This market is a little nuts

[Eight8Victor]

On 8/22/2022 at 8:21 AM, Seymour said:

Is taking a 2.25% fixed mortgage against a paid off home to purchase a toy that depreciates at 2% per year during 4% inflationary period nuts? 

 (guilty.)

4% ? Really?

[MikeOH]

22 hours ago, carusoam said:

Some say…

1) You can sleep in a plane…

2) You can’t fly a house….

Know your priorities…

-a-

I would recommend NOT making those two points with SWMBO or you will find yourself doing 1 and proving 2 because SWMBO will own the house 

As you say, "Know your priorities."

[Seymour]

On 8/22/2022 at 1:13 PM, M20F said:

Why would I take cash I can earn 5%+ on and use it to buy a plane that I can borrow at 3% on?  I certainly agree that one should not over leverage but one shouldn’t pay cash for everything either. 

Sage advice.   If the toy's real value after inflation depreciates faster than you're paying it off, you're drifting negative.   ....but everyone's situation is unique.   

On 8/23/2022 at 1:04 AM, MikeOH said:

The question I ask myself in that situation is a bit different: Should I risk losing my home to buy a toy?

Agreed!   You should NEVER risk losing the home to buy a toy.  That would be over leveraging.  Paying off my mortgage was a priority, but as long as there are other assets (including and in addition to the toy) that can be sold at reduced prices to cover the monthly nut for the duration of the mortgage if things rapidly go south, the strategy seems solid. 

On 8/22/2022 at 7:32 PM, LANCECASPER said:

Because things happen. People get sick, lose jobs, have accidents, the economy changes, etc, etc, etc.

Correct!  For me, it's a risk management decision, similar to flying.  I check the financial Wx before making the journey, but that can't account for every chance of danger along the way.   Be prepared and vigilant along the way.  Learn from others' mistakes and make good decisions to avoid them (eg. various insurance policies) rather than avoiding the entire opportunity altogether. 

Higher inflation makes the leverage numbers work even better.  Like @Eight8Victor notes, 4% inflation is a very conservative number right now.    $10K of I-Bonds are going to yield 9.62% next half....    Even the Fed recently raised their 'target inflation rate' to 3%.

Would it make more sense to wait until the market recovers and tops out again before selling assets to purchase the toy?  Won't the price of the toy also inflate?  Especially if everyone becomes flush with cash (again)?   

With advancing age, time is more precious than money.   Review the age 75+ aircraft insurance thread for validation of that point.  

Call me a nut.   (I'm only half nuts.)

 

 

[Fly Boomer]

On 8/21/2022 at 10:34 PM, carusoam said:

There is an autocatalytic disaster

My new word for the day 

[MikeOH]

1 hour ago, Fly Boomer said:

My new word for the day 

I blame it all on magnetohydrodynamic instability

[Fly Boomer]

Just now, MikeOH said:

I blame it all on magnetohydrodynamic instability

Yikes!  Gotta look that one up.

[Hank]

3 hours ago, MikeOH said:

I blame it all on magnetohydrodynamic instability

Are you also a believer in risk homeostasis? 

[carusoam]

Where is my turbo encabulator?

-a-

 

[Cruiser]

On 8/2/2022 at 6:09 PM, LANCECASPER said:

160,000 - 165,000

that was Ovation pricing

 

[LANCECASPER]

1 hour ago, Cruiser said:

that was Ovation pricing

 

They made very few late model J's once the Ovations came out. The newest J's were getting close to if not Ovation prices. Partially due to their scarcity, partially due to their efficiency. The same held true for the newest K's (1997-98 Encore), of which there were only 36 made. They were getting M prices before covid for the same reasons.

[A64Pilot]

Things have begun to correct, I get this email from some Realtor that got me on their list when I was looking about 2 years ago.

Often they are informative and he doesn’t Spam me so I let them come.

It’s Florida specific of course but last one noted that sales were off in the Daytona area 26%, then heard the other day on the news that new home sales are at a 6 year low.

https://www.realtor.com/news/real-estate-news/new-home-sales-plummet-as-the-housing-recession-gains-steam/

US house sales according to this are off 29% from this time last year, 29% is a big number.

I don’t think prices have dropped yet, but when sales drop, price follow.

We are in the beginning of a recession and recessions cause prices to drop, if it’s like 08, then soon you can take your pick of aircraft at very good prices, just have to be able to buy one, most won’t be, hence the low prices.

[Hank]

2 hours ago, 1980Mooney said:

 

It is called the "BIG LIE".  All planes lose value. The only question is how fast.  

Focusing on the "price" (i.e. the purchase price) is just an illusion. In order to keep your plane "at the same price" requires you to spend cash constantly - and lots of it.

Let's say you find a decent M20J for $150,000 and you plane to keep it 10 years.  And then you hope to sell it for $150,000 so you are going to keep it in a hangar, out of the elements in order to reduce the rate of deterioration of the plane..

