Is 6% and industry standard for financing?

[Unit74]

On Monday I will be initiating the financing aspect of aircraft purchase. With 800+ credit and cash reserves about half of the total aircraft cost, should I be expecting anything less than 6%?

Financed amount will be somewhere between $50-70k based on the birds I'm currently looking at with 15% down plus closing.


Additionally, anyone have a recommendation for broker? I have talked to AOPA about it briefly, but I'm not too keen on what they have quoted on insurance so I don't expect much else from financing.

 

[Jthamilton]

As for insurance I recently had good luck with Michelle Limback of Aviation solutions. Her cell is 660-641-5636, office is 816-353-1047.

As for financing with credit score like that you can get lower. I just financed 170k have 4.95% for first five years and adjustable for second 5 with very small percent added to 5 year treasury maturity note. When planned out the best I could it should be similar to where I'm at for first 5, this with 20 year am. This was with 25% down. I'm sure there may be better but I felt it was good deal and it's with bank I know very well.

There is bank in Pryor Oklahoma that does quite a bit of aircraft financing. I think they would be a good start. PM if you want to visit with the banker I use. I'm sure he would offer some help as he is a pilot also.

 

[FastEddieB]

Do you have equity in a home?

Home equity loans are a good way to get a reduced rate - but only if your ability to make payments is virtually certain.

That was how I financed my Cirrus back in 2003. Easy process and paid off fairly quickly.

 

[mnewb1]

Do you have equity in a home?

Home equity loans are a good way to get a reduced rate - but only if your ability to make payments is virtually certain.

That was how I financed my Cirrus back in 2003. Easy process and paid off fairly quickly.

Always scared me...a lot of people got their house in a lot of trouble with this approach in the last 7-8 years....I know my CFO would never allow it...

 

[DaleB]

Always scared me...a lot of people got their house in a lot of trouble with this approach in the last 7-8 years....I know my CFO would never allow it...

You have to go in with both eyes wide open and knowing what your Plan B is, as well as Plans C and D.

I always ask, "OK, so assume I lose my job tomorrow and have no income, and can't sell the [whatever] I bought with this loan. How will I keep the house?" The answer is, I have other resources I could use to pay the loan off, I just don't want to use them for whatever reason.

For what it's worth, I never have ended up with a home equity loan or LOC. I have not ruled it out, either, for some things (like buying rental property).

 

[N747JB]

I'm not a fan of home equity loans for purchasing toys, that being said, I just borrowed a little less than 50% of the purchase price of a college condo for my son. Home equity was the cheapest way to get the money, it's a short term debt, 3 1/2 years, I hope, no closing costs etc. But for an airplane, I would rather pay a slightly higher rate and leave my house out of the equation.
I would shop around, check your local bank, they might be interested, or not. Some folks have had luck with credit unions, or check with aircraft finance specialists.
Good luck!

 

[Unit74]

We bought this house in Dec of 12 and chose a min down payment option. We have a tendency of moving every few years, so I saw no point in tying up the cash. We took a $250k loss recently on a rental property and I'm just plain tired of real estate to be honest. Pre-2005 we cleaned house in the market. Now, they are cleaning my house.

So to answer the question, no we don't have much equiity and to be honest, I don't have any desire to tie a money pit to my primary residence regardless.

If anyone has an AV loan broker they feel will serve me well and not get stupid, because I will catch it, send it to me on PM if you don't want to post please.

As a vet, I plan on calling Dorr just to see where it gets me. I already know what AOPA is willing to do, however.

 

[txflyer]

Can you borrow the money from parents or a relative?

That's what we did on our last mortgage. It was all legit and done in accordance with IRS rules. We deducted the mortgage interest, got a loan two or three points lower, because the IRS says you can do that, and Mom and Dad's money was secured by the house.

Kept the money in the family. When Mom passed after Dad, she forgave the loan in her will. It could work for an airplane. Having a good relationship with your lender is key.

 

[Unit74]

Can you borrow the money from parents or a relative?

Funny you mentioned that...


I just took a cash loss of $30k from a loan. My dad wanted in on a property to make a little cash. I took a 5% loan on $150k for a $500k property. 2 years later, I had to sell it and we only saw about a $10k increase in value. After the brokers were paid, I still owed $30k on the silent loan.

So, once again, I opened my check book and had to write him a check. If he did not have his retirement money tied up in the property, I would have walked from it and saved $30k. I could not do that to my dad, so I ate the loss. As much as it ****ed me off that he would not negotiate a prorated loss, dad is dad.

