Plane value vs. Personal Net Worth?

FormerHangie said:
If the asset you hold can be quickly sold for more than the amount you owe, then there is no risk of default. Markets can and do change, there were plenty of people in the Great Recession thought they had equity and it evaporated quite quickly when the housing market tanked, or perhaps we should say, returned to sanity. That was true of some markets but not most. Where I live, we didn't see a big runup in housing prices before the crash and we didn't see a big drop after it
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Yup. Not sure what it has to do with my point other than to confirm it.

If you can sell it tomorrow for more than you paid for it plus fees and points and interest paid before sale, as well as any property taxes accrued and costs insuring it because protecting the bank’s asset is mandatory with insurance...

You made a profit and your Net Worth went up.

Oh and don’t forget moving costs. LOL.

Never seen anyone win that game — but go for it if you are the lucky sort that beats those kinds of odds. Some do.

Most live in it a long time and pay craploads of interest before selling that they never recoup, but think they do because they compare purchase price to sales probe only and forget the interest. And the whole time they’re thinking it’s “a great tax write off”, too!

LOL. They also forget all the interest is paid up front, and very little principal.

Obviously this is houses. Airplane loan usually isn’t this way. Or car. :)

Oh well. At least I never had a 12% loan with a balloon coming up to 18% like dad did once. And nobody lending.

Pretty sure that’s what got him off of the debt addiction train long ago. He paid off that next one sooooo fast...
 
MuseChaser said:
What I do not believe in personally is buying anything that REQUIRES financing, except for a home.
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Curious - why do you see a home any differently?
 
Do you think the 10% of net worth rule should be used across the board for those interested in purchasing a plane? I can see someone being a little less conservative if they are young and single, versus a person in their 50's with a family to support. I ask this because my dream plane is somewhat in reach (slightly above 10% of net worth), but making a purchase like that gives me pause. I have always been frugal, but am starting to realize life is short. I am in mid-20s with no debt or mortgage and living in my "forever home" (if that is even a thing anymore). Also a pretty stable career path. That said, part of me says to practice delayed gratification and just keep saving until it makes sense to buy, whenever that might be.
 
Might be time in this thread for a fun quote from a friend “you can sleep in the plane, but you can’t fly the house”.

In all seriousness, you could do just this and be like folks who live on their boats. I guess it comes down to your lifestyle
 
MuseChaser said:
Exactly. That's the entire point. As I and others have written, when financing terms are such that money left invested earns more than interest paid, it makes sense to finance. What I do not believe in personally is buying anything that REQUIRES financing, except for a home.
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What makes the home different* ? Just save up and buy a $30,000 hovel and work your way up.






* disregarding the fact that the government supports it
 
Initial Fix said:
Might be time in this thread for a fun quote from a friend “you can sleep in the plane, but you can’t fly the house”.

In all seriousness, you could do just this and be like folks who live on their boats. I guess it comes down to your lifestyle
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You may be able to sleep in a plane but there’s not many you can take a shower and have a full bathroom. Now hangars with small apartments would be appealing. Most airports won’t even build enough hangars, forget apartments.
Yes I know you can buy a hangar home, but they go for around 1/2 million and up.
 
weilke said:
You can sleep in a hangar, you can't fly the house.
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He's young and single, he could sleep in the hangar, or even a van down by the river. Someone older with a wife and four kids, no, the plane would go first.

kayoh190 said:
Curious - why do you see a home any differently?
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Homes appreciate, in some markets fast enough that you still gain net worth even though the front half of the mortgage is interest heavy. General rule is OK to get loans on appreciating assets, as you don't lose much (or even gain). Pay cash for depreciating assets, as if you don't you get hit by the double whammy. Both pay interest while the value of the asset falls.
 
Bill Jennings said:
General rule is OK to get loans on appreciating assets, as you don't lose much (or even gain). Pay cash for depreciating assets, as if you don't you get hit by the double whammy. Both pay interest while the value of the asset falls.
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I understand, and it's been a mantra of mine for my entire life. But really this all boils down to simple risk tolerance, and as I get older I wonder how much fun I've left on the table in the name of 'financial prudency.'
 
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kayoh190 said:
I understand, and it's been a mantra of mine for my entire life. But really this all boils down to simple risk tolerance, and as I get older I wonder how much fun I've left on the table in the name of 'financial prudency.'
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I've left more 'fun on the table' because of my looks than I have because of my spending or lack thereof.
 
