wants the plane flown while he's gone, hence the agreement. And the fact that he's thinking about selling it before the 3 years is up was a surprise to me. As we hashed out all the details - when it comes to maintenance/hangar, I'll be responsible for the percentage I bought in with (i.e. 10%). We've also talked about upgrades (it needs ADS-B Out) and how we're going to handle those. Was planning on getting everything written out, have both of us agree and go through a lawyer. My wife is insisting on an "out" clause to protect us in case he decides not to sell, and the agreement already has a clause to prevent him from selling it out from under me. Been shopping for a Mooney M20 ever since Mom lost her mind with the inheritance, because the useful load/speed/efficiency meets our needs. This one is so affordable, and is in really good shape, which is the reason my wife and I are getting ready to pull the trigger. Quote Link to comment Share on other sites More sharing options...
carusoam Posted August 29, 2020 Report Share Posted August 29, 2020 We have quite a few military people that own Mooneys... My favorite accountant is/was a Marine... he flys a Bravo. Go easy on Mom’s decision... We only get one Mom... and they don’t last forever.... Stay focused... Are you familiar with PPIs? And what they are used for. Best regards, -a- 1 Quote Link to comment Share on other sites More sharing options...
LevelWing Posted August 30, 2020 Report Share Posted August 30, 2020 3 hours ago, phrogpilot73 said: I've been debating about an AOPA membership for a while, and I guess now I'll have to pull the trigger before I put any money down. No money has changed hands yet, and I even told him that if I do buy a stake - it's going to be a cashier's check going direct to the lien holder. We've been talking a lot about what each of us would be willing to agree to with regards to shared costs/use of the plane. As we hashed out all the details - when it comes to maintenance/hangar, I'll be responsible for the percentage I bought in with (i.e. 10%). We've also talked about upgrades (it needs ADS-B Out) and how we're going to handle those. Was planning on getting everything written out, have both of us agree and go through a lawyer. My wife is insisting on an "out" clause to protect us in case he decides not to sell, and the agreement already has a clause to prevent him from selling it out from under me. Been shopping for a Mooney M20 ever since Mom lost her mind with the inheritance, because the useful load/speed/efficiency meets our needs. This one is so affordable, and is in really good shape, which is the reason my wife and I are getting ready to pull the trigger. To the lien holder, as in the bank he is financing with? Others may have better advice, but I'd be cautious of this if that's what you meant. At that point you're just paying his loan down for him. Does the 10% of maintenance cover anything that happens while he's deployed, including oil changes and pop up maintenance? What if a cylinder goes bad or something else happens? You're only responsible for 10%? If so, and it's in writing, that's a good deal. I'd want that in writing though. If your wife is wanting an out clause you may want to re-consider the money going directly to the lien holder and instead sending it to him. He's then responsible for it; the lien holder won't be giving that back. What did you work out as far as upgrades, including ADS-B out? Others have recommended consulting AOPA on their partnerships and I think that's a good idea. Quote Link to comment Share on other sites More sharing options...
phrogpilot73 Posted August 30, 2020 Author Report Share Posted August 30, 2020 30 minutes ago, LevelWing said: Others have recommended consulting AOPA on their partnerships and I think that's a good idea. Oh yeah, as everyone is bringing up things I didn't even think of - I'm joining AOPA and getting their help. I don't THINK this guy will screw me (he approached me about buying it outright, just before I got my medical so I was still hesitant), but there's always the case that he does. Quote Link to comment Share on other sites More sharing options...
carusoam Posted August 30, 2020 Report Share Posted August 30, 2020 Let’s look at it as if things can change... There isn’t anyone trying to ‘screw’ you... But, in life... things have a tendency to change priorities... over time... It takes work to keep a relationship going... even plane relationships... Following the guidance of somebody that has been there before, like AOPA has... Just makes sense... Having to relocate with work every few years makes thing additionally challenging... when your co-owner is Sharing a different schedule of relocation as well... We have a couple of people that have been based overseas... and have a Mooney back here as well... That’s a bit of a maintenance challenge. Keeping everything running or pickled... At 1/10 of ownership... what is the worst that can happen... you walk away...? Or is there something you can’t get away from....? Best regards, -a- Quote Link to comment Share on other sites More sharing options...
