When does a leaseback make sense?

rk

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Rafi
I am doing research to buy a 2004-2006 DA 40 which should cost between 250-300k. I am estimating I will be flying it ~150 hours a year. But based on what I am reading it looks like I will be paying quite a bit of money on the fixed costs even with 150 hours of flying.

One option to reduce to fixed cost is to put it in a flying club. But now I will need to pay for the 100hr inspection. Also DA 40s rent at $190/hr in my area, after all the expenses (including a ~10% cut the club will take) I am not sure if there will be too much money left over.

Has anyone been in a similar situation and if so, what did you decide and why? Also, how much people usually pay for a 100hr inspection?
 
Just to clarify, I am not expecting to make a lot of money out of the leaseback. Just trying to figure out if it can reduce my own flying cost.
 
Great airplane. And I am not anti-leaseback. But from what I have seen, if you are doing 150 hours of flying a year, I doubt a leaseback will give you much in the way of advantages, even if it's just defraying some costs. In addition to 100 inspections, there are likely to be other maintenance costs. Plus, the leaseback contract often hands control to the organization and might or might not give you scheduling priority. (Do not assume all leaseback agreements are the same.)

Have you considered private rental? Many private owner policies permit it to a limited number. You get to choose the people and make the rules. Price is what the market will bear.
 
The only time I know of that leaseback works is when you are the one leasing .

seriously though it can make sense in some cases I suppose, but I have yet to figure out how.
 
Also your insurance will be at least double maybe triple for a leaseback to the school.
 
you'll make the insurance company some serious jack. Something like north of $1,000 a month. And your maintenance shop will love you. ;)


Trust me....I had the spreadsheets....and I could never get it to pencil out. I do have rental properties.

My advice is to buy a couple of rental properties....then refinance in a few years.... then buy your plane. Worked for me.
 
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It could make sense if you need a way to justify the expenses of an aircraft as long as who you are justifying to doesn’t lol too close. I’ve seen people complain about how much their leaseback costs them, but also say “ it s the only way I can afford to own”. My point being the person you are justifying can be yourself.
 
The only time I know of that leaseback works is when you are the one leasing .

seriously though it can make sense in some cases I suppose, but I have yet to figure out how.
The other one I've seen work well for an owner was a guy who owned 4 airplanes. Three were on leaseback.
 
A friend of mine owned 6 or 7 airplanes and an FBO. Several of the planes were on leaseback. For HIM, it made financial sense. But he was an investment banker and made sure the numbers were in his favor.

Several we step up planes. He bought and leased back a 150/152 to get his PPL. He then bought a 172 so he could take his family, and leased it back. Then the kids got bigger, so he bought a Cherokee 6/Saratoga and leased it back. One son wanted to fly for the airlines, so he got a Seneca 2 for his son to get multi time. His T-34 and AN-2 were fun planes and not leased back.

Each situation is different, and you need an account to go over the numbers to see if it makes sense for YOU.
 
While a student pilot with four hours flight time in my log book, I bought a Cessna 152 and placed it under leaseback with a local flying club. It worked out great for me and I was one of the few that ever made money on a leaseback. The flying club was very popular at the time and there were three 152s under leaseback. When one of the planes was taken off-line for an engine overhaul, I was one of the beneficiaries and was getting over 100 hours of revenue per month during that period. I am also a CPA and knew all the tax laws pertaining to leaseback. My model works great on a training airplane but I doubt that it would work well on more complex planes like you were looking at. Revenue hours will be harder to get and you will get a lot of renters that want to take the plane on long trips and stay extended periods. You will get no revenue when the plane is sitting at the campsite for a week. Make sure that the plane has a Hobbs meter. This works great for the owner because the Tach advances at about 80 percent of the Hobbs meter rate.
 
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Keep replacement hull value insurance on it. Otherwise you end up like me.
 
Nice plane! Please put it on leaseback so I can flog the hell out of it. I like to slam doors, spill oil everywhere, drag my feet all over everything, get grimy fingerprints on everything, and drag the brakes. I promise to always cold start at 2000 RPM, and never lean the mixture. Landings will definitely be side loaded. I will run the throttle like a light switch and promise to make sure the engine is nice and cold before fire-walling it back max power!
 
