Buying a plane as an investment...

A

atomic20v

New Member
Well, not so much as an investment, but more of a way to make assets non-liquid.

Suppose you have $100k in a bank account, and you want to make these assets non-liquid (no cash, stocks, bonds, CDs, etc). How stupid of an idea is it to purchase a plane and then leaseback that plane to an FBO with the intention of selling the plane in 5-6 years?

Automobiles seem to be out of the question since they lose their value so rapidly. But if you buy a used 182 or similar for $100k, it should still be approximately worth that much in 6 years, correct?

Can someone school me on what a leaseback involves? I set up an LLC and register the plane to it, and then sign a contract with the FBO who then rents the plane out. Do they cover insurance and maintenance as well? I am not concerned with making money off the plane, just retaining its value and not letting it depreciate.

Since I already fly, this seems like an interesting idea, more fun that buying gold jewelry and dumping in a safe.

Any advice would be greatly appreciated.
 
atomic20v said:
I just want to maintain it. I do not want to be in cash right now, and real estate does not interest me. I can handle a 0% return.
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In a typical leaseback, you would be responsible for insurance. Planes that tend to fly a lot work best (172's with an IFR GPS tend to be pretty popular).

I'm not sure that aircraft are such a great inflation hedge though. TIPS perhaps? (inflation indexed treasuries )
 
atomic20v said:
Well, not so much as an investment, but more of a way to make assets non-liquid.

Suppose you have $100k in a bank account, and you want to make these assets non-liquid (no cash, stocks, bonds, CDs, etc). How stupid of an idea is it to purchase a plane and then leaseback that plane to an FBO with the intention of selling the plane in 5-6 years?

Automobiles seem to be out of the question since they lose their value so rapidly. But if you buy a used 182 or similar for $100k, it should still be approximately worth that much in 6 years, correct?

Can someone school me on what a leaseback involves? I set up an LLC and register the plane to it, and then sign a contract with the FBO who then rents the plane out. Do they cover insurance and maintenance as well? I am not concerned with making money off the plane, just retaining its value and not letting it depreciate.

Since I already fly, this seems like an interesting idea, more fun that buying gold jewelry and dumping in a safe.

Any advice would be greatly appreciated.
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If you buy a new airplane before the end of year, you can reap tax benefits for an accelerated depreciation schedule. IF the incessant emails I get from one particular deal are correct, this ends 31 dec 09.
 
atomic20v said:
Well, not so much as an investment, but more of a way to make assets non-liquid.

Suppose you have $100k in a bank account, and you want to make these assets non-liquid (no cash, stocks, bonds, CDs, etc). How stupid of an idea is it to purchase a plane and then leaseback that plane to an FBO with the intention of selling the plane in 5-6 years?

Automobiles seem to be out of the question since they lose their value so rapidly. But if you buy a used 182 or similar for $100k, it should still be approximately worth that much in 6 years, correct?

Can someone school me on what a leaseback involves? I set up an LLC and register the plane to it, and then sign a contract with the FBO who then rents the plane out. Do they cover insurance and maintenance as well? I am not concerned with making money off the plane, just retaining its value and not letting it depreciate.

Since I already fly, this seems like an interesting idea, more fun that buying gold jewelry and dumping in a safe.

Any advice would be greatly appreciated.
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Don't buy a 182, it'll rarely be rented out. So many schools have had 182s or have them, and then realize that no one is going to pay the exuberant amount to fly them.
 
Jacob Wall said:
Don't buy a 182, it'll rarely be rented out. So many schools have had 182s or have them, and then realize that no one is going to pay the exuberant amount to fly them.
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I don't know that I'd agree 100% with that, but in general, yes I'll agree. If you do a market study, and find that pilots are willing to use the 182 for trips, you'll find you could possibly make a 182 work. Or if you need to do tons of high performance endorsement, you could make a 182 work.

But, to not loose money on a plane as an investment, your going to have to buy used. Probably something like a 172, PA28, or DA20 is going to be a good bet. The key is finding one that has low time on the engine, and has been taken care of. Or, you could go the LSA route, and try that, if it floats your boat.
 
KSCessnaDriver said:
But, to not loose money on a plane as an investment, your going to have to buy used. Probably something like a 172, PA28, or DA20 is going to be a good bet. The key is finding one that has low time on the engine, and has been taken care of. Or, you could go the LSA route, and try that, if it floats your boat.
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:yeahthat:
The accelerated depreciation will only help you if you have enough business income to offset.
 
KSCessnaDriver said:
But, to not loose money on a plane as an investment, your going to have to buy used. Probably something like a 172, PA28, or DA20 is going to be a good bet.
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The question is whether it is possible to not lose money over the life of owning the plane. If you have to pay insurance and maintenance, are your leaseback fees going to cover them? Buying a $100k plane and selling it for $100k in 5 years is not a neutral investment if you had to put $50k into the plane since owning it.

