Please help me understand

Will Kumley

Will Kumley

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I've seen some posts describing the difference between owning, renting, or being a fractional owner but a recent ad I saw on a 172 or 182 had me confused, pretty sure it was a 172 but its possible that it was a 182. It was a fractional ownership with a buy in of $32,000, monthly dues of $125, and an hourly rate of $90 for flight time.

As a renter I saw this and was a bit confused as to the benefit of such an arrangement. If I pay $32K to buy in, why on earth would I want to put another $1500 per year into a plane before I add in flight time. If I fly 5 hours a month that's a total of $5400 per year. All together I'm in close to $40K per year.

Now I get that renting my have limitations such as availability, how long I can rent for a weekend trip, minimum flight hours over a span of time, etc...

But is it normal to have a buy in rate with a monthly fee and hourly rate? I would think with a $32K buy in there would be no monthly fee but still an hourly rate to keep up on expected maintenance and don't think that is unrealistic but as I've never owned or been a fractional owner I'm confused at how all of this works.
 
You answered your own question. Availability.

There's a fixed monthly cost to pay for hangar and insurance. The hourly rate is to cover engine reserves, annual, etc.

You buy in for the $32k because someone had to buy the plane to start with.
 
Buy in = equity
Monthly dues = fixed monthly costs (hangar, insurance)
Hourly rate = maintenance/avionics fund

At that price I would hope it is a 1/3 share or maybe a half share. If it is 1/4 share it had better be a nice 172.
 
where is the $1500/month coming from?

also, I'm happily looking or a partner who's considering paying the initial buyin of $32k every month. now accepting applications!
 
Will Kumley said:
All together I'm in close to $40K per year.
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That's only for the first year. Subsequent years would be $6900/year except for the last year which would be $25100 back into your pocket assuming the sale price or the insurance payout (hopefully your partner wrecked and not you) is the same price that you bought.

And if you think that's bad, try buying a 172/182 outright.
 
Our partnership was something similar, but on a much cheaper airplane.

$10k buy-in gets a quarter share of the airplane
$100 a month pays hangar and insurance
$40 a hour dry pays for maintenance cost

The buy-in is easy, the plane cost $40k to acquire.
The monthly rate was easy to calculate, we know what the annual hangar rent and insurance cost, divide by 4, then divide by 12.
The hourly rate has some assumptions as to how many hours it will be flown annually on average, and a reserve for future maintenance over and above normal annual maintenance.
 
eman1200 said:
where is the $1500/month coming from?

also, I'm happily looking or a partner who's considering paying the initial buyin of $32k every month. now accepting applications!
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There really needs to be a monthly rate - in case you don't fly. Fixed expenses are still there even if everyone flies zero hours.

Would be helpful to know how many shares / how many are contributing $125 per month. You want enough partners to keep the monthly maintenance fee as low as possible, but not so many that availability becomes an issue.

By way of reference:

-My 172 expenses for annuals (heavily owner assisted) and insurance are less than $2000 / year. Free tiedown at county airport. Wish I had a hangar, would gladly pay that expense.
-I paid $36,000 for my WHOLE airplane (1972 172N with 180hp) because engine was low time but plane had sat non flown a lot for a couple of years. I pretended I paid $56,000 and put $20k aside for an eventual overhaul. 3 years and more than 200 hours later that money is earning its keep in a brokerage account. I got lucky with the engine, it could have needed overhaul right away.
-I would like to upgrade to Skyview. Cost will be all mine, not split x ways.
-Solo ownership was my only option. I live in a little town in Eastern Kentucky. Closest flying club is 1.5 hours away.
 
My hangar rent and airplane insurance runs a whopping $272 a month, all in...
 
Also, the hourly rate for a club or partnership is likely based on tach time, not Hobbs. You'll be paying very little during ground operations and can save a bit by using lower power settings in flight.
 
NealRomeoGolf said:
Buy in = equity
Monthly dues = fixed monthly costs (hangar, insurance)
Hourly rate = maintenance/avionics fund

At that price I would hope it is a 1/3 share or maybe a half share. If it is 1/4 share it had better be a nice 172.
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^^^ This

The OP didn't say what year and how well equipped the plane is, nor what % of the equity the $32k buys. So it could be a great deal, or maybe not. Not enough info.

In most partnerships fixed costs (annual inspections, etc) are based on equity % and variable costs (anything that varies by the hours flown such as engine reserve) are based on time flown per owner.
 
Will Kumley said:
But is it normal to have a buy in rate with a monthly fee and hourly rate?
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What year is it? How is it equipped? Where is it located? How many partners are there? Whether or not its a good deal depends entirely on the answers to those questions.

There was a deal with similar numbers at a local airport recently ($30k or so buy-in, $100 or so/month $75 or so /hr dry). But that was a very well equipped C210 with 3 other partners. You'd expect a 172 or 182 to be less but if its a newer G1000 equipped bird or something very well equipped and maintained with only 1 other partner then maybe not.
 
