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

[Pinecone]

20 hours ago, Ragsf15e said:

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.

Personal choice.

But, in general, I agree that a lien on your home for a toy is not the smartest move.

Unless you have no heirs and want to spend it all.

 

[Pinecone]

20 hours 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.

Since I do not have a wife or kids.  That is my plan.

I will still have toys, but the plan is to be as far into debt as I can be without any liquids assets.

[Pinecone]

17 hours ago, A64Pilot said:

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.

 

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.

 

If you are still earning, 2% loan and high single to low double digit inflation, you are making money.  Sort of.

I am seeing more planes for sale, but not necessarily at lower prices.

[Pinecone]

16 hours ago, EricJ said:

Yes, assessing the "cost of ownership" is far more important than the purchase price.    With race cars and airplanes it's pretty easy to observe that relatively inexpensive purchase prices are often because people know the cost of ownership is quite high.   Some things are easy to purchase, but very expensive to use.    The magic of the Mooney is hitting a very nice sweet spot of reasonable on purchase price as well as cost of ownership.

A very important point.

And with airplanes, there are a good bit of fixed costs.  Even if you don't fly it.  Insurance, hangar/tiedown, annual inspection (assuming you want to keep it flyable).

My race car has no insurance, sits in the garage and needs to be inspected before the next race one.

[Sue Bon]

This time last year I agonised over the decision to upgrade my Mooney or my panel. I landed on upgrading my panel because it would be about half the cost and I know that I can afford my J ... even though it prevents me from upgrading my bathrooms and my kitchen.

Regarding watching your retirement plan evaporate before your eyes, I've invested in the stock market twice. Once in 2008 about 10 minutes before the crash and then again this past January. The next time I plan to invest, I'll post it here so you all will know to sell!

[Will.iam]

2 hours ago, Sue Bon said:

This time last year I agonised over the decision to upgrade my Mooney or my panel. I landed on upgrading my panel because it would be about half the cost and I know that I can afford my J ... even though it prevents me from upgrading my bathrooms and my kitchen.

Regarding watching your retirement plan evaporate before your eyes, I've invested in the stock market twice. Once in 2008 about 10 minutes before the crash and then again this past January. The next time I plan to invest, I'll post it here so you all will know to sell!

So you’re the one  

[DCarlton]

I've considered upgrading my Mooney and I'm retired.  Taxes kill my desire.  If I were to take money from a tax deferred retirement account, I'll need to pay the taxes (~20-25%).  Then I'll need to pay sales taxes (~8%).  Then I'll need to pay property taxes (~1%).  By the time I'm flying the new plane, I will have sent 30-35% of my money to the Govt.  $200K becomes $260K or more.  Then there's brokers fees perhaps and pre-buys.  So now the value of my new asset, is 65-70% of what I've expended for it.  I know I'll pay taxes eventually if I ever spend the money on anything but laying out a big chunk of taxes all at once is paralyzing.  For now, maintaining and upgrading what I have seems more satisfying.   

[rbp]

16 minutes ago, DCarlton said:

I've considered upgrading my Mooney and I'm retired.  Taxes kill my desire.... $200K becomes $260K or more. 

if I can be morbid for a minute, can I ask if you will be thinking on your death bed "gee, I'm glad I died with 60K extra in the bank instead of upgrading my mooney"?

[DCarlton]

1 hour ago, rbp said:

if I can be morbid for a minute, can I ask if you will be thinking on your death bed "gee, I'm glad I died with 60K extra in the bank instead of upgrading my mooney"?

Well that's the ultimate question.  There's a point where I'll be old enough that the money will be burning a hole in my pocket.  Not sure I'm there yet.  There's also the satisfaction that comes from upgrading an older plane that you've already "loved" little by little...  and the potential frustration that comes from buying a new old plane.  I haven't figured out the balance yet.  It's a tough trade study at this point in life.  

[AlwaysLearning]

1 hour ago, DCarlton said:

Well that's the ultimate question.  There's a point where I'll be old enough that the money will be burning a hole in my pocket.  Not sure I'm there yet.  There's also the satisfaction that comes from upgrading an older plane that you've already "loved" little by little...  and the potential frustration that comes from buying a new old plane.  I haven't figured out the balance yet.  It's a tough trade study at this point in life.  

How old is to old then? Would a C be as old as practical for IFR or is a lightly updated B good. Also what is the difference between a B and C?

[DCarlton]

45 minutes ago, AlwaysLearning said:

How old is to old then? Would a C be as old as practical for IFR or is a lightly updated B good. Also what is the difference between a B and C?

I'm no expert but whether a plane is suitable for IFR would have more to do with current condition and avionics than model or age.  I can't speak to the B but I'm sure there are folks here that can.  I found this to be useful: 

http://www.mooneyevents.com/chrono.htm

[MikeOH]

1 hour ago, AlwaysLearning said:

How old is to old then? Would a C be as old as practical for IFR or is a lightly updated B good. Also what is the difference between a B and C?

I've got around 100 hours in a B and liked it because of the manual flaps (no pumping as it is strictly mechanical) that you could set 'instantly'. I believe it has limited rudder travel compared to the C, but I never noticed a problem.  I understand that you can 'upgrade' the rudder travel.

As DCarlton pointed out, IFR is going to be about equipment.  I'd have no issue buying a B over a C based only on that.