I don't know if there are deals where the FBO assumes management of the plane and takes care of maintenance and insurance and basically does whatever it wants with it while leaving you (your LLC) the owner. That would be ideal.
 
atomic20v said:
I don't know if there are deals where the FBO assumes management of the plane and takes care of maintenance and insurance and basically does whatever it wants with it while leaving you (your LLC) the owner. That would be ideal.
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Doubt you would find such a deal, the FBO would just buy the plane if that's what they wanted.

Leasebacks are generally not such a hot deal, since you bear all of the risk (mx, insurance, hull loss, A/C being down) and the FBO gets most of the benefit (increases their fleet, known cost to them). It also unlikely your plane will see many 100 hour months, since if it is flying that much, the FBO will be looking for more planes pretty quickly.
 
drunkenbeagle said:
:yeahthat:
The accelerated depreciation will only help you if you have enough business income to offset.
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I actually have a buddy of mine who does this for profit. Here is the long and short of it.

Buy brand new.
Buy glass.
All his aircraft are new, glass, 172SP's. Last I spoke with him, 6 of them.
Keep them until the warranty is up and then ditch them like a bad habit.
Fly them somewhere out of Florida where they can get 200+ hours a month.

I will give him a call sometime this weekend and see if I can't get you some more information. I will tell you this from my conversation with him about used. He said something along these lines, "the best way to lose your money is to enter this business with the belief that buying used will save you money. Buying used is nothing but a gamble, I did it for a little while and had a few planes tear up my bank account. I will NEVER buy another aircraft for leaseback that doesn't have a warranty."

This was in response to me asking what he thought about purchasing a used 172 for up here in the NJ area. He also went on to say that the sellback of non glass aircraft these days is crap.
 
Skip leaseback, as fixed costs will kill you. Get a nice Bonanza and use it as a personal plane for a few years. The market is down and you should break even in a few years when it rebounds.
 
atomic20v said:
I don't know if there are deals where the FBO assumes management of the plane and takes care of maintenance and insurance and basically does whatever it wants with it while leaving you (your LLC) the owner. That would be ideal.
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I know its rare, but I know a guy who's got a DA-20 at an FBO, where he makes enough a month to pay for insurance, maintenance, and has enough left over to make 2 month's worth of payments on the plane. Rare, but it happens.
 
drunkenbeagle said:
:yeahthat:
The accelerated depreciation will only help you if you have enough business income to offset.
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Huh? Business income or just income. The asset doesnt have offset anything, as a business venture can be a loss. Depending on his tax liability he could deduct 100% for up to 250k and like 50% up to 850K I think. Obviously if he would not benefit from it if he had no tax liability, it could be detrimental when it came time to sell it.
http://en.wikipedia.org/wiki/Section_179_depreciation_deduction
 
granlistillo said:
Huh? Business income or just income. The asset doesnt have offset anything, as a business venture can be a loss. Depending on his tax liability he could deduct 100% for up to 250k and like 50% up to 850K I think. Obviously if he would not benefit from it if he had no tax liability, it could be detrimental when it came time to sell it.
http://en.wikipedia.org/wiki/Section_179_depreciation_deduction
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It would generally need to be biz income to keep AMT from killing you, but ask your tax lawyer
 
Putting a plane on leaseback is a TERRIBLE idea. It's going to be used and abused just as badly as a rentacar. The insurance will be sky high and you'll be required to pay. The maintenance will be exorbitant and you will be required to pay. The wear and tear on your plane will be unbelievable and you're the one who will have to reconcile that damage to the next buyer.

I explored putting my Mooney on leaseback years ago and basically the lessor gets free use of a plane, might even make money off of it, and takes none of the risk.
 
atomic20v said:
Any advice would be greatly appreciated.
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Let me summarize the advice given so far:

You should buy a used aircraft. No, wait, only buy a new aircraft. But on the other hand, maybe a used aircraft is a good bet.

Some people turn a profit on leasebacks. But then again, some people lose a lot of money. Oh, and some people break even, too.

Possible models to consider would be the 152, 172, DA-20, DA-40, Bonanza, PA-28, 182, Remos LSA, TBM850, J-3 cub, or military surplus F-14 (if there is a demand for high performance fighter jet training in your area...do some market research to find out).

It will probably help out financially at tax time. Or maybe not. It all depends. Actually, we don't really know.




Haha...ok, seriously now. I love JetCareers, but this thread is a classic example of why I rarely ask for advice here anymore, at least for decisions like this. There are simply too many possibilities. Too many factors to consider *for your personal situation.*

My advice? Treat it like a new business idea. Go out and talk to whoever might have a financial stake in the plane (the FBOs, mechanics, etc.). Find out what they say. Run the numbers. Run the numbers again. Do a lot of research. Talk to your accountant. Do research. Do some more research again. Then make your decision.

Good luck!
 
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