Moral of the story...... Business and family money do not mix well. It's the second time I have gone in on real estate with him, and the last time every mixing money. I always end up with the short straw.

Business is business- family is family. Read; oil and water. Its a bad idea and has the serious potential for destroying relationships.

 

[DaleB]

Business and family money do not mix well.

True;we have made it clear that when we buy a rental property (assuming we ever find the right one) we will not even consider renting to family members or even friends. Period.

We've borrowed money from the First national Bank of Mom & Dad a few times -- always with a promissory note, interest and a clear payment schedule. We've always paid them back as agreed. However, I know of other family members who have taken full advantage of the fact that Mom & Dad won't send the collection goons after them. We've loaned money to kids... and turned them down, too.But I'd never consider investing in anything without a very clear understanding (backed up in writing) of how the profits and losses will be divvied up. I'd generally avoid it. Too much potential for hard feelings, unfair distribution or both (as you discovered).

 

[poadeleted21]

We bought this house in Dec of 12 and chose a min down payment option. We have a tendency of moving every few years, so I saw no point in tying up the cash. We took a $250k loss recently on a rental property and I'm just plain tired of real estate to be honest. Pre-2005 we cleaned house in the market. Now, they are cleaning my house.

So to answer the question, no we don't have much equiity and to be honest, I don't have any desire to tie a money pit to my primary residence regardless.

If anyone has an AV loan broker they feel will serve me well and not get stupid, because I will catch it, send it to me on PM if you don't want to post please.

As a vet, I plan on calling Dorr just to see where it gets me. I already know what AOPA is willing to do, however.

PM sent.

 

[N747JB]

I know we are getting a little off topic, but loaning money to friends and family creates hard feelings and a lower bank balance.
I have loaned money to my middle son, he's 20, usually $1500-3500 at a time to buy a motorcycle or boat to sell. He's been very good at paying me back, but he lives at home and I know when he sells something. now, he's bought and sold enough to use his own money for purchasing these "gems" and that makes dad proud.

True;we have made it clear that when we buy a rental property (assuming we ever find the right one) we will not even consider renting to family members or even friends. Period.

We've borrowed money from the First national Bank of Mom & Dad a few times -- always with a promissory note, interest and a clear payment schedule. We've always paid them back as agreed. However, I know of other family members who have taken full advantage of the fact that Mom & Dad won't send the collection goons after them. We've loaned money to kids... and turned them down, too.But I'd never consider investing in anything without a very clear understanding (backed up in writing) of how the profits and losses will be divvied up. I'd generally avoid it. Too much potential for hard feelings, unfair distribution or both (as you discovered).

 

[txflyer]

A family loan is tricky beyond dealing with strangers, but if it's set up right, your equity should be secured by the item. Foreclose. My Mom and Dad would have foreclosed and got their money back if I did not pay. That has to be an understood fact right up front.

It can be done fairly, but an understanding that you won't be treated any differently than a stranger if you don't pay has to be understood.

The money you save in fee's and other charges is substantial.

 

[Unit74]

It can be done fairly, but an understanding that you won't be treated any differently than a stranger if you don't pay has to be understood.

There in lies the rub..... When the rubber meats the road, can it be separated when the deal ends up sideways? I firmly believe it cannot. You are too vested in the relationship, and the emotional aspect typically prevails on one side or the other. Its the human factor that cannot be quantified.

 

[txflyer]

In my case, my parents were not too worried about me paying, because I was a skilled tradesman and could work anywhere in the world overnight with a phone call if I lost my job.

It can be done, and it saves a lot of money and works well for everyone IF IT WORKS.

Admittedly, if things go sideways, family usually mucks things up.

 

[Anymouse]

If there's someone you don't like, there are two ways to get rid of them...

If they're richer than you, ask them for money. If you're richer than them, loan them some money. Either way chances are you'll never hear from them again.

 

[N747JB]

If you foreclose on your kid's house, it makes Thanksgiving dinner awkward!
It only makes sense when the borrower has the credit and income to get a loan, but the lender can get more interest than a savings account and it's done as a convenience for both, saving fees etc. The usual reason that it doesn't end well, is the borrower couldn't qualify for the loan from a traditional source and the parent or friend stepped in and later found out why the bank rejected the deal.

There in lies the rub..... When the rubber meats the road, can it be separated when the deal ends up sideways? I firmly believe it cannot. You are too vested in the relationship, and the emotional aspect typically prevails on one side or the other. Its the human factor that cannot be quantified.

 

[txflyer]

My God, the people who hit on us daily for money is exhausting.

