What’s the Best Way to Fund an Aircraft Purchase in Today’s Market?

[RoundTwo]

Other than setting up a GoFundMe or an OnlyFans account, what do you feel is the best way to fund an aircraft in today’s market for a retiree living off of retirement savings?

Personal loans

Home Equity options

401(k)

Other…

[EricJ]

Cash.

 

[Hank]

Both 401(k) and IRA accounts are sacred. Never dip into them until you are retired; never reduce your contributions to pay for toys (urgent medical expenses,  maybe). My financial advisor complimented me for sticking with that over the decades, because as I'm nearing that next stage of life, I'm one of his few clients to whom he can say, you're ready, go when you want with no worries.

You'll need good old-fashioned cash for a down-payment. Financing the rest is how most of us did it. Home equity loans have the benefit of tax deductible interest, but check how much your itemized deductions would be compared against the standard deductions. I no longer itemize Federal deductions since the standard deduction went so high, but inxti.l do for my state.

But home equity loans have a downside, too. If your situation changes due to job loss, transfer, pay cut or an accident / illness with catastrophic results, could you still make home and airplane payments? Most long term disability plans only provide 60% of your base salary, which could lead to losing either / both plane and home.

That being said, I financed half of my Mooney with a home equity loan, then converted it to an installment loan with a local credit union ion at very attractive rates. 

Go with whatever has the best rates and least cumulative interest, that won't leave you unable to pay for operating and maintenance expenses, and still able to maintain your current quality of life. 

If you are looking for extra income to use for plane payments, how will you pay for fuel and oil to fly, to say nothing of insurance, hangar / tie down, annual inspections, GPS updates, biennial pilot static testing, and fixing whatever quits working due to end of useful life / lack of maintenance / lack of use?

[toto]

8 minutes ago, Hank said:

Home equity loans have the benefit of tax deductible interest

In the US, you can no longer use home equity for anything other than home improvements and have it be tax-deductible. If you buy an airplane with home equity today, the interest is taxable. 

(I'm definitely not a tax expert, so I'm happy to be corrected on this point.)

[Gone]

I got a bank loan in 2004 for my Mooney and I paid it off 8 years later.  The bank advertised the purchase of an aircraft as a "line of credit" item and I took them up.  Today I keep that line of credit open but I reduced its limit to $10K ($7.5K USD), just in case I am AOG.  It will not fund big things, but it will fund the exchange of a fuel pump or new tires and necessities of that magnitude.

And as close as I am to retirement, my experience mirrors Hank's - so I would not recommend dipping into retirement savings to do this.

 

 

[Ragsf15e]

8 minutes ago, toto said:

In the US, you can no longer use home equity for anything other than home improvements and have it be tax-deductible. If you buy an airplane with home equity today, the interest is taxable. 

(I'm definitely not a tax expert, so I'm happy to be corrected on this point.)

That being said, it’s probably the lowest interest rate loan you’ll find as long as you have equity and aren’t afraid to borrow against it.

[Pinecone]

29 minutes ago, toto said:

In the US, you can no longer use home equity for anything other than home improvements and have it be tax-deductible. If you buy an airplane with home equity today, the interest is taxable. 

(I'm definitely not a tax expert, so I'm happy to be corrected on this point.)

This is what I understood when I refinanced at a stupid low rate and took some equity to redo a bathroom.

[Pinecone]

20 minutes ago, Ragsf15e said:

That being said, it’s probably the lowest interest rate loan you’ll find as long as you have equity and aren’t afraid to borrow against it.

Yes, but so what?  If you can't use it to buy a plane, it is worthless for this discussion.

 

[Ragsf15e]

2 minutes ago, Pinecone said:

Yes, but so what?  If you can't use it to buy a plane, it is worthless for this discussion.

 

Borrowing to fix up the asset itself (and potentially increase its value/liquidity) is different than using a $100k (or more) against your primary home to buy a toy.  At least for some folks.  Doesn’t mean it’s wrong.  Depends on the situation.

[RoundTwo]

47 minutes ago, Hank said:

That being said, I financed half of my Mooney with a home equity loan, then converted it to an installment loan with a local credit union ion at very attractive rates. 