Nice plane! Please put it on leaseback so I can flog the hell out of it. I like to slam doors, spill oil everywhere, drag my feet all over everything, get grimy fingerprints on everything, and drag the brakes. I promise to always cold start at 2000 RPM, and never lean the mixture. Landings will definitely be side loaded. I will run the throttle like a light switch and promise to make sure the engine is nice and cold before fire-walling it back max power!
I was once asked if I wanted to put an Arrow on leaseback. A stroll around the FBO’s ramp full of beat up airplanes that all had new paint and interior within the last 3 years convinced me that it was a bad idea.

they had a guy put his Saratoga on leaseback. Took almost a week before the rear door was sprung.
 
I was once asked if I wanted to put an Arrow on leaseback. A stroll around the FBO’s ramp full of beat up airplanes that all had new paint and interior within the last 3 years convinced me that it was a bad idea.

they had a guy put his Saratoga on leaseback. Took almost a week before the rear door was sprung.
A flight school I rented from had a lovely TR182 on leaseback. One day the owner called me. "It's costing me more and all I'm getting back is a tired airplane." I think in his case it was the increased insurance costs and that most flights were just checkouts. It's not unusual to have high end leasebacks underutilized. Said he was ending it and offered to rent it to me privately since he knew I actually flew it places.
 
I do the non-equity partner thing. Have a CFI friend that wants to fly. He pays for hangar rent and gas. I have priority scheduling and cover everything else. Works for us.
 
Like others said why rent to random Joe and janes coming into a flight school?

Find a partner or two. Not only do they likely take better care. They can do some of the task of ownership like look for parts, help wash the plane etc.
 
When you put a plane on lease you have to rent it like everyone else for those 150 hours. You don't get to walk in on Saturday morning and take your plane for the weekend.

Also, as pointed out by others, you'll be very disappointed at the condition of your plane. You will need to become emotionally detached from your baby. It's a piece of business equipment like a vending machine or pay phone.

The people who make money on as leaseback own the busiest, most popular plane on the ramp. No complex, multi, 6 place etc

I did an asymetric partnership which worked out great. I sold him a share for $1. I told him that if he p***ed me off I would give him his $1 back.

He paid me (in advance) a dry rate in blocks of 10 hours. I put him on my insurance which only added $50/yr and made him pay that.

I used his money for upgrades to the plane, so we both benefited from it.
 
TL,DR: A leaseback can work out to benefit the aircraft owner. But that's the exception to the rule.

I did a leaseback on a 182RG in the early 2000's. First two years were at an FBO. Absolute disaster. They needed a plane in the fleet for their commercial students. "This is going to work out great for both of us." they said. Worked out great for them. Once a month I got a BOHICA letter in the mail. After that I moved over to a flying club. They had a relationship with a shop about 100 miles away for annuals and heavy maintenance. Used a guy who worked at Delta for oil changes and such. That was MUCH better. One year I almost broke even. In that club there was a guy who had a Warrior. It flew so much that he ended up buying a second one. Then a third. He was doing pretty good but those planes were horrible to look at and almost as bad to fly. Things were going great until 2008 and then everything ground to a halt and the club closed shop.

Insurance cost difference between a standard policy and one where you rent it out is... surprising. I think the best chance of success is one where the organization renting the plane doesn't make money on maintenance, fuel or anything else. Just a percentage of the hourly rate. When they are the ones selling you fuel, maintenance, hangar space, etc., they don't care as much about plane flying.
 
To be clear - a leaseback will probably result in lower cost to you, as long as the aircraft is being flow. You're going to get something for it and as long as that something is more than the cost of the maintenance, you have lower cost. The question of how much lower will depend on the number of renters and how well they treat your airplane.

Getting into the positive can happen, but it's really, really rare.
 
A leaseback is a business. If you treat it as a business, you may not lose your shirt. If you treat it as some sort of way to get your flying costs reduced, you're going to lose.

The key to leaseback success is to have the airplane fly a decent amount of hours. The key to that is AVAILABILITY. First, the place obviously can't be used in revenue flight if it is down for maintenance or being used by you. You must keep on top of maintenance and put yourself behind the rest of the renters. Airplanes that are frequently unavailable also end up being the last ones people seek to rent even when they are avialable.
 
I have a problem with sharing. Been working on that since kindergarten.

You fly too much for a leaseback to not frustrate you.
 
My advice is to buy a couple of rental properties....then refinance in a few years.... then buy your plane. Worked for me.
That only works in a declining interest rate environment or one with significant housing appreciation in which you could do a cash-out refinance but even then you are likely offsetting some cashflow from your rentals due to the higher mortgage amount.
 
