Plane financing

mrkbbd said:
Exactly - a 4% loan when your money made 15% last year makes sense to me...Also with inflation, your loan becomes cheaper over time since the payment stays the same but your buying power goes down
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I had a tenant espousing the same philosophy to me a couple years ago when I expressed some concern over his level of debt and whether it would impact his ability to maintain his lease. He flat called me a financial idiot. At the start of this year I evicted him and seized his debt-encumbered cars for failing to pay his rent 3 months in a row. The car dealer paid me a small sum to get them back without a fight. Funny thing is, during those discussions the dealer tried to talk me into a new pickup truck with easy financing terms :rolleyes:
 
mrkbbd said:
Exactly - a 4% loan when your money made 15% last year makes sense to me...Also with inflation, your loan becomes cheaper over time since the payment stays the same but your buying power goes down
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What happens when that 15% goes to -12 on a market correction? :dunno:

A market correction that I point out we have NOT had, that is way overdue according to many investment gurus. This bull market is becoming one of the longest running bulls in history.

In Vegas, they call it betting on the come. :sosp:
 
mrkbbd said:
Exactly - a 4% loan when your money made 15% last year makes sense to me...Also with inflation, your loan becomes cheaper over time since the payment stays the same but your buying power goes down
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The system is set up to prosper the rich and fleece the poor.
 
tlrussell said:
I would NOT be one of those people. Being debt free is an old wives tale.

There is 10%-14% real inflation right now. Literally a stupid tax.

So I can spend lent money at 4% or less or cash. I choose to invest every single fake dollar I have into my business and investments that return something other than some ridiculously low return.

Best case is I earn some money and make myself less desirable to any civil or criminal action against me or my estate. I literally own nothing in my name and nothing that doesn't have a loan of some sort against it. All assets st in a Corp of which I'm an employee. That corp is in an LLC controlled by a blind trust. Secret service couldn't find my stuff.

I used my corp to loan me the money for my plane. Use it for business, pleasure and Angel Flights. I pay myself 12% interest and with no lien, no insurance. That is a free annual every year.

Worst case and the SHTF I'll walk into the bank and payoff my fixed cost debt. I wonder if they will have change for my $5,000,000.00 bill. I bet even money that Obama's face will be on it.

If interest rates go up that is sweet I'll liquidate my assets as needed to buy other assets that others are defaulting on because of bad financing. 25 years from now after I have depreciated them I'll sell them and start all over.

It sounds sexy to be debt free and I know that most kool-aid drinkers won't even consider another way, good luck.

Leverage is your friend if you embrace it and you have access to cheap capital.
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As often happens on discussion forums, things are taken out of context or too literally.

I would not consider having lots of loans that are covered by more than enough liquid assets to be considered someone in debt over their head. What I consider being in debt is carrying more loan debt than can be covered by liquid assets.

As I wrote previously, it appears that the way each of us prefer to manage our money is akin to religion or politics. I promise not to interfere in the way you manage your money, and I'm sure that you will pay me the same respect.
 
txflyer said:
Good point.

Financing depreciating assets is a costly losing game imo. Coarse, some planes have gone up, like the 1976 C-206 turbo Stationair we bought new for $60K in 1976. Planes are a crap shoot. Planes and cars I should say. For example if I had been forced to borrow the $3000.00 to buy our 1971 Mopar back in 1992 when I bought it, and I serviced the note, it has turned out to be one of the best investments I've ever made. :)

Leverage is good for real estate, or a business, or something that is supposed to appreciate or grow. Borrowing for the "I wants" is usually bad joojoo. If you can't pay cash for an "I want", you could be asking for trouble. jmho :redface:
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Well said Tx!
 
StinkBug said:
If you have the money, what difference does it make? Yeah, this country is full of idiots living in half million dollar houses and driving luxury cars that they cant afford. That's dumb. But if you can easily afford a $2-400/month car payment, but already have a car that is paid off, why is it any different to spend that same money on a payment for something else of value?

Here's another question. Most people seem to think it's totally acceptable to get a loan on a $40k car and make payments for 5 years. At the end of that 5 years you're lucky if that car is worth $20k. Substitute car for old airplane and at the end of 5 years the plane is likely still worth $40k, and definitely a lot more than $20k. Tell me how that's more crazy or stupid than financing the car?
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It's also likely that in those 5 years they have dropped $25k or more on the airplane :rofl::rofl:
 
paflyer said:
And progressive taxation is set up to keep the number of rich people small.
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Not really, that's more an issue of "survival of the fittest/most ruthless, in the market". It's market collapses that ruin people and redistribute the wealth of the moderately wealthy to the top that keeps them from getting ahead, not taxes. Besides, taxes pay the interest to the Fed.
 