Your post made me realize I neglected to mention stage of life, which makes a huge difference. I’m retired, so no need to worry about losing my job. 

The question is more about cashing out some retirement assets that have been beaten down this year vs taking a loan at the higher rates. It’s all about finding the lesser of two evils. I’m hoping someone might have a (legal) creative option I have overlooked so far.

R2

[amillet]

As an estate planning lawyer, my advice to clients is to spend it all before you die.  Maybe even put the last few months expenses on credit cards. You’re heirs are not liable for them.

[RoundTwo]

23 minutes ago, Pinecone said:

Yes, but so what?  If you can't use it to buy a plane, it is worthless for this discussion.

 

You CAN use it to buy a plane but the interest is no longer deductible. But with so many deductions taken away, most people don’t itemize, so it’s kind of a moot point. I’m leaning towards a Home Equity Loan instead of cashing out depreciated investment assets.

Lots of great info here.

[RoundTwo]

11 minutes ago, amillet said:

As an estate planning lawyer, my advice to clients is to spend it all before you die.  Maybe even put the last few months expenses on credit cards. You’re heirs are not liable for them.

Live fast, die young and leave a good looking corpse.

[RoundTwo]

13 minutes ago, Evan said:

Buy, borrow, die.

Borrowing against a portfolio, say a standard taxable account, is pretty common these days. With a couple million, you can get OBFR + 50-75 basis points. Interest accrued is tax deductible. 

I remember the good old days when borrowing was almost free.

[N201MKTurbo]

13 minutes ago, Evan said:

This is not correct. Most debt will be paid off. Usually by the deceased estate...

You forgot the part where they spent all their money before they ran up the credit cards.

[M20F]

The only thing I like to take more than legal advice on the internet is financial advice.  The best way to swing this purchase is bit coin.  

[Schllc]

A very wise mentor told me a long time ago, that you should never buy anything on credit, that you can’t afford to own for five years if your world went to crap. 
theory is that five years can see you through any cycle. 
The advice has served me very well, and applies to any large purchase, but especially so for discretionary ones…

[RoundTwo]

4 minutes ago, Evan said:

Compared to the last 50 years, current rates are still cheap...

True. First house mortgage in 1989 was 8%.

[EricJ]

2 hours ago, RoundTwo said:

Your post made me realize I neglected to mention stage of life, which makes a huge difference. I’m retired, so no need to worry about losing my job. 

The question is more about cashing out some retirement assets that have been beaten down this year vs taking a loan at the higher rates. It’s all about finding the lesser of two evils. I’m hoping someone might have a (legal) creative option I have overlooked so far.

R2

That's a rough one.   It definitely does not look like a good time to be cashing out of investments, but the debt is tricky.    Aircraft prices seem to maybe have peaked, and I expect might even come down.    If you're not in a hurry waiting might be an option, or just take your sweet time looking around.

[RoundTwo]

10 minutes ago, EricJ said:

That's a rough one.   It definitely does not look like a good time to be cashing out of investments, but the debt is tricky.    Aircraft prices seem to maybe have peaked, and I expect might even come down.    If you're not in a hurry waiting might be an option, or just take your sweet time looking around.

I have given that tactic a lot of thought, and even started looking for the “right now”plane instead of the forever plane. I have noticed that search alerts on the major sites are producing many more price reductions now than they were before. If that is taken to mean anything, the prices are softening as time goes on. Of course, the question that begs to be answered is if the downward pressure will continue or maybe even Increase, moving us closer to a buyer’s market instead of the seller’s market we have been in for the past two years.

[A64Pilot]

4 hours ago, EricJ said:

Cash.

 

This, because it’s a toy and if we are truthful with ourselves a depreciating asset.

Although I’ll admit to buying a house at 2% and even a car at 1.8% as that rate was so low I felt the cash would return more than that in growth, then of course the market tanked. I don’t know if I would have been better paying cash or not, but gut says at 2% I did the right thing, but then of course I want to believe that.