MikeOH Posted August 30, 2020 Report Share Posted August 30, 2020 (edited) On the one hand, $3,200 is a pretty cheap buy-in. If you can't live with that kind of loss, then ownership, even 10%, is probably not for you. On the other, this 'deal' seems a little to convoluted and a bit hinky, to me....be careful, this whole thing could unravel in a year or so and you'll be out $3,200. But, if you fly it a lot in the meantime, while he's deployed, and just put in gas an oil that's not too bad!. Edited August 30, 2020 by MikeOH 2 Quote Link to comment Share on other sites More sharing options...
moontownMooney Posted August 30, 2020 Report Share Posted August 30, 2020 FYI, this requirement from your insurance company is unique to specific underwriters, and isnt necessarily common. We ran into it when shopping around our policy this year. Perhaps you could get your friend to switch insurance to one without this requirement.Sent from my LM-V405 using Tapatalk 1 Quote Link to comment Share on other sites More sharing options...
kortopates Posted August 30, 2020 Report Share Posted August 30, 2020 FYI, this requirement from your insurance company is unique to specific underwriters, and isnt necessarily common. We ran into it when shopping around our policy this year. Perhaps you could get your friend to switch insurance to one without this requirement.Sent from my LM-V405 using Tapatalk I was confused by that as well, but he explained it above - it’s not unique since the owner would otherwise be selling time, like renting it, to the OP, when he accepts money as compensation for aircraft expenses. This requires a different and much more expensive insurance like it was a leaseback in a club - which is much more expensive and hence why the insurance company would deny claims if it wasn’t insured as such. But being an actual owner partner solves the problem at only 10%.Having access to the plane for mere $3200 for 3 years sounds like a bargain to me even if it ends there. Of course your flying expenses will be in addition to that and include some share of the maintenance cost factored into. If those expenses are reasonable for you I don’t see any real downside.Sent from my iPhone using Tapatalk 2 Quote Link to comment Share on other sites More sharing options...
phrogpilot73 Posted August 30, 2020 Author Report Share Posted August 30, 2020 6 hours ago, kortopates said: I was confused by that as well, but he explained it above - it’s not unique since the owner would otherwise be selling time, like renting it, to the OP, when he accepts money as compensation for aircraft expenses. This requires a different and much more expensive insurance like it was a leaseback in a club - which is much more expensive and hence why the insurance company would deny claims if it wasn’t insured as such. But being an actual owner partner solves the problem at only 10%. Having access to the plane for mere $3200 for 3 years sounds like a bargain to me even if it ends there. Of course your flying expenses will be in addition to that and include some share of the maintenance cost factored into. If those expenses are reasonable for you I don’t see any real downside. Sent from my iPhone using Tapatalk The leaseback thing is what the insurance underwriter explained. Our "rough" (again, we've only talked back and forth about it) agreement is: 10% Buy In 50% Hangar (unless it's moved to NC, then it's 10%) 50% Upgrades (unless we can't agree on the upgrade, then it's up to him 100% - i.e. ADS-B, I want a new transponder, he wants the wingtip light) 50% Flight Hour based maintenance (we're going to define this more, but 100 hour, etc) 10% Calendar based maintenance 10% Insurance (insurance would be lower if I was the primary - I have 2,000 hours and a CSEL, he has 175 and a PPL) Unscheduled maintenance will be % of our flight time - if I fly 75% of it in a year, and he flies 25% then I'd be responsible for 75% The "out" clause includes reimbursement of the 50% paid towards upgrades based on when installed (i.e. within 3 years, if he decides not to sell and we've agree upon the ADS-B transponder that I paid half for, I get that back) and the 10% Buy in payment. Right of first refusal for sale My wife and I are prepared to eat any loss and walk away if the deal goes sour, but knowing where he stands financially (he overextends himself with toys) and also knowing that he is facing no job in 2 1/2 years, makes it seem like a good idea to get in now, if for no other reason than the right of first refusal clause. His original plan was to not take the continuation, go to an aviation college full time that will pay for his certificates and "prep" him for the airlines, then work as a CFI until he can get on with a regional. He said that's still his plan, but that his plan will be executed later rather than sooner. Because he was passed over twice, he's not eligible for promotion and Title X says he'll be out of a job. None of what he has planned is really conducive to owning your own plane, hence why I'm pretty certain he's going to be selling. His plans all changed when the meltdown in the airlines started happening. Had coronavirus not happened, I probably would own the plane outright right now. Quote Link to comment Share on other sites More sharing options...