The thing most people who argue against home ownership Fail to account for is that you have to pay to live somewhere be it rent or a mortgage. Over 40 years of home ownership in the end I have lived for free with the appreciation and wealth I have built. Renting would have allowed me to possibly have saved a few bucks a month but I would have zero equity today. Rent would have all been money flushed down the drain.
 
Jeff767 said:
The thing most people who argue against home ownership Fail to account for is that you have to pay to live somewhere be it rent or a mortgage. Over 40 years of home ownership in the end I have lived for free with the appreciation and wealth I have built. Renting would have allowed me to possibly have saved a few bucks a month but I would have zero equity today. Rent would have all been money flushed down the drain.
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Of course if you figure property tax wasted on your house, how much appreciation did you acquire? I think in my case, I'm still ahead, but about 40% less than what I would have been.
 
Jeff767 said:
The thing most people who argue against home ownership Fail to account for is that you have to pay to live somewhere be it rent or a mortgage. Over 40 years of home ownership in the end I have lived for free with the appreciation and wealth I have built. Renting would have allowed me to possibly have saved a few bucks a month but I would have zero equity today. Rent would have all been money flushed down the drain.
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We lived in our first house for about 15 yrs, paid it off, and also put some money into it for upgrades along the way. When we sold to buy our forever house, I did some math and it all came out was a wash. What we paid in mortgage and upgrades just about equaled the selling price of the house. So, we basically lived in a nice house for 15 years for free. FREE![1] And of course that equity helped on the purchase of the new place.

[1] House tax not included in the math, but hey, no matter where you live, whether you rent, or own, you gotta pay the taxman. Grrr, hate paying rent to the city/county to live in a home I own. Grrr.
 
So... I’m 42 with a new Cirrus on order. Not retired, nor am I a fancy business owner with things like write offs or bonus depreciation. Just a W2 working stiff. I do ok, wish I was richer :)
However, my approach has been to buy relatively inexpensive income properties to cover plane payment. I expect 5 to fully cover the payment after mortgages, taxes, management fees and potential vacancies. (Then I’ll cash flow hanger, plane insurance, gas, maintenance).

The Cirrus’ 15% down was a huge nut but this is a lifelong dream and we’ve been saving up for that for years.
10 properties and my wife can retire.
20 and I can retire.
Have 3 so far!
 
kayoh190 said:
Curious - why do you see a home any differently?
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weilke said:
What makes the home different* ? Just save up and buy a $30,000 hovel and work your way up....
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Fair question. I guess the distinction is that everyone NEEDS to live somewhere. True, home ownership isn't a necessity, but typically it's a much more sound investment than an airplane. Home ownership isn't always cheaper than renting, but it usually is in the long run, especially if you eventually sell your house at a profit as most people do. You need to live somewhere, and home ownership makes financial sense. You don't need to fly an airplane, and owning one doesn't make financial sense unless you're going to be flying and renting anyway and even then you'd have to fly your owned plane a LOT to have it save you money over renting.

Getting back to the "need" part... the "need" to live somewhere occurs the minute you move out of your parents' (or parent's) house. For me and my wife, that was at the age of 18 (17 for me, actually). That age has moved up quite a bit in recent history, but it's still at a time of life when saving up $30,000 for a "hovel" isn't a realistic possibility unless you've already been gifted a large part of that from well-off loved ones. Yet... you still have to live somewhere. Is it better financially to pay $200/month in rent (my first dive apartment) or $268/month for a mortgage on a $12k house and build up equity (our first house in 1984, Hornell, NY)? We NEEDED to live somewhere, and a cheap house that we could sell and make a profit on a few years down the road enabled us to basically live there for two years for almost nothing rather than rent. Yes, property taxes, fees, and mortgage interest were taken into account in the calculation that it cost us almost nothing to live there compared to renting.

That is why they are different, at least in my opinion... which is all any of this really is.
 
kayoh190 said:
I understand, and it's been a mantra of mine for my entire life. But really this all boils down to simple risk tolerance, and as I get older I wonder how much fun I've left on the table in the name of 'financial prudency.'
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A valid point, and I feel the same way. It's a question of finding the right balance. My wife and I have had a great life so far full of adventures and excitement, sticking to the adventures and excitements that didn't cost a lot of money earlier in life and branching out as our earnings, savings, and investments grew. I still don't feel "rich," but as the children of depression-era parents, even if we were I doubt I could live a "rich" lifestyle... it would just feel weird to us. That's our hang up, not an indictment of those who live "rich." In many ways, I wish I COULD be a little more lax in my spending habits.

