Ownership and Leaseback advice...

nj-pilot

nj-pilot

Pre-takeoff checklist
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josh_me
Looking for tax and legal advice before I purchase and enter a leaseback arrangement. Yes, I have read the many helpful posts on this site - awesome by the way!

Can anyone recommend a CPA and Attorney familiar with GA leasebacks? Ideally in NJ /NYC area, but not required. PM fine.
Many thanks
 
So you have read the posts and you are still thinking about a leaseback ? I guess yours will be different.
 
weilke said:
So you have read the posts and you are still thinking about a leaseback ? I guess yours will be different.
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Depends on expectations. I bought a Cirrus SR20 and had it on leaseback. Worked great, met expectations (reduced cost).

Tim

Sent from my LG-TP260 using Tapatalk
 
The major tax issue is whether your activity is going to be considered active or passive. Simple leases are generally considered passive which means that when you lose money, your losses can only be taken against gains from other passive activities.

Glad you are considering help. Leaseback is a BUSINESS not a way to defray personal use costs. Your personal use, if any, has to come behind EVERY OTHER ISSUE in a successful leaseback.

The key to leaseback, rather than tax issues, is getting the thing FLOWN for revenue hours. That means keeping the maintenance in line and maintaining AVAILABILITY. Planes that are unavailable for whatever reason (either down for maintenance or awaiting maintenance or being taken for non-revenue flying by the owner), tend to not get rented.
 
I entered a leaseback thinking it would be a good idea. It was not. I entered a second one thinking maybe the first one was the wrong plane in the wrong location. That one suffered the same fate.

Yours may be different. But you should be prepared, financially and emotionally, for writing big checks to the FBO/flight school for the privilege of having strangers trash your plane. (The interior, especially, will get very ragged in a very short time. Budget new seat upholstery every other year.)
 
tspear said:
Depends on expectations. I bought a Cirrus SR20 and had it on leaseback. Worked great, met expectations (reduced cost).
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That was a factory new plane during the first Cirrus boom, right ?

A friend of mine had 6-8 trainers on leaseback for a while. He used mostly the banks money and relative to the working capital he had put into it, it was quite profitable. But he didn't just hand the FBO his plane and his money. The flight schools leased the planes on his his contract and his terms.
 
I thought about putting one of my planes on leaseback to the FBO. My insurance agent talked me out of it.
 
weilke said:
That was a factory new plane during the first Cirrus boom, right ?

A friend of mine had 6-8 trainers on leaseback for a while. He used mostly the banks money and relative to the working capital he had put into it, it was quite profitable. But he didn't just hand the FBO his plane and his money. The flight schools leased the planes on his his contract and his terms.
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Mostly 2010 and 2011.
The plane was 2004, I bought in Dec 2009. Not sure if this was peak period you mentioned.
Still "lost" money on the plane, but it was less than if I did not do the leaseback. I crunched the numbers with the accountant ahead of time, and with the flight school.

Tim
 
tspear said:
Mostly 2010 and 2011.
The plane was 2004, I bought in Dec 2009. Not sure if this was peak period you mentioned.
Still "lost" money on the plane, but it was less than if I did not do the leaseback. I crunched the numbers with the accountant ahead of time, and with the flight school.
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I had you confused with someone who bought a new one in 2004 and kept it a couple of years.
 
The only ones I have seen make money are where the owners are mechanics and do all the work themselves.
 
tspear said:
Depends on expectations. I bought a Cirrus SR20 and had it on leaseback. Worked great, met expectations (reduced cost).

Tim

Sent from my LG-TP260 using Tapatalk
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By enough to make up for it getting beaten up by renters?
 
paflyer said:
By enough to make up for it getting beaten up by renters?
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Did not appear to get beaten up by renters. We had some pretty strict rules on renting it. You break them, you not allowed to rent it again (most were given a single warning, then lose privs). e.g. Not tied down correctly... Leave trash in the plane...

Tim
 
tspear said:
Did not appear to get beaten up by renters. We had some pretty strict rules on renting it. You break them, you not allowed to rent it again (most were given a single warning, then lose privs). e.g. Not tied down correctly... Leave trash in the plane...

Tim
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Good to have a cooperative rental agent. But did you also account for depreciation on the engine?
 
TommyG said:
The only ones I have seen make money are where the owners are mechanics and do all the work themselves.
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That's not strictly required. I've been on both sides of the leaseback deal, both as a representative of the lessee and as a lessor. I've also been quite good friends with fellow lessors. Something in the class of a 152 or 172 can indeed make money, even if the owner isn't doing his own maintenance, but it has to fly enough to make back the increase in the fixed costs. As I stated before, it comes down to the plain being available and that there being people willing to rent it. It only takes a few dedicated private pilot students to get the hours up there in a club that has relatively low costs otherwise.
 
paflyer said:
Good to have a cooperative rental agent. But did you also account for depreciation on the engine?
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Yes, I included an engine reserve. And also an estimate on depreciation on the plane from the additional hours.


Tim
 
Best leasback insight I ever got was from casual conversation with a FBO Owner about his business operations in general with several leasebacks on his line..."Yeah, they always work out well for us and not so much for the owners in the long run".

nuf said for me!...good luck.
 
I wouldn't put the blame on the FBO owner. If people weren't willing to lease to him, then he'd have to sweeten the deal. However, a lot of people are naive about what they're getting into. I have a good flight instructor friend and he did reasonably well leasing 172's to a non-equity flying club at IAD.
 
Time was a leaseback was a good business proposition. But along about the time I got into things I think the insurance industry wised up and realized that the leaseback aircraft were making a majority of the claims. Rates went up commensurately. I doubt its a winning proposition now, exceptionalism too the FBO. If you really want to reduce costs of your airplane get partners.
 