moontownMooney Posted August 30, 2020 Report Share Posted August 30, 2020 I was confused by that as well, but he explained it above - it’s not unique since the owner would otherwise be selling time, like renting it, to the OP, when he accepts money as compensation for aircraft expenses. This requires a different and much more expensive insurance like it was a leaseback in a club - which is much more expensive and hence why the insurance company would deny claims if it wasn’t insured as such. But being an actual owner partner solves the problem at only 10%.Having access to the plane for mere $3200 for 3 years sounds like a bargain to me even if it ends there. Of course your flying expenses will be in addition to that and include some share of the maintenance cost factored into. If those expenses are reasonable for you I don’t see any real downside.Sent from my iPhone using TapatalkWe encountered the same issue for the sane reasons described above... but only with one prospective underwriter. We discussed the concern specifically with two other underwriters and they didnt care. Counting an aircraft ownership arrangement as a club for insurance reasons isnt a universal legal definition, it is up to the underwriters to set their terms. Some consider 3 owners a club, some allow 5 without club rates, some dont have a big club/no-club premium cliff, but have a progressively larger premium per named insured. Not an insurance underwriter, but speaking to a first hand experience with multiple underwriters when we shopped around this spring, as we have 4 named insured, two are owners, two are not.Sent from my LM-V405 using Tapatalk 1 Quote Link to comment Share on other sites More sharing options...
LevelWing Posted August 30, 2020 Report Share Posted August 30, 2020 2 hours ago, phrogpilot73 said: The leaseback thing is what the insurance underwriter explained. Our "rough" (again, we've only talked back and forth about it) agreement is: 10% Buy In 50% Hangar (unless it's moved to NC, then it's 10%) 50% Upgrades (unless we can't agree on the upgrade, then it's up to him 100% - i.e. ADS-B, I want a new transponder, he wants the wingtip light) 50% Flight Hour based maintenance (we're going to define this more, but 100 hour, etc) 10% Calendar based maintenance 10% Insurance (insurance would be lower if I was the primary - I have 2,000 hours and a CSEL, he has 175 and a PPL) Unscheduled maintenance will be % of our flight time - if I fly 75% of it in a year, and he flies 25% then I'd be responsible for 75% The "out" clause includes reimbursement of the 50% paid towards upgrades based on when installed (i.e. within 3 years, if he decides not to sell and we've agree upon the ADS-B transponder that I paid half for, I get that back) and the 10% Buy in payment. Right of first refusal for sale My wife and I are prepared to eat any loss and walk away if the deal goes sour, but knowing where he stands financially (he overextends himself with toys) and also knowing that he is facing no job in 2 1/2 years, makes it seem like a good idea to get in now, if for no other reason than the right of first refusal clause. His original plan was to not take the continuation, go to an aviation college full time that will pay for his certificates and "prep" him for the airlines, then work as a CFI until he can get on with a regional. He said that's still his plan, but that his plan will be executed later rather than sooner. Because he was passed over twice, he's not eligible for promotion and Title X says he'll be out of a job. None of what he has planned is really conducive to owning your own plane, hence why I'm pretty certain he's going to be selling. His plans all changed when the meltdown in the airlines started happening. Had coronavirus not happened, I probably would own the plane outright right now. If the plane moves to North Carolina, are you willing to drive there in order to fly it? I'd be concerned about paying for 50% of the upgrades if there's a chance you may have to eat the loss and walk away later, even if it's in writing. There shouldn't be a lot of 100 hour type inspections outside of the eddy current if that's the prop hub that's on the plane. For your unscheduled maintenance, I think that's going to be a little more tricky than a simple 75%/25% or whatever that works out to be, especially if he's going to be deployed for a good chunk of that time. Out of curiosity, have you considered purchasing a different plane to avoid a potential mess? I know you said you'd never find another M20C that you knew as well as this one, and that may be true, but you may end up in a mess with this one anyway. Quote Link to comment Share on other sites More sharing options...