Henning said:
Not really, that's more an issue of "survival of the fittest/most ruthless, in the market". It's market collapses that ruin people and redistribute the wealth of the moderately wealthy to the top that keeps them from getting ahead, not taxes. Besides, taxes pay the interest to the Fed.
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So far I haven't been "ruined" in the market, but over my working life I've had seven figures of my income confiscated which could have been used to accumulate wealth. And pay for a really slick aircraft with the investment returns.
 
MBDiagMan said:
As often happens on discussion forums, things are taken out of context or too literally.
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Also, people simply looking for information get a bunch of unsolicited lifestyle advice.
 
Also, people simply looking for information get a bunch of unsolicited lifestyle advice.
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Yep. As I have been told by a lawyer, "just answer the question asked."
 
Back to the real world again and have access to an actual computer... Here's the company I recommend.

https://www.lightstream.com/

I have no iron in the fire and get nothing for referral or whatever, but so far my wife and I are happy with them.
 
Everskyward said:
Also, people simply looking for information get a bunch of unsolicited lifestyle advice.
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AND it is obvious to anyone that asking for information on a public forum will draw all sorts of comments both directly AND indirectly related to the question. It seems that the OP was aware of this. It also appears that the OP hasn't been bothered by any of the comments and has been quite happy with the whole thing. It has only been others who seem to be wrapped around the axle about it.
 
It's a stupid talk board where people say stupid things like when sitting around a poker table.

It's worth every penny you win or lose. ;)

Good luck. Flying is what it's all about. If you want to borrow to do it, so be it. I got no skin in the game. :redface:
 
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txflyer said:
It's a stupid talk board where people say stupid things like when sitting around a poker table.
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I wonder how many people would react to a friend asking for advice about where to get a loan for a toy by telling them they were not being financially responsible. That is, if they were talking to them in person. Or maybe I don't hang around the poker table enough. :rofl:
 
txflyer said:
What happens when that 15% goes to -12 on a market correction? :dunno:

A market correction that I point out we have NOT had, that is way overdue according to many investment gurus. This bull market is becoming one of the longest running bulls in history.

In Vegas, they call it betting on the come. :sosp:
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No big deal because everyone is poorer and there is still inflation...so you are still ahead...
 
It takes a true friend to be straight about things and offer true advice. You know, like "you have something green hanging from your nose." You're not a very close friend if you're not honest with your answer when asked your opinion.
 
MBDiagMan said:
It takes a true friend to be straight about things and offer true advice. You know, like "you have something green hanging from your nose." You're not a very close friend if you're not honest with your answer when asked your opinion.
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The OP didn't ask "Should I get a loan?" He or she asked, "How would I go about it?" Big difference.
 
Everskyward said:
The OP didn't ask "Should I get a loan?" He or she asked, "How would I go about it?" Big difference.
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The OP didn't seem to have a problem. It was others that got all wrapped around the axle.

I will state this still again, since more than one commenter has chosen to ignore it. I made it clear that I was only commenting and not passing judgment.
 
MBDiagMan said:
I made it clear that I was only commenting and not passing judgment.
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Sorry if you thought I was singling you out because I quoted your post. There were multiple similar comments from various people and I have noticed this on many other threads here. [/rant off]
 
Buy one, rent one, borrowed money or not, but don't try and steal one and always wear a condom.
There ya go kids, unsolicited advice that covers it all.
 
I wonder how many people would react to a friend asking for advice about where to get a loan for a toy...
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The reference to a "toy" (not singling out your comment, but there have been a lot of "toy" references here) is curious to me. When anyone asks here which airplane to buy, everybody starts talking about "mission," but when it comes to financing (whether cash or a loan) then the "mission" disappears and is replaced (somewhat) by "toy." As far as a toy is concerned, the only mission I can think of is having fun. Some may finance their fun while others prefer to save up and pay cash. The only difference I see is paying somebody interest on the money in order to have the fun up front. Am I missing something here? I don't think anyone who is truly cash-strapped is going to be buying airplanes :).
 
This thread went straight to the toilet.... I actually like the idea of getting a HELOC and having tax deductible interest though. Maybe I'll get a line opened up and buy a 2nd airplane out of spite.... Anyone selling an RV4?
 
Well, some good advice, and some expected discussion about the reasoning behind financing a toy.
Also thanks for the pm's, very helpful!