That only works in a declining interest rate environment or one with significant housing appreciation in which you could do a cash-out refinance but even then you are likely offsetting some cashflow from your rentals due to the higher mortgage amount.
well...I always buy high and sell low. So, just ignore my comment. ;)
 
I do the non-equity partner thing. Have a CFI friend that wants to fly. He pays for hangar rent and gas. I have priority scheduling and cover everything else. Works for us.
I've had 2 planes in an equity partnership, 1 in a non-equity, and 2 just me.

For me, financially the equity partnerships worked best and the nonequity very good. The just-me is just better when I don't feel like sharing.

Pick your partners well. An option not available in a lease back.

No experience in flight clubs, but it sounds like a better option than lease back.

Flyingron is right. A lease back is a business. You need the plane to fly a lot.
 
Leaseback calculator I made this spreadsheet to experiment with leaseback viability. Plug in your own numbers to see how it'll work out financially. Being a spreadsheet it requires a desktop or tablet to see the whole thing.

As others have said, you need pretty high utilization to make it work.
 
I have been on both sides of leasebacks (lessor and lessee). In order for it to work you have to treat it like a business. This isn't usually an issue for the lessee. Lessors on the other hand. Dissuade yourself that a leaseback is a way to defray the use of your personal aircraft. You're going to lose if you treat it that way. Insurance is going to more than triple. Maintenance will go up. Etc..

The key to doing decently on the lease is to make sure the plane FLIES a lot. This comes down a lot to availability. First, people can't fly it if it's not available. Second, planes that are frequently unavailable, because either they are down for maintance, or blocked out for the owner's use, are the last ones people sign up for even when they become available. This means you get inline with (or perhaps even behind) everybody else. You have to keep on top of maintenance. My wife (when she wasn't employed) ferried planes to maintenance and radio shops during the weekdays when they weren't in demand, etc...
 
Pretty much never for the owner.
Excellent for the school using the airplane.
In fairness, the flight school took it in the shorts more than we did after a renter destroyed the plane (gear up landing.) I was in non-flight status when we decided to put the plane on leaseback, and the Other Guy wasn't flying it much at all either so it was nice to have someone else take care of the fixed costs and maintenance. Unfortunately the plane wasn't insured for full value.

After that, and the Turbo Arrow debacle (serious money pit) I've never had the desire to own another plane again outright.
 
If your current 150 hour utilization happens mainly on tuesday, wednesday, and thursday evenings and non-holidays -- it might work to pair up with a flight training outfit. Otherwise... yeah you want a partner or two for a LOT less hassle and cash/maintenance churn, and a lot less competition for your plane's schedule.

$0.02
 
Really nothing more to add than what's already been said, but I will reiterate the fact that a leaseback should never be viewed as a way to pay for your aircraft. If it has to be put on leaseback, you can't afford it to begin with. The only time that I've seen it work out in the owners favor is simply when they're using it for their own flight training and it flies often to simply offset their operating costs. In other words, it doesn't "make" money, it just offsets the costs of ownership.
 
Even when you convince yourself it makes sense financially, you have this to think about.

ok, it’s a little over the top dramatic, but still.

 
Leaseback made sense for me in 2009-2011. I had an SR20G2 at the time.
Even at that time, I was charging $225 an hour in the DC Market, and I rented out roughly 150 hours a year.
I did not make money, but it did lower my costs. The rental rate covered the additional variable costs (insurance, fuel, inspections, maintenance, engine/prop reserve, etc.), and the vast majority of my fixed costs.

Somehow, I doubt at rental rate of $190 would now cover the same level of costs.

Tim
 
Leaseback made sense for me in 2009-2011. I had an SR20G2 at the time.
Even at that time, I was charging $225 an hour in the DC Market, and I rented out roughly 150 hours a year.
I did not make money, but it did lower my costs. The rental rate covered the additional variable costs (insurance, fuel, inspections, maintenance, engine/prop reserve, etc.), and the vast majority of my fixed costs.

Somehow, I doubt at rental rate of $190 would now cover the same level of costs.

