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

[ilovecornfields]

24 minutes ago, amillet said:

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

You sound like an estate attorney.

[Fly Boomer]

13 hours ago, Pinecone said:

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

Interesting.  My FBO requires a million liability.  I guess in case I burn down my hangar group.

[Fly Boomer]

44 minutes ago, amillet said:

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

Giving them a pile of dough while you are alive or giving it to them after you are dead both come with the same risks.

[FloridaMan]

Wefloridafinancial. They write loans all over the country and have excellent rates and terms. 

[Pinecone]

2 hours ago, Fly Boomer said:

Interesting.  My FBO requires a million liability.  I guess in case I burn down my hangar group.

This is for rental insurance.    Not what I need to carry on MY plane

[Pinecone]

2 hours ago, Fly Boomer said:

Giving them a pile of dough while you are alive or giving it to them after you are dead both come with the same risks.

But giving it to them while you are alive, you can enjoy their enjoyment of the gift.

[A64Pilot]

On 12/12/2022 at 11:55 AM, Fly Boomer said:

Giving them a pile of dough while you are alive or giving it to them after you are dead both come with the same risks.

I don’t think that’s what helping them while your still alive means.

How about if they are accepted to a school and are studying for a “real” degree whether that be Med school or HVAC school you picking up the tab as long as they pull down the grades? That way their start in life is debt free?

Set up a trust fund for when your dead and you’’l pay for a poly sci degree, or art appreciation and barely passing grades, maybe.

Historically the majority of the time trust fund babies have blown it as fast as they get ahold of it, the exceptions are the mega rich who have the funds managed and the kids can’t get ahold of it.

[Rusty Pilot]

As others have indicated the cost of the airplane is the cheap part.  Depending on your budget and flying goals you may be able to purchase a quality vintage Mooney and do gradual improvements and ideally avoid impacting retirement savings.  That is the approach I took, but I must admit a Mooney 252 is still a tempting upgrade.  Good luck!

[jetdriven]

I, too, have noticed that airplanes are sitting on the market longer and longer, same with Porsche 911‘s. Sellers are wanting but  the buyers are not paying. I have a couple of clients in the market for a plane to replace theirs. And they look at a couple on the Internet that have been on there for weeks and I’m like look save the pre-buy money this thing is either product or price but if it hasn’t moved it won’t. The really nice airplanes that are priced fairly disappear quickly I’m like keep your powder dry and strike when you see it. But if you see it languishing on trade a plane for nine months, there’s a reason

[A64Pilot]

Read a real estate email the other day, houses are languishing now as opposed to bidding wars of a year ago.

Email said buyers want to beat the sellers down on price now, and sellers want last years prices, so no sale.

[goodyFAB]

I am nowhere near retiring, with that said whether its a boat or plane, same thing to me, I figure out how to buy them in cash. I treat the purchase of a boat or plane like the acquisition of an asset. I don't over pay for them, I don't give them away when its time to sell. I insure them properly. Yes! they cost me money, but I have never had one depreciate on me. (because I would never overpay for one) I'm not buying new, I'm looking, educating myself on the market, preparing to make a move, and when the opportunity arises I move quickly and decisively. So far this has worked for me. As others have said I don't find the acquisition to be the expensive part, its the operating costs that can be big sometimes. i'll finance an engine for a plane before I tie up that kind of monthly cash flow paying for an airplane loan. Not having a loan also makes selling easier.

then again, what do I know? i'm just a working stiff who like expensive toys ... 

 

final thought, I'm also not buying a million dollar aircraft, I buy within my means. if I was in a position where I had access to a loan with an attractive rate I would certainly utilize my credit. Every situation is different. there's more than one way to do it. 

[Hank]

44 minutes ago, goodyFAB said:

i'll finance an engine for a plane before I tie up that kind of monthly cash flow paying for a loan.

You lost me there. How is "financing" an engine done if not with a loan?

[goodyFAB]

16 hours ago, Hank said:

You lost me there. How is "financing" an engine done if not with a loan?

i'll edit it , I think I was a little distracted when I wrote that. 

 my point is , me personally, I would feel more comfortable financing (yes with a loan) an engine before I financed the entire cost of an airplane. A large airplane loan will suck up a ton of cash flow, that's the operating cash I use to go places, do things, maintain the plane and etc. 

everyone has a different financial situation, every situation is unique and every person has a different tolerance for risk, i'm not a financial advisor but I feel just as safe with my money sitting in a boat or airplane I know will appreciate if maintained properly as I do with the money in the bank. insure the asset properly and should the worse case play out there's a good chance you will get more than your initial investment back. 