I never knew there were so many people who don't have the least bit of humility coming right out and asking for money when they think you have it.

My wife's brother just asked for ten grand like it was a dime in my pocket. For a real estate deal no less. Family and money suck, but if you can make a loan work, it will save you a lot.

 

[Lindberg]

It can be done fairly, but an understanding that you won't be treated any differently than a stranger if you don't pay has to be understood.

Sure, but then if things go south, the hard feelings just run the other way.

 

[jhausch]

If there's someone you don't like, there are two ways to get rid of them...

If they're richer than you, ask them for money. If you're richer than them, loan them some money. Either way chances are you'll never hear from them again.

+1

(Any, you going to SnF?)

 

[JHW]

I don't know how you could argue that you are in a secure enough position to go into debt to buy a toy, yet not secure enough to borrow against equity in your home. If that is the case then maybe the home should be paid off first, and then save to pay cash for expensive toys.

 

[N747JB]

But, you're a rich airplane owner???

My God, the people who hit on us daily for money is exhausting.

I never knew there were so many people who don't have the least bit of humility coming right out and asking for money when they think you have it.

My wife's brother just asked for ten grand like it was a dime in my pocket. For a real estate deal no less. Family and money suck, but if you can make a loan work, it will save you a lot.

 

[Anymouse]

+1

(Any, you going to SnF?)

I'll be going to work in a couple days, so I can't make it. However, my Tango might be there. Probably doing demo rides.

 

[FastEddieB]

As far as my recommended home equity loan...

...I would only consider one if I had the assets to cover the loan to sell in a pinch if things went seriously south.

 

[Flymeariver]

If you foreclose on your kid's house, it makes Thanksgiving dinner awkward!
It only makes sense when the borrower has the credit and income to get a loan, but the lender can get more interest than a savings account and it's done as a convenience for both, saving fees etc. The usual reason that it doesn't end well, is the borrower couldn't qualify for the loan from a traditional source and the parent or friend stepped in and later found out why the bank rejected the deal.

In the words of Dave Ramsey "The Borrower is slave to the lender". Not a good idea to borrow/lend to family or friends.

 

[somorris]

I get a little confused because when someone asks which airplane, everybody starts chiming in about mission, etc., but when it gets time to buy, a lot of us call the airplane a "toy." The only mission I know of for a toy is to have fun.

 

[ChrisK]

My God, the people who hit on us daily for money is exhausting.

I never knew there were so many people who don't have the least bit of humility coming right out and asking for money when they think you have it.

My wife's brother just asked for ten grand like it was a dime in my pocket. For a real estate deal no less. Family and money suck, but if you can make a loan work, it will save you a lot.

I'm not family and my wife wants to buy a vacation home in Florida. Let's talk!

 

[JHW]

I get a little confused because when someone asks which airplane, everybody starts chiming in about mission, etc., but when it gets time to buy, a lot of us call the airplane a "toy." The only mission I know of for a toy is to have fun.

you got it. But based on how you want to have your fun, some planes will be better suited than others. For example, when we lived in central IL my kids liked to go the gulf coast to spend weekends on the beach. A piper thomahawk would not be a good choice to take our family and all their junk on the weekend trips.

Now that we live on an island we have no need of a plane to get to the beach. Flying fun involves just local sightseeing which is why we are getting into soaring.

 

[somorris]

Hi Jeff.

I didn't know you had moved from Illinois. My sister and brother-in-law in Eureka are very anxious to get out of there. Sounds like you landed in a very good place !

 

[JHW]

Hi Jeff.

I didn't know you had moved from Illinois. My sister and brother-in-law in Eureka are very anxious to get out of there. Sounds like you landed in a very good place !

We will be back in a year or two. The airplanes are still there, no way we could afford to fly them in this place even if they were here.

 

[Unit74]

I don't know how you could argue that you are in a secure enough position to go into debt to buy a toy, yet not secure enough to borrow against equity in your home. If that is the case then maybe the home should be paid off first, and then save to pay cash for expensive toys.

Your logic makes no sense to me. Why would anyone choose to tie a depreciating asset to their primary residence? Such short sightedness is what contributed collapsed the US housing market!

I CHOOSE not to have equity because I do not stay in one place for long. Typically, 3 years and I'm in a different city or state. I've lost almost $300k in cash just in real estate alone from dumping equity into property.

If I default on the plane, they are not coming for my house. That's just good common sense sir.

 

[JHW]

Your logic makes no sense to me. Why would anyone choose to tie a depreciating asset to their primary residence? Such short sightedness is what contributed collapsed the US housing market!