[DCarlton]

8 minutes ago, MikeOH said:

I've got around 100 hours in a B and liked it because of the manual flaps (no pumping as it is strictly mechanical) that you could set 'instantly'. I believe it has limited rudder travel compared to the C, but I never noticed a problem.  I understand that you can 'upgrade' the rudder travel.

As DCarlton pointed out, IFR is going to be about equipment.  I'd have no issue buying a B over a C based only on that.

Manual flaps.  Cool.  Like the Piper with a bar of some sort?  

[MikeOH]

5 minutes ago, DCarlton said:

Manual flaps.  Cool.  Like the Piper with a bar of some sort?  

Actually a small handle located at the bottom of the instrument panel just to the right of the gear lock block.  It has three positions: up, TO, LDG.

[Fly Boomer]

20 hours ago, A64Pilot said:

but here’s the thing your insurence for a new Private pilot with zero time and no instrument is going to be crazy, so just as a SWAG add $25 a hour for that,

$25/hr * 100 hrs/year = $2500/year

Not even close.  Multiply that by 3.

[AlwaysLearning]

When I inquired about insurance for a 152 as a 0 hour student it was around that $2500 mark. So I could imagine double or triple that or a complex. That is if they will even offer it. That being said I currently have a renters policy that will cover me at present for around $450 a year. To me insurance is a must. Murphy's law is far to accurate for my liking. 

[MikeOH]

2 minutes ago, AlwaysLearning said:

When I inquired about insurance for a 152 as a 0 hour student it was around that $2500 mark. So I could imagine double or triple that or a complex. That is if they will even offer it. That being said I currently have a renters policy that will cover me at present for around $450 a year. To me insurance is a must. Murphy's law is far to accurate for my liking. 

Read the policy carefully.  Does it cover damage to the aircraft you are flying (if so, at what $ limit)?  Many times the AVEMCO type rental policies are only for liability to persons and OTHER property; not the plane you are flying.  Also, while they may state $1MM coverage, there can be sub-limits of as little as $100K per person EVEN for those injured on the ground!  Make sure you KNOW what is really being covered!  If you have any net worth you may find it is exposed for more than you think!

[AlwaysLearning]

@MikeOH Noted I will look in to this to confirm. 

[amillet]

On 12/10/2022 at 9:31 AM, Evan said:

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

If you leave only debt there are no assets in your estate. It is insolvent

[MikeOH]

15 hours ago, jaylw314 said:

I'd also point out that if you're renting, flying clubs and schools generally insure the plane (although I think non-owned aircraft insurance is still a good idea and very cheap)

Just keep in mind that insurance protects THEM, not you.  Their insurance will pay them off and then come after YOU.  Therefore, non-owned, with coverage for the plane you are flying, is really needed unless you have no assets!

[A64Pilot]

2 hours ago, Fly Boomer said:

$25/hr * 100 hrs/year = $2500/year

Not even close.  Multiply that by 3.

That was meant to be how much more the first year would cost than if he had complex time and an instrument ticket, not the total, but hull value figures in too if course, hence the SWAG

[A64Pilot]

11 hours ago, Pinecone said:

I am seeing more planes for sale, but not necessarily at lower prices.

First prices we see are asking, not getting prices. A year or two ago planes didn’t stay on the Market for long, when I was looking at mine (day after it was listed) the Seller and I agreed on a price if it passed my inspection, he honestly had a call offering full price sight unseen when I was there but as a good old boy he was honoring our agreement.

That's not happening now anymore than bidding wars for a house is common either, the insanity is I believe over.

Asking prices haven’t started to come down, but will. We are I believe just past the peak, and that’s why buying now isn’t that good of an idea, I bought the house, airplane and the car before peak luckily.

But I believe prices have begun to decline and will continue to do so for the foreseeable future.

If you believe Zillow my house is worth 25% more than when I bought it two years ago, (just ran the numbers) I don’t believe it will be in a year, but many think houses will continue to increase in value, and if inflation gets worse, they may be right.

Us older guys have seen this before and don’t believe “This time is different” because they always say that.

A year or so ago Tesla’s were on at least a six month wait, prices seemed to be increasing by quite a lot every few months.

I just looked at Tesla’s website, it seems prices are back down some and you can order one today and take delivery in Dec, and if you take delivery in Dec Tesla gives you $3,700 credit, telling me they have a lot of inventory on hand and don’t want to pay taxes on it.

People aren’t buying big ticket items like they were before the market fall and inflation, I believe because they can’t and some get the sense that the times just not right, higher interest rates I’m sure is some of it.

[mkerian10]

On 12/10/2022 at 11:14 AM, 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.

I disagree. If you have children/grandchildren then leave everything you can to help them out (while allowing yourself some toys of course).

[Pinecone]

4 hours ago, MikeOH said:

Does it cover damage to the aircraft you are flying (if so, at what $ limit)?  Many times the AVEMCO type rental policies are only for liability to persons and OTHER property; not the plane you are flying.  

You pick the two limits.  One for hull coverage for the aircraft you are flying and the other for liability.

My local FBO requires $20K or $25 (I forget exactly) for hull coverage.  Then it is up to you how much liability you want

[amillet]

12 hours ago, mkerian10 said:

I disagree. If you have children/grandchildren then leave everything you can to help them out (while allowing yourself some toys of course).

Help them while you are alive and can monitor whether they’re using it productively and you’re not enabling self destructive behaviors