I don't know when the "glory days" of leaseback were alleged to be. The insurance on the rentals has always been higher (roughly three times in my case) than for owner-use. In pricing our club insurance, it scaled pretty directly with the hull value. It didn't change much over the my participation though the insurers got hinkier about insuring tail draggers and other vintage aircraft (but that was not uncommon even with owner policies). Oddly, they weren't charging (or attempting) to charge more for the 170, 180, or Navion compared to the similar valued 172, 182, or Arrows.
 
I had a fixed gear C-182 on lease back for a while. I was essentially subsidizing other peoples flying as the FBO didn't remunerate me sufficiently to break even, let alone make money!
Never again!!
 
Usually, the only entities that make money on leaseback are the ones that do the maintenance. Might as well let them own the planes. If YOU own the plane, the mechanics see you as a profit center. If THEY own the plane, they run it so maintenance is as low an expense as possible.
 
steingar said:
Time was a leaseback was a good business proposition.
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Yeah, pre-Reagan tax code, when interest was high, but tax deductible, and Piper and Cessna were cranking out planes by the thousands.
 
Interest on loans used for leaseback aircraft are still deductible. It's personal loan interest (other than for you residence) that's no longer deductible. However, the tax act of 1986 and it's predecessor did phase out some of the other incentives such as treatment of depreciation and other considerations.
 
*blowing the dust off this thread*
Thanks everyone. My issue is my time - I have none of it, but am ok financially. With that, I will not be a "good" partner because I won't spend 5 minutes cleaning it, organizing maintenance, ensuring things are current, etc. - except what I need to do as part of my pre-flight obviously. Hence, the leaseback is attractive to me because the school will ensure it's maintained (yes, I will pay the maint bills) and current. I've been renting from this school for a couple years now, so I know they are very good about maintenance and cleanliness (airplanes are kept spotless, maintenance is proactive, and squawks are addressed in short order).

So, if the leaseback allows me to own a plane at a marginally better cost position than a partnership (and spend zero time helping), I'm good. I've done the math, and estimate that I will break even if it rents for 30 hours each month (accounting for insurance, plane payment, tie-down, and maintenance).
 
How many hours are you going to put on the plane in addition to the 360 break even?

Ownership is enjoyable, but you might be best to keep on renting. Especially if there will be a loan on the plane.
 
50-70 tops probably - that's what I was thinking
 
There was some old advice that if you're not doing more than 100hrs a year renting was the way to go. Not sure if that number has been revised.
 
nj-pilot said:
So, if the leaseback allows me to own a plane at a marginally better cost position than a partnership (and spend zero time helping), I'm good. I've done the math, and estimate that I will break even if it rents for 30 hours each month (accounting for insurance, plane payment, tie-down, and maintenance).
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Good luck! You don't say what kind of plane or where, but in my two leaseback experiences I would see around 30 hours only in peak months, with an average of around 18-20. My experience was based on a Mooney 201 and a Citabria, so if what you are envisioning is a mainstream trainer you may see more usage.

Bottom line for me was that the FBOs did not manage my asset in a way that maximized MY return, but rather managed it in a way that maximized THEIR return. For example, one would periodically offer "sales" designed to attract new people through lower rates, which would help their trainers but would only reduce the revenue on mine without increasing hours.
 
Ken Ibold said:
Good luck! You don't say what kind of plane or where
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Thanks @Ken Ibold - I would ideally like a Cessna 182, but don't think it will rent much, so will probably just get a 172 - which is in high demand. New Jersey area - Caldwell airport (KCDW). Good point about the hours - the reality is that I really don't know how much it will get rented. There is a new variable which can adversely affect demand with New Jersey flight schools: Trump. If next summer plays out like last Summer, then the air space will be effectively closed to flight training each weekend due to his golfing (at Bedminster).
 
i have had a few leasebacks over the years and have seen countless others. bottom line is if you have to pay for maintenance then you will loose money every month on a lease back and every hour that is flow by them puts you closer to a major overhaul that the leaseback is not banking money for you. the only way to make money on a lease back is if YOU are the A&P. remember that a lease back that is going to need a 100hr inspection. even on the cheap side that is $10 or better per hour just for that. in most lease backs the owner pays the fuel bill, and that is running rental power and rental mixture. the numbers rarely add up for the owner.
bob
 
Ravioli said:
There was some old advice that if you're not doing more than 100hrs a year renting was the way to go. Not sure if that number has been revised.
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Whomever said that must not have had a problem reserving the rentals.
 
I had a 182-RG on leaseback for over 8 years. I showed a loss on most of those. But a loss on paper doesn't tell the whole story. On some of those "loss" years, it was what I call a paper loss... Because I had to depreciate the airplane. If I back out that part of the loss, then there were a few more years that I didn't lose money. Of the years I did actually lose money, some of those losses were low enough to be considered a non-event.

At the end of my leaseback life, I think that I came out way ahead of outright owning. Meaning that most of the maintenance was covered by the renters.

Now the first year that I had the plane it was on leaseback with a flightschool type operation. I lost my ass that year because a) they were screwing me big-time (they were eventually run out of business by lawsuits) and b) they were performing the maintenance which was another way to screw the owners. Once I wised up, I moved over to a club. Then things started running MUCH better.

There was another guy in the same club who ended up buying two more Warriors because the first one was making a profit every month. For the three years that we were both in the club at the same time, his 3 airplanes were turning a profit most monthd (this was in the Chicago area so winters were definitely slow). And turning an annual profit.

The bottom line for me is: Every situation is going to be different. One persons story does not make a trend. And 50 people's experience does not guarantee your outcome.
 
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