 

[A64Pilot]

I’ve always so far sold boats etc for more than I paid for them, my J is actually an Island Packet sailboat, cause I took the money I got from selling it and bought the Mooney, the IP was a Maule.

But if you take the money you lost from not having that money invested, subtract interest which is now very relevant and then the cost of ownership, it’s unquestionably a depreciating asset. I “made” money on the boat, and did the one before that if you don’t count the thousands of dollars I put into it, sold the IP for $20K or so more than I paid for it, but I spent more than that outfitting it too, but we did get to enjoy living aboard and cruising for three years or so.

”Made” money on my Maule too, but not if you subtract the new motor and prop, the recovering and interior and Avionics.

Which is fine, just understand that your not flying or boating for free, but you are flying and or boating, just don’t consider an airplane an investment, because it’s a very poor one at best. Now some “flip” airplanes for profit just as some do houses, RV’s, boats etc. but they buy to sell, not enjoy of own.

Used to be and to a great extent many still do consider a house an investment, many have used that to justify the McMansion knowing that for many years that it will suck down most of their income, but they say better to put it in a house that you can enjoy than a 401K that does nothing for you, and many have successfully sold the McMansion and Retired and moved to Fl. Just had a Neighbor that successfully sold a house 6 months ago for WAY more than it was worth, and took that money and bought into some kind of managed retirement village for the elderly. I’d bet they did the same for the house in NJ or NY to move to FL. It worked for them.

But for everyone of those I’ve seen more “lose” their McMansion in tough times and be left with SS for Retirement, they can still Retire to Fl, but into a trailer park.

[glbtrottr]

As we get older we have more free time than spare cash.

I decided that paint was supreeemely expensive at nicer shops. I had 2 airplanes to paint.

I can’t even disclose how little I pay for having a plane stripped with Benco, and all I have to do is show up and primer and paint it. I have gobs of aircraft Imron.

I’m picking up an airplane in two weeks that’s a project - engine inspection/tear down, reinstall, and fly for a year or two. It will sell for more than I have into it.

I am seeing another twin airplane Monday that’s in parts - not a Mooney, out of annual for 11 years. Corrosion checks with IA, compression checks, and if it makes it, trailer the parts, paint as needed, update avionics under IA supervision, fly it.

That’s how i would fund it. Buy cheap, evaluate my risk, have a reserve, sweat equity, fly and sell when ready


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[Ed de C.]

On 12/11/2022 at 12:17 PM, DCarlton said:

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%).  

Hey Folks - I'm new to this site and love what I see here.  After an 18-year hiatus, I've just gotten my VFR currency back and next is IFR recurrency.  I have 200 hours in an M20J (about 30 years ago) and built/flew a Lancair 360 (about 300 hours of complex time).  I'm renting DA-40s right now but am looking for something to purchase (I'll check out other threads here before I post that question).  Like DCarlton, I'm (recently) retired.

But, DCarlton hits on a major point that hints at part of the answer RoundTwo originally posed:  how to finance the purchase.  My spreadsheets indicate the same thing DCarlton points out about ordinary income taxes related to selling tax-deferred investments.  A way to reduce that hit is to finance it so that the withdrawal from the tax deferred account is spread over many years thereby potentially keeping you in a lower tax bracket.  On the other hand, if your future income is higher (because you are funding the bank payments with pre-tax withdrawals), then some things may be more expensive for you (like Medicare premiums and certain deduction phase-outs). 

You could avoid the question by paying for the plane acquisition using cash or post-tax investments (capital gains may be a factor), but then you forgo the future gains of the money you just shelled out.  Like probably many of you (older ones at least), we have too much money in pre-tax retirement accounts because Roth's haven't been around very long (depending on employer) and we've been heavy savers from early in our careers.  So that much cash or post-retirement savings is hard to come by.

There's a lot of wisdom on this thread already (pay cash, you can't take it with you, Uncle Sam will get his cut somehow) Over the years I set up a personal home finance spreadsheet so that I can weigh all these plus's and minus's of different financing approaches.  If you've got the Excel skill and interest, I'd highly recommend you do the same.  If not (and that's most of us that aren't engineers or finance guys) then talk to your financial guy.