Yes, it would be a toy. I have no business use for a plane.
Last 12 month period I flew 120 hours with many multi-day trips. So I fly enough to justify owning a plane, at least in my mind. Also, I currently pay $155 per hour to rent, and availability is an issue with the amount of flying that I do.
And I was convincing enough to convince my wife that we need one (I think she said yes only because she wanted to shut me up and stop talking about how we need one...) :)
I do have enough capital to buy outright, but I don't want to. This capital has so far averaged returns above loan interest costs, so keeping them there and financing the plane would make sense.
I also want to have cash available in hand for unexpected but inevitable maintenance issues.

And even if the worst of the worst happens, I can afford to scrap the plane, keep up with the payments(or pay it off outright), and it would have zero effect on my quality of life. This loan would not take me to negative equity.
 
I think it's a bad idea to borrow money for an airplane.

I've been in debt before — "responsible" debt, as some people here would describe it, not like up to my eyeballs or anything — and I don't like that feeling. It's a lifestyle choice, and I think life is much less stressful without having any payments.

Granted, I'm a weirdo. I'm 34 years old and paid off my house when I was 33. That was the big impetus for starting my flight training. When you have a good income and don't owe anybody a dime, you can do anything you want, including waking up one day and saying, "I wanna be a pilot!" Your options are wide open.

From a mathematical perspective, I understand the appeal of playing an interest-rate spread. But the spread on that money isn't worth the stress of having a payment every month — at least, not to me. It's just a personal choice. I can sleep better at night in a paid-off house, with a couple of nice paid-off cars in the driveway, flying a paid-off airplane than I ever could with payments owed to a lender on all those things.

Other folks might not find that same sense of peace from it ... but it works for me.

And I also think when people say "I can borrow money at 4% and get a 15% return on that money," that's a very oversimplified, unsophisticated equation because it doesn't factor in your risk at all. Every investment carries some risk, and you've got to precisely calculate that risk over a certain time frame if you're going to be honest about it mathematically. Your risk-adjusted return won't be anywhere near 11%, most likely, when you actually put the numbers together.

Could the interest spread still work after risk is mathematically factored in? Sure! But to me, it's just not worth the added stress of being in debt to someone. Other people might not have any problem with it, though.

So to the original poster, my recommendation would be to be patient and pay cash for the airplane. It shouldn't take you very long to save up $10k more, especially if you took a part-time job or found some other way to boost your income in the next few months.

And if I'm wrong about it, and flying around in a paid-off airplane turns out to be awful, you can always go get a loan later on. There's never a shortage of bankers willing to take your money if you just hate how it feels in your pocket :)
 
mtuomi said:
Well, some good advice, and some expected discussion about the reasoning behind financing a toy.
Also thanks for the pm's, very helpful!

Yes, it would be a toy. I have no business use for a plane.
Last 12 month period I flew 120 hours with many multi-day trips. So I fly enough to justify owning a plane, at least in my mind. Also, I currently pay $155 per hour to rent, and availability is an issue with the amount of flying that I do.
And I was convincing enough to convince my wife that we need one (I think she said yes only because she wanted to shut me up and stop talking about how we need one...) :)
I do have enough capital to buy outright, but I don't want to. This capital has so far averaged returns above loan interest costs, so keeping them there and financing the plane would make sense.
I also want to have cash available in hand for unexpected but inevitable maintenance issues.

And even if the worst of the worst happens, I can afford to scrap the plane, keep up with the payments(or pay it off outright), and it would have zero effect on my quality of life. This loan would not take me to negative equity.
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Sounds like a winner to me.

NAFCO is an option as well. (Just google them.) At the last minute, I put part of mine on a note - considered it a $2K insurance policy allowing me to have cash just in case something bent. (It is only a 5 year note). Well, it happened (something bent). Anyway, mine was a good (not great) condition 66 year old aircraft. (Its in MUCH better condition now.) You should be able to find financing if you don't need it.

Given the first 2 years of aircraft ownership are the most challenging maintenance wise, it isn't a bad idea to use a loan to keep a little extra cash. From there, I agree with the others that financing a toy is something that may not be the best thing to do. If it doesn't affect your withholdings for retirement, then go out an have fun - life is short (my $0.02).
 
OkieAviator said:
This thread went straight to the toilet.... I actually like the idea of getting a HELOC and having tax deductible interest though. Maybe I'll get a line opened up and buy a 2nd airplane out of spite.... Anyone selling an RV4?
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Lots of people, they're advertised all over.
 
mtuomi said:
Well, some good advice, and some expected discussion about the reasoning behind financing a toy.
Also thanks for the pm's, very helpful!