During those 10 years you will have lots of costs that are basically "fixed" regardless of whether you fly a lot or barely.  You cannot escape these costs.

• Hangar - will cost $250-550/month depending on the city - let's say $400 a month.  That is $48,000 over 10 years.
• Insurance - let's say $3,000/yr. Thats is $30,000.
• Annual - let's say $3,500/yr. - and no big repairs.  That is $35,000.
• Wing tank leakage - let's say you will incur the cost of 1/2 of a reseal for repairs or reseal over 10 years.  Thas is $5,000.
• Engine - let's say 1/2 of an overhaul over 10 years - either an overhaul hits you or it reduces the value.  Fly a little and the engine deteriorates from long periods without use.  Fly a lot and you wear it out.  Either way you have costs. Let's say $20,000.
• At least one oil change per year in addition to the annual.  Some will say there should be one every 3 months with would be 3 additional even if it is just sitting.  Here on MS people are reporting over $500 for oil changes now with oil testing.  Let's say $300.  That is another $3000 over 10 years.  
• Prop - same thing over 10 years let's say half the cost of a 2 blade prop.  That is "4,000.
• Dry rot/hardening/compression of rubber tubes, tires, landing gear Lord discs - let's say $3,000 over 10 yrs.
• Data and other subscriptions - I bet the average pilot/plane owner pays $400-500/year for data on panels and mobile devices and for subscriptions like ForeFlight.  That is another $5,000
• Panel and Autopilot - let's say that you will pay for 1/2 of a panel upgrade over 10 years - let's say $15,000

 OK so you will spend $168,000 cash over 10 years in order to keep your plane "at the same price".  And there is nothing in that spending for paint or interior.  Nothing for window plastic deterioration.  Nothing for corrosion.  AND NOTHING FOR INFLATION IN THESE FIXED COSTS OVER 10 YEARS.

You can argue whether these are high side or low side but you will basically spend the "price" of your plane over 10 years just to maintain this price.  Basically you lose about half of your total investment over 10 years regardless of flying a lot or a little.

You are better off flying a lot.  Your incremental cost is primarily the variable costs of fuel, landing fees, tearing up tires, wear and tear, the occasional incident, prop strike, gravel damage, bird strikes, hail/weather damage, hangar rash etc.

When it comes to the true cost of airplane ownership we lie to our spouses, we lie to other pilots and we lie to ourselves.  There is no positive ROI in owning a Mooney.  Plane ownership is a cost.

Wow, that's brutal!!

Now I'm busy trying to forget that I've read this, and besides, upkeep on my C is much, much less than on this J . . . . .

[Hank]

Oh but @1980Mooney, my C has electric gear and flaps (they became standard in 1968), and a previous owner added tbe wingtips, too. That makes the wingspan 36', and it fits nice and tight in a standard T-hanger with 40' opening. 

I was in an old wooden one, and it gave me 18" clearance to.the walls on each side if I was straight down the center; a later metal one gave me 24" per side. Now I'm sharing a box hangar with an MU-2, and getting past that tail can be interesting. 

[bradp]

There a 94 J on controller for $214

https://www.controller.com/listing/for-sale/216919725/1994-mooney-m20j-mse-piston-single-aircraft

 

Above that listing is an F33A Bo for almost $375k.   

Looks like the blue book and local tax assessors have caught on to the wild ride.  They doubled my assessed value from last year to this year on property taxes. And I keep having to up my hull value accordingly to keep up with market replacement.  viscious cycle. 

[ArtVandelay]

There’s only 4 Js on controller…that’s a record low.

[FlyingDude]

Aren't controller and trade a plane traditionally overpriced? I thought barnstormers was the way to go...

[FlyingDude]

@1980Mooney thanks for your price breakdown. Please never, ever talk to my wife. Ever.

Also, I'm glad I didn't know you before buying the plane. Also because your analysis is realistic.

Though one thing. One of my hangar neighbors sold his Cirrus during covid at 150k over purchase price 10 years ago. And he got hundreds of hours of use. So, yes planes depreciate but there are some unicorns out there.

[ArtVandelay]

Aren't controller and trade a plane traditionally overpriced? I thought barnstormers was the way to go...

Nope, I’ve checked, they’ll have lower price planes, but there’s a reason for the low price.

[M20F]

7 hours ago, bradp said:

There a 94 J on controller for $214

https://www.controller.com/listing/for-sale/216919725/1994-mooney-m20j-mse-piston-single-aircraft

1175 TTSN, panel is very dated, interior/paint look original.  Think the seller may be a bit optimistic even in todays marketplace. 

[Scott Ashton]

On 8/26/2022 at 10:30 AM, 1980Mooney said:

 

It is called the "BIG LIE".  All planes lose value. The only question is how fast.  

Focusing on the "price" (i.e. the purchase price) is just an illusion. In order to keep your plane "at the same price" requires you to spend cash constantly - and lots of it.