kortopates Posted August 30, 2020 Report Share Posted August 30, 2020 1 hour ago, moontownMooney said: We encountered the same issue for the sane reasons described above... but only with one prospective underwriter. We discussed the concern specifically with two other underwriters and they didnt care. Counting an aircraft ownership arrangement as a club for insurance reasons isnt a universal legal definition, it is up to the underwriters to set their terms. Some consider 3 owners a club, some allow 5 without club rates, some dont have a big club/no-club premium cliff, but have a progressively larger premium per named insured. Not an insurance underwriter, but speaking to a first hand experience with multiple underwriters when we shopped around this spring, as we have 4 named insured, two are owners, two are not. Sent from my LM-V405 using Tapatalk Thanks for sharing that. I belong to a large club that I instruct with, so I am familiar with the larger clubs high insurance rates. Plus another friend is looking at putting his plane in another smaller sized club were he'll see insurance premiums at about 5 times over without the club. Its a huge premium requiring the plane to fly a lot without higher expenses. Quote Link to comment Share on other sites More sharing options...
Fry Posted August 30, 2020 Report Share Posted August 30, 2020 On 8/29/2020 at 6:31 PM, phrogpilot73 said: What does everyone think? Call me crazy, but I don't think you need an attorney for that. Draft a contract with the following main points: - how much are you paying and to whom precisely - what does 10 percent ownership mean (it means you may fly the plane and he can't sell it without your consent). make sure the 10 percent lock that in - make sure you are not liable for his debt - think of a possible future change of mind. what if he later does not want to sell to you, what if you later do not want to buy, what is the fair process to follow then - think of what happens in case the airplane gets upgrades or is damaged or needs extensive repairs. Or if hangar rent or insurance premiums change significantly. - think of what happens if you die or the other gus dies, or if either of you moves and wants to take the airplane to a different location - have him lay open any third party rights to the airplane and have him guarantee that there are no others. - write everything neatly on a piece of paper and have that signed. I do not think the guy wants to screw you. In fact, I would rather be in your position than the one of your friend: selling a 10 percent share does not bring him a lot of cash but binds him pretty much to you in case he wants to sell or move or do something else to the plane. Good luck! Quote Link to comment Share on other sites More sharing options...
MikeOH Posted August 31, 2020 Report Share Posted August 31, 2020 For this small amount of money it won't matter if it's prepared by Thurgood Marshall on parchment with a gold seal and notarized signatures, or an unsigned napkin with notes in felt pen....there's no way it would be worth going to court over. 2 Quote Link to comment Share on other sites More sharing options...
201Steve Posted August 31, 2020 Report Share Posted August 31, 2020 If you fly the airplane 50 hours over the next “2-3 years” you’ve already caught up to your $3,200 even if you never see it again. Also agree if you’re primary fear is in fact the Potential loss Of $3,200 Over 3 years, you’ll want nothing to do with full 100% ownership. 3 Quote Link to comment Share on other sites More sharing options...
Fry Posted August 31, 2020 Report Share Posted August 31, 2020 Although I definitely agree you don't want to go to court over $3200, you also probably don't even want to lose this friendship. And the probability that you won't ever have an argument about anything increases with a written and signed agreement that documents your current and joint understanding of what will be fair in which situation. 1 Quote Link to comment Share on other sites More sharing options...
phrogpilot73 Posted September 5, 2020 Author Report Share Posted September 5, 2020 My wife and I are completely prepared to walk away from the $3200, the way we look at it - don't have to worry about scheduling as much as with the local FBO, meets our needs for useful load/range/speed, and we're going to have fun if nothing else. He and I both agree an agreement needs to be in place, and we're definitely going to include right of first refusal, and out clause, etc. I've joined AOPA and am going to start getting working on that. Thanks for all the info guys, you made me realize I'm NOT crazy - but I hadn't thought of everything! Quote Link to comment Share on other sites More sharing options...
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