Yes, it would be a toy. I have no business use for a plane.
Last 12 month period I flew 120 hours with many multi-day trips. So I fly enough to justify owning a plane, at least in my mind. Also, I currently pay $155 per hour to rent, and availability is an issue with the amount of flying that I do.
And I was convincing enough to convince my wife that we need one (I think she said yes only because she wanted to shut me up and stop talking about how we need one...) :)
I do have enough capital to buy outright, but I don't want to. This capital has so far averaged returns above loan interest costs, so keeping them there and financing the plane would make sense.
I also want to have cash available in hand for unexpected but inevitable maintenance issues.

And even if the worst of the worst happens, I can afford to scrap the plane, keep up with the payments(or pay it off outright), and it would have zero effect on my quality of life. This loan would not take me to negative equity.
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"Do you want it? Can you afford it?" That's all that matters. Financing it only really increases your risk of bankruptcy slightly should your employment situation change if you are in a position to worry about such a thing.

I saw someone mention a level of post commitment liquidity, and that's something you really want to consider. Lets say you buy a 4 seat, <200hp plane, you want to have at least $15k more available to you at that point, $20k if you go >200hp. The big risk with an airplane is it can become useless and scrap value very easily in a number of manners from corrosion to mechanical failure to an AD. At this point a plane is useless to you, plus you still have fixed costs you have to service, the loan, insurance, storage. You either fix it or sell it at a loss. When financed you increase the stress you put yourself at risk to.

Figure out how much load you can take for an airplane, and try to stay at or below 75% of that and you should be ok. The worst that can happen is you get a repo.
 
Henning said:
"Do you want it? Can you afford it?" That's all that matters. Financing it only really increases your risk of bankruptcy slightly should your employment situation change if you are in a position to worry about such a thing.

I saw someone mention a level of post commitment liquidity, and that's something you really want to consider. Lets say you buy a 4 seat, <200hp plane, you want to have at least $15k more available to you at that point, $20k if you go >200hp. The big risk with an airplane is it can become useless and scrap value very easily in a number of manners from corrosion to mechanical failure to an AD. At this point a plane is useless to you, plus you still have fixed costs you have to service, the loan, insurance, storage. You either fix it or sell it at a loss. When financed you increase the stress you put yourself at risk to.

Figure out how much load you can take for an airplane, and try to stay at or below 75% of that and you should be ok. The worst that can happen is you get a repo.
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The post-purchase liquidity is one of the reasons I'm thinking of financing. I much rather have fixed payment terms on the capital, and cash available for any unforeseen issues, than paying outright cash and having an increased chance of requiring credit for the potential high repair bills.

As for loan for the airplane, if we assume 100% loan would be the maximum I can handle without any reduction in other spending, then a $35k loan for 8 years is maybe 30-40% of that.
 
TexasAviation said:
I think it's a bad idea to borrow money for an airplane.

I've been in debt before — "responsible" debt, as some people here would describe it, not like up to my eyeballs or anything — and I don't like that feeling. It's a lifestyle choice, and I think life is much less stressful without having any payments.

Granted, I'm a weirdo. I'm 34 years old and paid off my house when I was 33. That was the big impetus for starting my flight training. When you have a good income and don't owe anybody a dime, you can do anything you want, including waking up one day and saying, "I wanna be a pilot!" Your options are wide open.

From a mathematical perspective, I understand the appeal of playing an interest-rate spread. But the spread on that money isn't worth the stress of having a payment every month — at least, not to me. It's just a personal choice. I can sleep better at night in a paid-off house, with a couple of nice paid-off cars in the driveway, flying a paid-off airplane than I ever could with payments owed to a lender on all those things.

Other folks might not find that same sense of peace from it ... but it works for me.

And I also think when people say "I can borrow money at 4% and get a 15% return on that money," that's a very oversimplified, unsophisticated equation because it doesn't factor in your risk at all. Every investment carries some risk, and you've got to precisely calculate that risk over a certain time frame if you're going to be honest about it mathematically. Your risk-adjusted return won't be anywhere near 11%, most likely, when you actually put the numbers together.

Could the interest spread still work after risk is mathematically factored in? Sure! But to me, it's just not worth the added stress of being in debt to someone. Other people might not have any problem with it, though.

So to the original poster, my recommendation would be to be patient and pay cash for the airplane. It shouldn't take you very long to save up $10k more, especially if you took a part-time job or found some other way to boost your income in the next few months.

And if I'm wrong about it, and flying around in a paid-off airplane turns out to be awful, you can always go get a loan later on. There's never a shortage of bankers willing to take your money if you just hate how it feels in your pocket :)
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+1 :yesnod:
 
mtuomi said:
The post-purchase liquidity is one of the reasons I'm thinking of financing. I much rather have fixed payment terms on the capital, and cash available for any unforeseen issues, than paying outright cash and having an increased chance of requiring credit for the potential high repair bills.