I CHOOSE not to have equity because I do not stay in one place for long. Typically, 3 years and I'm in a different city or state. I've lost almost $300k in cash just in real estate alone from dumping equity into property.

If I default on the plane, they are not coming for my house. That's just good common sense sir.

you miss my point. Good common sense is to not take on debt for a toy. Not a depreciating asset, a toy. My tractors are depreciating assets. My kenworth farm truck is a depreciating asset. My beechcraft is a toy. It doesn't depreciate in the form of being worth less for sale every year, it just continually sucks money and produces no financial return.

 

[ron22]

My God, the people who hit on us daily for money is exhausting.

I never knew there were so many people who don't have the least bit of humility coming right out and asking for money when they think you have it.

So then you wont loan me the money to buy my plane

 

[Unit74]

you miss my point. Good common sense is to not take on debt for a toy. Not a depreciating asset, a toy. My tractors are depreciating assets. My kenworth farm truck is a depreciating asset. My beechcraft is a toy. It doesn't depreciate in the form of being worth less for sale every year, it just continually sucks money and produces no financial return.

Ah.... I see. We are talking about perspective. You have a different function for a plane than I do. I travel for work. I can travel by com carrier, ground transport or rocket ship if I so desire. I just have to get there. I might as well retain the advantages if I can and enjoy the ride in the process.

I view the plane as a tool that has functionality for me. You view it as a means to escape and soar with the birds. We have different definitions of use is all.

Regardless of business or pleasure, carrying the expense as debt affords a measure of escape without capitol loss. In the business world, some debt is healthy. I don't see anything wrong with it. Not to mention, very few people can do anything without debt these days.

This ol' skool mentality that if you can't buy it cash, you don't need it is left for retirees and independently wealthy folks. For real people, carrying manageable debt is a reality of modern life. If that was the case, the majority of Americans would be homeless and not buying whatever it is you grow using those tractors you paid cash for.

 

[dell30rb]

This ol' skool mentality that if you can't buy it cash, you don't need it is left for retirees and independently wealthy folks. For real people, carrying manageable debt is a reality of modern life.

If you really delve into it, financing makes more sense even for the retirees and independently wealthy folks. You are better off financing that $50,000 lexus at 3% than paying cash for it. TVM

 

[FastEddieB]

Your logic makes no sense to me. Why would anyone choose to tie a depreciating asset to their primary residence? Such short sightedness is what contributed collapsed the US housing market!

It can make a lot of sense.

One hypothetical.

Someone wants to buy a $300k plane.

They have assets they could sell to buy it - let's say $300k in utility stocks earning about 4.5%.

They could just sell the stocks and buy the damn plane. Nothing wrong with that.

Problem: they lose the income from the stocks. $1,125/month in this case. Worse, their basis in the stocks is $200k, putting them on the hook for $15,000 in capital gain taxes on the $100k gain.

Of course, they save the interest they would pay on the home equity loan, but those are often at very favorable rates.

In this case a home equity loan can be a rational choice. If disaster strikes, or the situation changes, the assets are still there to pay off the loan.

Each case is different, and it's simplistic to condemn home equity loans out of hand.

 

[JHW]

This ol' skool mentality that if you can't buy it cash, you don't need it is left for retirees and independently wealthy folks. For real people, carrying manageable debt is a reality of modern life. If that was the case, the majority of Americans would be homeless and not buying whatever it is you grow using those tractors you paid cash for.

well, I am neither, and I do use our plane to commute to our farms on the weekends. I paid cash for it. I have another plane that we use to spray our crops. I paid cash for it. Small airplanes are different from other machines in that they can become worth $0 very quickly by failure of a key part. For me, it's not something to go into debt for.

It's not that we had a lot of money to buy something with cash. Rather, we adjusted the expectation of what we could buy according the amount we could afford. That may be a difficult idea to comprehend, you might want to sit down if you start feelin feint.

you can ridicule the "old school" mentality all you want but when everyone was sweating the great recession having bought too much house "as an investment" or having bought cars on credit "because credit was cheap" I wasn't losing any sleep.

 

[txflyer]

But, you're a rich airplane owner???

I'm not family and my wife wants to buy a vacation home in Florida. Let's talk!

So then you wont loan me the money to buy my plane

According to Obama, I'm sure he would say so.

No. Maybe, what's your wife look like?

And no. Maybe. You live nearby and can teach me how to fly an aerostar?



This is why I don't go around telling anyone I own a plane. Either they think you're rich, or they think you're crazy if they've owned one, or they think you're gonna die. I just let them find out on their own and freak out on their own.