Let's say you find a decent M20J for $150,000 and you plane to keep it 10 years.  And then you hope to sell it for $150,000 so you are going to keep it in a hangar, out of the elements in order to reduce the rate of deterioration of the plane..

During those 10 years you will have lots of costs that are basically "fixed" regardless of whether you fly a lot or barely.  You cannot escape these costs.

• Hangar - will cost $250-550/month depending on the city - let's say $400 a month.  That is $48,000 over 10 years.
• Insurance - let's say $3,000/yr. Thats is $30,000.
• Annual - let's say $3,500/yr. - and no big repairs.  That is $35,000.
• Wing tank leakage - let's say you will incur the cost of 1/2 of a reseal for repairs or reseal over 10 years.  Thas is $5,000.
• Engine - let's say 1/2 of an overhaul over 10 years - either an overhaul hits you or it reduces the value.  Fly a little and the engine deteriorates from long periods without use.  Fly a lot and you wear it out.  Either way you have costs. Let's say $20,000.
• At least one oil change per year in addition to the annual.  Some will say there should be one every 3 months with would be 3 additional even if it is just sitting.  Here on MS people are reporting over $500 for oil changes now with oil testing.  Let's say $300.  That is another $3000 over 10 years.  
• Prop - same thing over 10 years let's say half the cost of a 2 blade prop.  That is "4,000.
• Dry rot/hardening/compression of rubber tubes, tires, landing gear Lord discs - let's say $3,000 over 10 yrs.
• Data and other subscriptions - I bet the average pilot/plane owner pays $400-500/year for data on panels and mobile devices and for subscriptions like ForeFlight.  That is another $5,000
• Panel and Autopilot - let's say that you will pay for 1/2 of a panel upgrade over 10 years - let's say $15,000

 OK so you will spend $168,000 cash over 10 years in order to keep your plane "at the same price".  And there is nothing in that spending for paint or interior.  Nothing for window plastic deterioration.  Nothing for corrosion.  AND NOTHING FOR INFLATION IN THESE FIXED COSTS OVER 10 YEARS.

You can argue whether these are high side or low side but you will basically spend the "price" of your plane over 10 years just to maintain this price.  Basically you lose about half of your total investment over 10 years regardless of flying a lot or a little.

You are better off flying a lot.  Your incremental cost is primarily the variable costs of fuel, landing fees, tearing up tires, wear and tear, the occasional incident, prop strike, gravel damage, bird strikes, hail/weather damage, hangar rash etc.

When it comes to the true cost of airplane ownership we lie to our spouses, we lie to other pilots and we lie to ourselves.  There is no positive ROI in owning a Mooney.  Plane ownership is a cost.

Your figures look like they assume around 100 hours a year or so, which makes sense.   That works out to $168 an hour, plus fuel for another $60 or so, so over 10 years that’s $230 an hour all-in.   Makes total sense.

the value provided by the asset is transportation.  That is where the Positive ROI comes from, not the terminal value of the aircraft at the end of a 10 year ownership period.  Over that 10 years, you’ll go 150,000 miles.   And you’ll spend $200+k doing it…still seems like a good value.
 

Now just imagine all these folks spending 1.2mm on new cirruses!   Wait until those bills start rolling in!

[Pinecone]

12 hours ago, M20F said:

1175 TTSN, panel is very dated, interior/paint look original.  Think the seller may be a bit optimistic even in todays marketplace. 

A quick and dirty VREF comes up about $156K.

 

[LANCECASPER]

20 hours ago, bradp said:

There a 94 J on controller for $214

https://www.controller.com/listing/for-sale/216919725/1994-mooney-m20j-mse-piston-single-aircraft

 

Above that listing is an F33A Bo for almost $375k.   

Looks like the blue book and local tax assessors have caught on to the wild ride.  They doubled my assessed value from last year to this year on property taxes. And I keep having to up my hull value accordingly to keep up with market replacement.  viscious cycle. 

This seller must have seen what some later Js have sold for recently. However this is 1994 and one of the things it doesn't have the updated factory fiberglass side panels. Those ultraleather-covered panels are as close to a permanent interior panel solution you'll find on a Mooney.  it looks like a nice original airplane but about $50,000 too high

[MikeOH]

On 8/29/2022 at 5:33 PM, M20F said:

1175 TTSN, panel is very dated, interior/paint look original.  Think the seller may be a bit optimistic even in todays marketplace. 

Nah, that’s the wife wants it sold price

[DCarlton]

On 8/30/2022 at 6:22 AM, LANCECASPER said:

This seller must have seen what some later Js have sold for recently. However this is 1994 and one of the things it doesn't have the updated factory fiberglass side panels. Those ultraleather-covered panels are as close to a permanent interior panel solution you'll find on a Mooney.  it looks like a nice original airplane but about $50,000 too high

Yep.  Come down $50K and that one will sell fast.  Very clean.  

[Rwsavory]

23 minutes ago, MikeOH said:

Nah, that’s the wife wants it sold price

"Yes, Honey, I listed the plane for sale."