Hypothetical Plane Purchase Scenario

Paralysis by analysis.

Buy the darn airplane if that is what he wants.

I went through the same thing. Similar situation, except for the being employed. We used advocatetax for the depreciation.

We went with a PA-46 as the wife wanted pressurized.
 
Sinistar said:
I am curious how a financially smart, wealth off individual would go about this scenario. Lets say his name is Bill.

Name: Bill
Age: 48
Job: CFO of a large successfully company
Salary: $640K/yr + 20% bonus in good years
Cash Available: $1.3M (Its not all in cash but can go there if needed)
Experience: 610hrs (Commercial/IR/HP/Complex)
Current Plane: Bonanza (owned)
Hangar: Owned
Location: Towered Airport (Delta) with all required services.
Plans: Make recurring flights between Denver / Minneapolis / Kansas City
Hours: Expects to fly 170hrs per year (not paid for by work)

So Bill and his wife and have been talking about getting a faster and new plane. She has persuaded him to get a Cirrus (chute) and he has decided to get a NEW SR22T. He thought about the Vision Jet but prefers the SR22T. Bill doesn't want a twin either. He can easily afford $400/hr operating costs and is a good pilot. He will get all the Cirrus training he needs. So this question is about how would he go about buying this plane. How does a wealthy person go about this to not have to part with any more money than they have to, etc ?

Is he best to buy it outright? If so, how would he best avoid/minimize sales taxes and other fees?

Is he better off to finance part of it? If so, why is this cheaper for him in the long run (eg. 10years)?

It seems people like this always put the plane in a LLC - why?

Will Bill be depreciating this airplane?

How does someone like Bill go about getting this plane (sole owner) while parting with as little of his $1.3M that he has available?
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$1.3 million is not wealthy. To quote the social philosopher Chris Rock: Shaq is rich. The white man that signs his paychecks is wealthy.
 
mryan75 said:
$1.3 million is not wealthy. To quote the social philosopher Chris Rock: Shaq is rich. The white man that signs his paychecks is wealthy.
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Yeah. It didn't help any that I had a typo on that first line....it was supposed to be a "financially smart, well off individual..." not "wealthy off". But all the "Bill's" out there are doing better than me by a long shot so I would call him wealthy I guess.
 
azblackbird said:
You’re right. Missed that he’s taking a loss.
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Yeah, purposely threw that loss in there to see if that made this big capital purchase any more friendly.

The last time my wife and I sold at a loss we also sold some at a gain (just as @NealRomeoGolf mentioned).
 
Taking a 5% stock loss and applying it to an airplane won't stop the bleeding. What's the depreciation on a new A/C?
 
You gotta admit, being in the finance department at Cirrus must be rather interesting. Probably not many outright cash purchases vs financing and LLC's. Actually, makes you wonder if even 5% of all SR22's are owned by individuals vs corp/LLC? Heck its probably 5% or less even for the SR20's.
 
Mooney Fan said:
Taking a 5% stock loss and applying it to an airplane won't stop the bleeding. What's the depreciation on a new A/C?
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Yeah its gotta be pretty rough in that first year. Imagine if you bought a SR22T for $975K (that's before any sales taxes). Flew it like 10hrs and then listed it. Would you even get $875K for it?
 
Here's the problem. Bill's wife found out about his little side piece. She's not very happy about it at all and has decided to file for divorce. The complication is that the company Bill works for is owned by his future ex-wife's father. This is what explains the strange C level compensation package with only 20% being derived from performance.

So Bill's financial picture is shifting. He immediately was terminated from his position, his wive is getting the majority of assets and the rest he will have to liquidate to pay for the divorce. Bill no longer has the resources or the time to fly as he tries to get another position with his limited financial understanding.
 
Man, if bill cant afford a new sr22, the vast majority of us on this site can’t afford a 152.

Although I really can’t see the value to buying brand new. A few years old would save a ton.
 