Tim
Hey Tim,
Mind if I PM you about this?
 
i was in the leaseback game for about 5 years. i had 3 planes on line. it works if you have an A&P and even better an IA. if not, at a shop rate of $100/hr you had better budget at least $30 and hour just for 100 hour inspections alone. renters are know for flat spotting tires, lead fouling plugs, hard on brakes and generally being hard on airframes. they will squawk everything and you will be spending a bunch on fixing all kinds of little squawk. if not, your plane will not rent.
 
An oldie but a goodie. Part one of two:

The post below was written by Jason "Whirlwind" Hegel, a colorful and somewhat notorious member POA who doesn't hang out here any more. Regardless, this advice has good information for all current and would-be owners contemplating putting his/her plane on leaseback. The answer to your question is near the end of part two.

Also be aware that the data in these posts is 2003-2004 vintage, so the dollar costs may be out of date. YMMV.

This is part one of two. -Skip

Captain Jason’s Leaseback Advice:

1. Leasebacks are a business, always treat them like one. Never get emotionally attached to a leaseback airplane, it will get abused just like a rental car does, and you don't go seeking those out when you buy a used car, do you? Put leaseback aircraft in corporations, run their books separately, have a separate tax return for the aircraft each year, etc. Talk to your CPA and lawyer, make sure you understand both the legal and tax issues.

2. You can make a lot of money with a leaseback. You can lose a lot of money with a leaseback. Many of the factors of making/losing money are completely outside of your control. If your goal in a leaseback is to have someone else pay for your personal airplane, you probably are not going to be happy with the result. If your goal is to defer the cost of your own flying, get your ratings, and perhaps make some money on the side, you can do well if you pick the right FBO/flight school to do business with.

3. If you leaseback an aircraft to an honest FBO, you have a chance to do well. If you leaseback an aircraft to a crook, you have no chance at all. Get to know with whom you are doing business. Ask around the airport, talk to the other owners, etc. Be careful of any FBO that pushes you to get into this too quickly. The best will be honest and upfront about the risks and will caution you to avoid it if you have doubts. Talk to other owners at the FBO, find out how they have been treated.

4. You must run the numbers from a realistic viewpoint, remember this is a business. Take what you're paid each hour by the FBO and subtract the per hour costs such as fuel and maintenance reserves (if you don’t, that $15,000 engine is going to surprise you). That figure is your actual hourly income (the rest does not exist for this calculation) Take the monthly fixed costs and divide them by that "true" per hour income. That is the number of hours the aircraft must fly each month to break even. The monthly fixed costs must include insurance, tie-down, and the "payment", even if there is no payment on the aircraft. The cash you might pay for an aircraft has value, if you don't include it in the monthly fixed costs, you're letting the FBO use your money for free. So add in what the payment would be if you had one.

5. You're still a renter, you just rent one specific aircraft for a reduced rate, but you're still a renter and must schedule your flights along with everyone else. Do you have the right to bump paying customers? If so, how much notice must you give? If you are inclined to "bump" paying customers for your own flying very often, you're probably a poor leaseback candidate. You'll upset those customers and you'll be hurting your own income stream. Find out about renting other airplanes at the FBO for a discounted rate if your plane is down, or otherwise busy. Everything in a leaseback is negotiable, so ask!

6. The standard leaseback agreement is the basic 80/20 plan. You get 80% of the per hour rental rate, the FBO gets 20%. Out of your 80% you pay fuel, insurance, tie-down, maintenance, and the "payment" for the aircraft (again, this has nothing to do with actually having a bank loan or not, it is the monthly value of the money invested into the airplane). Some FBOs do leasebacks differently, and if you run across one of them, be really sure of what they are offering before you sign on the dotted line.

7. FBOs like leasebacks because it removes all the risk from them. They get 20% of the rental rate, yet do not have to own or maintain a fleet of airplanes (and sometimes they make money off the maintenance). You absorb all that risk. In exchange for that risk, you have the chance to make some money, and you'll be able to fly for about half the price of renting (or less).
 
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Part two:

8. The best leaseback deals are on aircraft that fly a lot of hours each month. A Cessna 172 that flies 80 hours a month will almost always make money. A Piper Arrow that flies 20 hours a month will almost always lose money. The breakeven point on most single engine airplanes is around 50 hours and the leaseback becomes really worth doing from a profit perspective at 65 hours. I know of a case where a Piper Arrow was leased to a flight school and it flew 60 hours over 8 months. The owner lost a lot of money in insurance and maintenance. I also know of a case where a Cessna 172 was leased to a flight school and it flew an average of 87.2 hours a month over a 12-month period, the owner made a fair amount of money that year.