We are both fortunate that, at 60 years old, we still feel and act pretty much the same we did at 30, but have 30 more years of fun money socked away. The rest of our life is going to be one wild ride... until it can't be any more. :)
 
We are both fortunate that, at 60 years old, we still feel and act pretty much the same we did at 30, but have 30 more years of fun money socked away. The rest of our life is going to be one wild ride... until it can't be any more.

I think I'm going to have this created into a plaque and hang it over my fire place.

BTW, FWIW my retirement goals
  • Retire a little early maybe at 63
  • Become a trophy husband to my wife of 36 years
  • Spend as much of the children's inheritance as possible
 
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WDD said:
We are both fortunate that, at 60 years old, we still feel and act pretty much the same we did at 30, but have 30 more years of fun money socked away. The rest of our life is going to be one wild ride... until it can't be any more.

I think I'm going to have this created into a plaque and hang it over my fire place.

My retirement goals
  • Retire a little early maybe at 63
  • Become a trophy husband to my wife of 36 years
  • Spend as much of the children's inheritance as possible
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Great idea. You might also read my sig line and consider making that your fourth bullet. :D
 
kayoh190 said:
Curious - why do you see a home any differently?
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The answer should be obvious. You MUST have a place to live. Must you have an airplane? Not so much.

If the time ever comes when you lose your revenue stream, even temporarily, carrying loan debt is a terrible burden at that time in your life.
 
MooneyDriver78 said:
You may be able to sleep in a plane but there’s not many you can take a shower and have a full bathroom. Now hangars with small apartments would be appealing. Most airports won’t even build enough hangars, forget apartments.
Yes I know you can buy a hangar home, but they go for around 1/2 million and up.
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There are hangar communities in most all price ranges.
 
MBDiagMan said:
The answer should be obvious. You MUST have a place to live.
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So like the airplane, why not rent a place to live until you save enough to buy a house with cash?
 
I was thinking about this a little bit more this morning.

I think it was Bill Gates who made a remark like "once you get to a certain wealth, life doesn't get better", ie, you run out of things to buy.

So maybe we're not looking for a percentage-of-net-worth here, because once you hit that 1 or 2 or whatever million mark in net worth, the rest is excess to your needs. And what better way to remove an excess of cash than aviation? :)

So maybe you need 110% of your maslow net worth, whatever amount covers all of your planned needs and allows you to consider yourself financially independent. Then, feeling flush, you grab a copy of controller.
 
kayoh190 said:
So like the airplane, why not rent a place to live until you save enough to buy a house with cash?
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If you can purchase a house on a mortgage for the same per month as you could rent why would you throw money away on rent? I got my house for cheaper than what I could rent for at the time.
 
EdFred said:
If you can purchase a house on a mortgage for the same per month as you could rent why would you throw money away on rent? I got my house for cheaper than what I could rent for at the time.
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Oh I agree, but was making an example to illustrate my point - you don't *need* to own to have a place to live. It might make sense financially, but you're still purchasing something with money you don't have. The whole reason I jumped into the thread was because I used be of this mindset about buying toys: "If you can't pay cash you can't afford to own it. Oh my house? No, that's different." As I get older I'm beginning to feel like the mindset is a bunch of sanctimonious BS. I still agree with the overall premise, but it's merely a matter of risk tolerance rather than some indicator of sound financial principles. If some dude needs to borrow cash to fly a J model Mooney instead of a C, I used to think that was a mistake. Now I'm thinking, maybe it's a mistake, maybe not. I don't know that guy's financial situation, who am I to judge?
 
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EdFred said:
Of course if you figure property tax wasted on your house, how much appreciation did you acquire? I think in my case, I'm still ahead, but about 40% less than what I would have been.
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You pay the property tax when you rent just not directly.
 