Sinistar said:
Yeah its gotta be pretty rough in that first year. Imagine if you bought a SR22T for $975K (that's before any sales taxes). Flew it like 10hrs and then listed it. Would you even get $875K for it?
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Depending on current demand, you may get every penny of the $975K.
 
Kenny Phillips said:
Depending on current demand, you may get every penny of the $975K.
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Agreed. With Cirrus' consistent price increases every year and relatively limited production rates (they learned from 2006-2008 it seems!) depreciation really isn't that high. It varies of course depending on a variety of factors but as an example, early G5 SR22s had virtually zero depreciation for several years and many are still trading at ~90%+ of their original price even 5+ years and a bunch of flight hours later.
 
Ventucky Red said:
Did you mean the sales department?
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No, I meant financing. I am guessing more than one gets pasts the sales people only to discover they can't get the financing. Or the financing is a somewhat convoluted mix/hybrid of theirs and some other funding the client brings.

I am sure the sales side would be just as interesting. They're selling the dream, lots of interesting, wealthy, opinionated people to deal with.
 
Sinistar said:
No, I meant financing. I am guessing more than one gets pasts the sales people only to discover they can't get the financing. Or the financing is a somewhat convoluted mix/hybrid of theirs and some other funding the client brings.

I am sure the sales side would be just as interesting. They're selling the dream, lots of interesting, wealthy, opinionated people to deal with.
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I don't think there is much selling to do...

Anyway, I won't be walking into a Cirrus showroom anytime soon...
 
RudyP said:
Agreed. With Cirrus' consistent price increases every year and relatively limited production rates (they learned from 2006-2008 it seems!) depreciation really isn't that high. It varies of course depending on a variety of factors but as an example, early G5 SR22s had virtually zero depreciation for several years and many are still trading at ~90%+ of their original price even 5+ years and a bunch of flight hours later.
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Wow!
 
Sinistar said:
Thanks for responding. I was wondering about this. On paper "Bill" has enough to buy it, yet at their income level a brand new SR22T which will easily push $1M seems a bit high for his income level.

You said you would NOT finance it. I hope I read that right, meaning if you wanted the plane and had the money you would purchase it outright? Is this only to avoid financing fees or some other advantage I am missing?
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I've been thinking about how to respond to this for a while and here's what I have come up with -- I think the premise of your original question is "how the other half lives". Well, the fact of the matter is that people are pretty much the same at all income levels. There are some that leverage assets for the right reasons. There are those that use leverage to stretch for things they shouldn't be buying. And there are those that don't like debt at all. These groups exist at $1 of net worth and $100's of millions of net worth.
Similarly, there are those who are drawn to complex financial arrangements in order to maximize the value of whatever they are doing. At average income levels, these folks are maximizing credit card rewards. At the upper end, they are creating complex tax-efficient structures to buy and hold assets. And there are those who like to keep things simple and are willing to forgo the last 5-10% of value in a deal.
So, to your question about financing, I wouldn't finance a personal use turboprop. I also wouldn't take advantage of 0% financing on a new mattress. (Of course I might try to negotiate a discount for cash...;))
Hope this helps.
 
Bills purchasing a cirrus jet??
 
Sam D said:
I've been thinking about how to respond to this for a while and here's what I have come up with -- I think the premise of your original question is "how the other half lives". Well, the fact of the matter is that people are pretty much the same at all income levels. There are some that leverage assets for the right reasons. There are those that use leverage to stretch for things they shouldn't be buying. And there are those that don't like debt at all. These groups exist at $1 of net worth and $100's of millions of net worth.
Similarly, there are those who are drawn to complex financial arrangements in order to maximize the value of whatever they are doing. At average income levels, these folks are maximizing credit card rewards. At the upper end, they are creating complex tax-efficient structures to buy and hold assets. And there are those who like to keep things simple and are willing to forgo the last 5-10% of value in a deal.
So, to your question about financing, I wouldn't finance a personal use turboprop. I also wouldn't take advantage of 0% financing on a new mattress. (Of course I might try to negotiate a discount for cash...;))
Hope this helps.
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Thanks for this response...very well written and I think sums up a lot of what the others are saying. Our hypothetical "Bill" could buy it all cash (barely) a hybrid of cash/financing or perhaps some elaborate (seen from my simple POV) financing with other business entities and tax shelters.