9. Don’t put a brand new airplane on leaseback, they lose too much value the first few years and are very quickly not new anymore when on a rental line. An example is the 1999 172SP I bought. I paid $124,000 for it with a fresh engine installed. It would cost about $209,000 to buy that plane new, in its current configuration (in 2004). Since even a new plane looks used very quickly on a rental line, I saved $80,000 (or about 1/3 the price) in exchange for having 2,200 hours already on the airframe. Those hours do not affect the rental rate. There is one exception to this rule however, and that is the new 50% bonus tax deduction signed into law by President Bush. If you have a need for a $150,000 tax deduction this year, buying a brand new 172SP for $209,000 does make sense, because of the unusual tax benefits offered by the new law.

10. Only do a leaseback if you can afford to own the airplane without the leaseback. Used aircraft can be expensive the first few months you own them. Don't expect to take anything home the first six months. People who already have money seem to do well with leasebacks. Those who really cannot afford an airplane in the first place seem to do poorly. These are generalizations of course, but there is an old saw that says it takes money to make money.

11. Buy the right aircraft, the right way. You can do everything else right, but if you buy the wrong aircraft or pay too much, you'll lose every time. This doesn't mean pick a Cessna 172 over a Piper Warrior, this means pick the right Cessna 172 or Piper Warrior. Some airplanes just shouldn't be leased back. A Mooney or Bonanza are good examples. Very old airplanes often make poor leasebacks as well. The only airplane older than about 25 years I'd leaseback would be a Cessna 150. You want something reliable with a known history. Avoid the very high time and very low time airplanes. Avoid an airplane that hasn’t flown much recently. An airplane that has had 500 hours put on it in the past 10 years will have a lot of things break when the flight school puts 500 hours on it in 6 months. I’ve seen this happen to others and it happened to me with my 172N.

12. You must sometimes spend money to make money. People want to rent airplanes with nice interiors and good panels. If the per hour rental rate is equal, would you rather fly in a Cessna 172 with ARC radios and no GPS, or a full Garmin panel? The new panel and a new interior might add 20% to the price of the airplane but double your monthly profit.

13. Look over the past two years records of similar airplanes at the FBO you’re looking at doing business with. Not just the total hours flown, but how much has been spent on maintenance and how much total income there was after all costs. There is no more honest way to see what to expect than to look at the real world figures from existing aircraft on the FBOs rental line. Do not leaseback to anyone who won't show you the records on the existing airplanes and introduce you to the other aircraft owners.

14. Think long and hard about why you're doing this. Many people get into leasebacks for all the wrong reasons, make sure you're doing it for the right reasons. A leaseback can make sense for some people, it can be a disaster for others. It generally isn't a good way to go about having someone else pay for your own personal airplane, since it will wear faster and not be cared for as well as if it were your own. In addition, you're limited in what you can do with it, given that you still have to schedule it and can’t take it very far without it costing you a lot in lost income. It can however provide you with your ratings, some money, and some low cost flying if managed well.

15. To sum it up, a leaseback is often used to reduce the cost of flying, sometimes it is used to make money, sometimes it is used as a tax shelter (consult your tax advisor on this one). The months I did a lot of personal flying, I tended to break even, and have lost money a few months, but then if you consider what my flying would have cost otherwise, I came out way ahead. If you can't afford to own regardless of the leaseback income, consider that you're making a serious commitment and while it is very easy to buy a plane, it can be hard to sell one.

For the record, I had three aircraft on leaseback with two different flight schools at Addison. A 1977 Cessna 172N, a 1999 Cessna 172SP, and a 1997 Schweizer 300CB helicopter. I did well with the older 172 and the helicopter, the 172SP mostly broke even, but I did fly it about 100 hours personally without paying a dime, so it wasn’t too bad. I earned my commercial and CFI license in both airplanes and helicopters, flew almost 500 personal hours between all the aircraft, and came out $36,000 ahead at the end of the day. I sold them once I was done flight instructing, and have since bought a Piper Twin Comanche for my personal use. I considered leasing it back, but choose not to because I want it available to fly whenever I want to go, one thing that isn’t possible with a leaseback.
 
@Skip Miller

That was from before my time on POA. Very well written, and yes the numbers have changed. But not the lessons.

Tim
 
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