MuseChaser said:
Fair question. I guess the distinction is that everyone NEEDS to live somewhere. True, home ownership isn't a necessity, but typically it's a much more sound investment than an airplane. Home ownership isn't always cheaper than renting, but it usually is in the long run, especially if you eventually sell your house at a profit as most people do. You need to live somewhere, and home ownership makes financial sense. You don't need to fly an airplane, and owning one doesn't make financial sense unless you're going to be flying and renting anyway and even then you'd have to fly your owned plane a LOT to have it save you money over renting.

Getting back to the "need" part... the "need" to live somewhere occurs the minute you move out of your parents' (or parent's) house. For me and my wife, that was at the age of 18 (17 for me, actually). That age has moved up quite a bit in recent history, but it's still at a time of life when saving up $30,000 for a "hovel" isn't a realistic possibility unless you've already been gifted a large part of that from well-off loved ones. Yet... you still have to live somewhere. Is it better financially to pay $200/month in rent (my first dive apartment) or $268/month for a mortgage on a $12k house and build up equity (our first house in 1984, Hornell, NY)? We NEEDED to live somewhere, and a cheap house that we could sell and make a profit on a few years down the road enabled us to basically live there for two years for almost nothing rather than rent. Yes, property taxes, fees, and mortgage interest were taken into account in the calculation that it cost us almost nothing to live there compared to renting.

That is why they are different, at least in my opinion... which is all any of this really is.
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You do understand that the only reason homes 'appreciate' is the low cost money the government throws our way to buy them ?

While you do need a place to live, those are available for rent. The real no-debt zealots should rent until they can buy a place outright. Rice&beans for 10 years and sharing a rental with a few others and in as little as 10 years you can afford to buy a house. And no, you dont 'need' a house to start a family. Just wait your turn until you have a house and some money in the bank before you start reproducing. It's not that hard.

/sarcasm
 
kayoh190 said:
Oh I agree, but was making an example to illustrate my point - you don't *need* to own to have a place to live. It might make sense financially, but you're still purchasing something with money you don't have. The whole reason I jumped into the thread was because I used be of this mindset about buying toys: "If you can't pay cash you can't afford to own it. Oh my house? No, that's different." As I get older I'm beginning to feel like the mindset is a bunch of sanctimonious BS. I still agree with the overall premise, but it's merely a matter of risk tolerance rather than some indicator of sound financial principles. If some dude needs to borrow some cash to fly a J model Mooney instead of a C, I used to think that was a mistake. Now I'm thinking, maybe it's a mistake, maybe not. I don't know that guy's financial situation, who am I to judge?
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Well you don't *really* own it until the mortgage is paid off. So it still holds true that if you haven't paid cash you can't afford it since it's still the bank's.
 
weilke said:
You do understand that the only reason homes 'appreciate' is the low cost money the government throws our way to buy them ?

While you do need a place to live, those are available for rent. The real no-debt zealots should rent until they can buy a place outright. Rice&beans for 10 years and sharing a rental with a few others and in as little as 10 years you can afford to buy a house. And no, you dont 'need' a house to start a family. Just wait your turn until you have a house and some money in the bank before you start reproducing. It's not that hard.

/sarcasm
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Might want to drop the sarcasm tag as I know a few people that have gone that route. I'm still putting money away in case monkeys fly out of my butt. (have a family)
 
EdFred said:
Might want to drop the sarcasm tag as I know a few people that have gone that route. I'm still putting money away in case monkeys fly out of my butt. (have a family)
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I dont doubt that this can be done. And anyone who does that (buy his first home outright without daddy stroking a check) has my respect. Had a young lady working for me who did that together with her husband. Saved up, bought a cheap house, renovated it while living in the place, flipped it for a nicer project and so on.



What irritates me are people who borrow a large amount of money to buy a house but then get all preachy towards others who choose to buy a car or airplane using bank money. Its the same thing.
 
weilke said:
I dont doubt that this can be done. And anyone who does that (buy his first home outright without daddy stroking a check) has my respect. Had a young lady working for me who did that together with her husband. Saved up, bought a cheap house, renovated it while living in the place, flipped it for a nicer project and so on.