I will have to admit, if I was "Bill" I would do as a previous poster said and find the best used SR22 G3 I could, especially having cash in hand. Well, actually I might go for TTx but in "Bill's" case the wifey wants the chute. Even then, if it was $500K I would want to know any/every way I could to minimize tax obligations. And at that level if I could find a partner I would and I suspect that partnership and renting from it might be where the magic happens (tax wise).
 
frfly172 said:
Bills purchasing a cirrus jet??
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Well this "Bill" is fictional but lets just say he knew he couldn't afford the Vision Jet. I am sure at least one real "Bill" has bought a SF50 though...heck there is one on the forums as we speak :) Maybe I should buy him dinner and ask him to explain to me how he went about the purchase (if it was not all cash).
 
OkieAviator said:
Here's the problem. Bill's wife found out about his little side piece. She's not very happy about it at all and has decided to file for divorce. The complication is that the company Bill works for is owned by his future ex-wife's father. This is what explains the strange C level compensation package with only 20% being derived from performance.

So Bill's financial picture is shifting. He immediately was terminated from his position, his wive is getting the majority of assets and the rest he will have to liquidate to pay for the divorce. Bill no longer has the resources or the time to fly as he tries to get another position with his limited financial understanding.
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A story in the making...
 
flyingcheesehead said:
Hmmm.

New SR22T: $900,000.
Used TBM 700 (2001): $995,000 https://www.controller.com/listings/aircraft/for-sale/18915245/2001-socata-tbm-700b
PC-12s are about double that.

Would I get a used TBM instead of a new SR22T? Turbine and pressurization, hell yes I would.
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Me too! Actually, I'd stretch a bit more and buy a used Citation Mustang. But new vs. used is not how new airplane buyers generally look at things.

Like most on here, Im a used buyer. I got my SR22 for substantially less than half the price of a new one (mine was a CAPS pull plane that was repaired) so I got essentially a new plane in terms of all that matters for a great deal. I would NOT buy a new SR22 personally, but I totally understand those people who do.
 
Salty said:
It’s more than $100 an hour just to pay for the chute repack, isn’t it?
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Chute repack is a calendar requirement (10 years), not an hour requirement, and it costs $10K-$15K from what I've found. So yeah, if you fly 10 hours a year, it'll cost $100/hr. Fly a more reasonable 100-150 hours a year and it's $10/hr.
 
Sad thing is even with $640K per year and 1.3m liquid its still questionable that he can afford a New single engine piston aircraft.
 
JoshJ said:
Sad thing is even with $640K per year and 1.3m liquid its still questionable that he can afford a New single engine piston aircraft.
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Thats kind of why i picked the numbers i did. At first it seems like he could swing it, but should he? Then again, i had no clue if there was some almost standard tax scheme these guys use to finance, lease, itemize and depreciate and not have too touch much of their own money at stake such as the plane in business A and business B using it.
 
There is 'could swing it' and then there's 'should swing it'. It all depends on who you talk to. Me, personally, I say "No" - but I don't even own a plane so my opinion probably doesn't count.

As an example, I went from a $65k car to a $40k small SUV. I enjoyed the nicer car more, of course, but after downsizing I found that I like having a new can AND more disposable income. Everyone's situation is different.
 
kaiser said:
Not a tax guy..... but want to add 0.02 to the finance vs cash decision.


Part of the equation needs to be the cost of money vs how much it can earn. I can pay my mortgage off any day I want, but don’t because that same money earns me 2-3x my mortgage interest rate.
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:yeahthat:
 
Are those trips done on behalf of the business he works for and what are they reimbursing him for the travel ?


There is a cottage industry of accountants who would have the answers taking Bills tax situation into account laid out in a nice spreadsheet.
 
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