As for loan for the airplane, if we assume 100% loan would be the maximum I can handle without any reduction in other spending, then a $35k loan for 8 years is maybe 30-40% of that.
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Yeah, buy what you want and enjoy it while you can. If you are thinking of a long term purchase plane, assuming you plan on having it for the life of the loan, you may save money in the end of the ownership cycle by increasing your purchase budget, of course that increases future risk levels if that figures in. Most of what you can buy for $35k will either be very limited in capability or condition, this sets you up for elevated future costs in either upgrading the plane or stepping up to another in the future, so weigh your needs carefully and make sure you get the most value for your dollar.
 
TexasAviation said:
I think it's a bad idea to borrow money for an airplane.

I've been in debt before — "responsible" debt, as some people here would describe it, not like up to my eyeballs or anything — and I don't like that feeling. It's a lifestyle choice, and I think life is much less stressful without having any payments.

Granted, I'm a weirdo. I'm 34 years old and paid off my house when I was 33. That was the big impetus for starting my flight training. When you have a good income and don't owe anybody a dime, you can do anything you want, including waking up one day and saying, "I wanna be a pilot!" Your options are wide open.

From a mathematical perspective, I understand the appeal of playing an interest-rate spread. But the spread on that money isn't worth the stress of having a payment every month — at least, not to me. It's just a personal choice. I can sleep better at night in a paid-off house, with a couple of nice paid-off cars in the driveway, flying a paid-off airplane than I ever could with payments owed to a lender on all those things.

Other folks might not find that same sense of peace from it ... but it works for me.

And I also think when people say "I can borrow money at 4% and get a 15% return on that money," that's a very oversimplified, unsophisticated equation because it doesn't factor in your risk at all. Every investment carries some risk, and you've got to precisely calculate that risk over a certain time frame if you're going to be honest about it mathematically. Your risk-adjusted return won't be anywhere near 11%, most likely, when you actually put the numbers together.

Could the interest spread still work after risk is mathematically factored in? Sure! But to me, it's just not worth the added stress of being in debt to someone. Other people might not have any problem with it, though.

So to the original poster, my recommendation would be to be patient and pay cash for the airplane. It shouldn't take you very long to save up $10k more, especially if you took a part-time job or found some other way to boost your income in the next few months.

And if I'm wrong about it, and flying around in a paid-off airplane turns out to be awful, you can always go get a loan later on. There's never a shortage of bankers willing to take your money if you just hate how it feels in your pocket :)
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EXTREMELY well said! You are a smart and responsible person.:yesnod:
 
If you really can make 15% return on your money! then borrowing should be done in your margin account at your brokerage firm and you will be a bazillionaire shortly. And, margin loans are always some of the lowest interest loans around.

If one has the prowess to make 15%, one should not be looking for a ratted out 172, but should be looking for something with a pilot in front and a well stocked bar in back.
 
Oh, I shouldn't say anything, but we need more aviators and there are a few things the OP posted that indicate a different situation than what we typically see here. I typically look at threads like this and say "YEA -WHAT THEY SAID" as the OP is typically:

- A young 20 something that just got his PPL and is still renting and needs to buy a car to get to work. Airplane financing is a bad idea.

- The 30 something that has a ARM house loan, two car payments and the wife is still popping out little ones. My recommendation: booze - not and airplane (ok, sounds like hell to me).

All I will say about my personal experience is that I was the 30 something that nearly got everything paid off - and then decided I was making too much money and started a business. Wow - that has been an experience. Back in 2005, things finally started coming together, but I was burned out. A flight in my uncle's Luscomb sold me on flying and I started jonesing for an airplane. Bumped over to the red board where folks like Henning talked me out of buying one - thankfully as 2008 happened and, well only you business owners will have any idea about what I might write next.

Before I deliver my useless recommendation, I have a question for the rest of you: do you really keep $50K/$100K or more in savings? If so, I'm not sure I agree with keeping that much money on the sidelines - buy a building or invest in the market and make 5-10% per year pretty easily. (The only guy I knew with a bank account with those figures in it flew around in a Falcon 20 - I think he has upgraded since then.)

Like I noted above, I pulled a 5 year note on mine. Yes, I did have other options, but why? $2K is the total price of the loan in my case and didn't affect anything else I have going on. If the OP is in a similar situation - go for it - we need more aviators. If not, wait until you can also afford the crazy maintenance bills - again we need more aviators and poor maintenance is a great way to kill yourself.

When in doubt - read my signature.
 
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