What irritates me are people who borrow a large amount of money to buy a house but then get all preachy towards others who choose to buy a car or airplane using bank money. Its the same thing.
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Can I get preachy if I only borrowed a little money (1/4 of what I qualified for), paid it off in 4 years, and haven't had any installment loans since? :D
 
EdFred said:
Can I get preachy if I only borrowed a little money (1/4 of what I qualified for), paid it off in 4 years, and haven't had any installment loans since? :D
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I'll make a ruling (like the notoriously hypocricial Suze Orman): No.
 
austin757 said:
Do you think the 10% of net worth rule should be used across the board for those interested in purchasing a plane? I can see someone being a little less conservative if they are young and single, versus a person in their 50's with a family to support. I ask this because my dream plane is somewhat in reach (slightly above 10% of net worth), but making a purchase like that gives me pause. I have always been frugal, but am starting to realize life is short. I am in mid-20s with no debt or mortgage and living in my "forever home" (if that is even a thing anymore). Also a pretty stable career path. That said, part of me says to practice delayed gratification and just keep saving until it makes sense to buy, whenever that might be.
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When I bought my plane I was still on a 30yr home mortgage with a little credit card debt, two car payments and student loans. I don’t buy the whole “if you finance it you can’t afford it” thing. Our plane had a short term 5yr loan on it and we paid it off a year and a half early. Less than a year into aircraft ownership I made smarter decisions, 10yr mortgage, sold my “new car” years ago for a used 2008 Saturn in cash, paid off credit cards etc etc. Basically life is too short, so what are ya waiting for? I wanted to take my wife and stepson on trips in our own plane. Now that our son is going into the Marines in less than a month, I can say with certainty the memories been worth every penny of the interest I might have paid on the loan ($2k maybe). I’m already thinking that I wish I would’ve done it sooner.
 
I was looking at a Mooney yesterday that had a McCauley 3 blade. Mech said he just put one on another Ovation recently...$14K! Yeah, my net worth can’t afford that kind of maintenance.
 
Question to all owners - what do you do to write off your costs (to own a plane)?

On the subject - thinking of buying. Here are my thoughts on the subject of money - if you can afford it do it. Whatever that means to you. Everyone has different priorities - for some real estate comes first (i.e. to finance a plane with RE), some need to put children through school, some building an empire, etc. For some, like me - this is a toy I want. Judge me for it LOL.

Also, I think it matters what kind of plane you are buying. Kudos to those who's SR22 is 5% of their net worth. I do not see a plane as an investment, at all, it is an expense for sure, a toy, and not a cheap one. If you recoup anything at the sale point (value of airplane less maintenance less hangar fee less upgrades less everything else) you are lucky. I do not count on it. So, what's the logic? It is for your own pleasure. That is the only reason.
 
When I bought my plane 22 years ago it was a large purchase compared to my net worth... not so much anymore thankfully.

As to "whether you can afford it"... three thoughts. #1, although you may take a hit, you can sell it... don't get emotionally attached. #2, have cash or credit reserves ready, because in aviation surprises can be expensive..... if you don't have access to reserves, see #1. #3, be prepared to increase your spending... I budget a minimum of $1K per month... maintenance, gas, oil, etc., etc. ... buying a plane then not being able to afford to fly it is unfortunately common.

Just the other day I came out to the airport to find a flat nose wheel tire... the valve stem cracked. I had to get maintenance services to come from another airport to get it changed... not cheap. It happens.
 
beretta said:
Question to all owners - what do you do to write off your costs (to own a plane)?
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unless you are using it for business i dont think there is any write off. if you bought using HELOC, that interest can be claimed if you are not taking standard deductions. i am no CPA, but thats what i was told. for me its a means for making memory, i cannot put a $$ on it. today i can afford it, so i am doing it. tomorrow will see what life holds for me and adjust accordingly
 
beretta said:
Question to all owners - what do you do to write off your costs (to own a plane)?
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For a a personal plane there is no tax or business "write-off", only the fact that money spent on maintenance, and in large part for upgrades, is simply not recoverable. You have to be at peace with that.

I am amused by those who eschew safety or convenience upgrades because of worries these costs will not be recovered at resale at some future date. That's a good way to keep a plane eternally mired in the 70s or 80s or worse. If resale is the holdup for putting a plane in good shape for your mission, then you either (1) have the wrong plane, and should deal with that first, or (2) stop fretting over resale value and make the upgrades necessary to make flying your plane safe and comfortable. If you want to make money, investing in a plane is not a good strategy. Rather, it is a good way to turn a large pile of money in to a smaller one. You are essentially trading money for the amazing privilege of personal flight, something very few get to do or appreciate.
 
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