But I feel sure we haven’t hit bottom, I’m afraid we can’t even see the bottom yet, as long as we collectively think things are fine and the economy is strong, it’s only going to get worse. Don’t forget inflation is running at 8% at least and that’s outpacing your Retirements earnings, and Stagflation is right around the corner just watch, I think it’s the early 80’s again.

Price of all toys will come down, I’ve already been seeing a lot more campers and boats in front yards with for sale signs on them, I think airplane market has peaked, unless you find a crazy deal now isn’t the time to buy, it’s the time to sell, buy now and you bought at the peak.

Honestly buy what you can afford to pay cash for, if that’s a kit fox or 140 or whatever it’s still flying, and don’t forget the purchase is just the beginning of the costs, if your honest with yourself it’s likely an airplane costs more than a house in upkeep, a lot more actually.

But simple stick and rudder airplanes cost a fraction of what complex aircraft do to maintain.

In a year or two I think if you have cash you can buy a Bonanza for Cessna money, I think most Mooney’s will fare slightly better because they are known to be frugal aircraft 

[Fly Boomer]

7 minutes ago, A64Pilot said:

Price of all toys will come down, I’ve already been seeing a lot more campers and boats in front yards with for sale signs on them, I think airplane market has peaked, unless you find a crazy deal now isn’t the time to buy, it’s the time to sell, buy now and you bought at the peak.

I would include monster houses in your list.  The slide has begun.

[Schllc]

25 minutes ago, A64Pilot said:

This, because it’s a toy and if we are truthful with ourselves a depreciating asset.

Although I’ll admit to buying a house at 2% and even a car at 1.8% as that rate was so low I felt the cash would return more than that in growth, then of course the market tanked. I don’t know if I would have been better paying cash or not, but gut says at 2% I did the right thing, but then of course I want to believe that.

But I feel sure we haven’t hit bottom, I’m afraid we can’t even see the bottom yet, as long as we collectively think things are fine and the economy is strong, it’s only going to get worse. Don’t forget inflation is running at 8% at least and that’s outpacing your Retirements earnings, and Stagflation is right around the corner just watch, I think it’s the early 80’s again.

Price of all toys will come down, I’ve already been seeing a lot more campers and boats in front yards with for sale signs on them, I think airplane market has peaked, unless you find a crazy deal now isn’t the time to buy, it’s the time to sell, buy now and you bought at the peak.

Honestly buy what you can afford to pay cash for, if that’s a kit fox or 140 or whatever it’s still flying, and don’t forget the purchase is just the beginning of the costs, if your honest with yourself it’s likely an airplane costs more than a house in upkeep, a lot more actually.

But simple stick and rudder airplanes cost a fraction of what complex aircraft do to maintain.

In a year or two I think if you have cash you can buy a Bonanza for Cessna money, I think most Mooney’s will fare slightly better because they are known to be frugal aircraft 

While I think I understand what you mean, which is don’t buy airplanes expecting to make money, I do not agree that they are simply depreciable assets. 
Perhaps when they are bought in a boom and sold in a crash, but I have sold every single one of the planes I have owned for more than I paid. 
They cost money to maintain, but they also aren’t really making them anymore, and the ones that are made cost more every year. 
I’d agree there is a lick taken by the first guy who buys one, the rest seem to relatively hold their value, as long as they are used and maintained.  
Many of the older one still sell for well above what they cost new. 
They definitely are not like cars, but I’d say they are a unique asset that is more likely to just remain static in value than depreciate. 
 

[jaylw314]

2 hours ago, Schllc said:

A very wise mentor told me a long time ago, that you should never buy anything on credit, that you can’t afford to own for five years if your world went to crap. 
theory is that five years can see you through any cycle. 
The advice has served me very well, and applies to any large purchase, but especially so for discretionary ones…

I could use that same argument to borrow like there's no tomorrow if there's no...well, tomorrow 

[LANCECASPER]

4 hours ago, RoundTwo said:

The question is more about cashing out some retirement assets that have been beaten down this year vs taking a loan at the higher rates.

History has shown that if you leave the assets that have been beaten down alone, they will recover. Selling assets that are at a low point  to buy airplanes, which many people feel are at a cyclical high point, in my opinion, is not a good move.