Ok, I think I understand at least the theory behind it. Honestly, as its been a couple days and maybe even a week or so since I saw the ad I don't have exact numbers or details on the plane. I just remember looking at it and thinking, well crap- I could rent a plane for just a few dollars more per hour and wouldn't need to worry about the buy in. Had it been something like a Bonanza, Cherokee six, Cessna 207/210 or other type of airplane not typically offered in the rental market it could be of interest but that price seemed high for what was advertised with the aircraft. It was enough of a shock to me that the money numbers seemed to stay in my brain as I attempted to process it.
 
Will Kumley said:
Ok, I think I understand at least the theory behind it. Honestly, as its been a couple days and maybe even a week or so since I saw the ad I don't have exact numbers or details on the plane. I just remember looking at it and thinking, well crap- I could rent a plane for just a few dollars more per hour and wouldn't need to worry about the buy in. Had it been something like a Bonanza, Cherokee six, Cessna 207/210 or other type of airplane not typically offered in the rental market it could be of interest but that price seemed high for what was advertised with the aircraft. It was enough of a shock to me that the money numbers seemed to stay in my brain as I attempted to process it.
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Yeah, you simply need to compare the transaction to purchasing an airplane outright than renting one.

There are also non-equity partnership where there isn't a buy, just a monthly and/or hourly rate. You get access to the airplane, but have no ownership of the aircraft.
 
The $32K buy-in is a capital expense, not an operational expense. It is largely recoverable when you sell your share to another partner in the future.

The other expenses are related to fixed and per hour operating costs. If you fly 5 hours a month, your effective operating expenses are $115/hr. That's pretty good for a well-maintained and capable aircraft with good availability. And you have to fork over only a fraction of the acquisition cost.

If you were owning, the cost would be the same if not more for variable costs, and you absorb all of the up front capital expense.
 
Will Kumley said:
I just remember looking at it and thinking, well crap- I could rent a plane for just a few dollars more per hour and wouldn't need to worry about the buy in.
Click to expand...
If sometime in the future you are tempted to put a plane on leaseback, just remember that thought.
 
Will Kumley said:
...I just remember looking at it and thinking, well crap- I could rent a plane for just a few dollars more per hour and wouldn't need to worry about the buy in...
Click to expand...

If you are only logging 50 to 60 hours per year and you can readily rent the type of airplane you want to fly then it's really difficult to beat renting imo. Any kind of airplane ownership complicates your life over not owning one; and partnerships can sometimes be even higher maintenance than sole ownership.

I own the type of airplanes I do (6-place piston twin & a 180 hp constant speed tandem taildragger) because I can't rent that type of plane. But I rented fixed gear Cherokees and an Arrow for many years prior.
 
Most people will spend the money for availability of the plane, and also the quality of the plane. How many rentals have you spent money on that is just an outright POS. Things broken, garbage, crumbs, etc.

I spend more on owning a plane than I would renting. But it’s my plane and one other partner. The plane is always how I like it, clean, well maintained. Anytime there is an issue we address it right away. Never a problem with availability.
 
I can't post links yet since I'm new, but I'm guessing it's the 182 listed on Spokane craigslist at KSFF?
1999 182, IO 540, mid time engine, LR tanks, full garmin stack and a chute. Pretty well outfitted, nice looking airplane. $32k buys 1/8 equity.
$115/mo plus $90/hr wet seems reasonable to me, as shown above annual cost is $6900 for 60 hrs.
Alternative at KSFF is to rent from NW Flight Service or similar. They don't have a 182, but if they did it likely would rent between the 172 and SR20's - call it $200/hr plus $50/mo club fee. That 60 hours costs $12.6k renting.
5 1/2 years renting could have bought you 1/8th equity of an arguably nicer newer airplane, that in theory you could sell whenever for near what you paid.
Main thing for me would be personality in the club - agreeing on operation/scheduling and maintenance.
 
DreadPirateWill said:
I can't post links yet since I'm new, but I'm guessing it's the 182 listed on Spokane craigslist at KSFF?
1999 182, IO 540, mid time engine, LR tanks, full garmin stack and a chute. Pretty well outfitted, nice looking airplane. $32k buys 1/8 equity.
$115/mo plus $90/hr wet seems reasonable to me, as shown above annual cost is $6900 for 60 hrs.
Alternative at KSFF is to rent from NW Flight Service or similar. They don't have a 182, but if they did it likely would rent between the 172 and SR20's - call it $200/hr plus $50/mo club fee. That 60 hours costs $12.6k renting.
5 1/2 years renting could have bought you 1/8th equity of an arguably nicer newer airplane, that in theory you could sell whenever for near what you paid.
Main thing for me would be personality in the club - agreeing on operation/scheduling and maintenance.
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https://spokane.craigslist.org/avo/d/spokane-1999-cessna-182s-fractional/7250790750.html

Super nice. I'd buy into that all things being equal.
 
I have been lucky enough to own my airplane outright. In 2004 I bought a 1968 Cherokee 140, 4400 total time, 0 SMOH, 160HP, new interior, 4 year old paint. The airplane was tight and looked like new. I paid 40,000, financed with $8000 down, minimum payment was $270, but I paid $340 per month to pay down the principal faster. Insurance at first was $1300 per year, hangar $2700, annual maintenence $1000-2400 depending on... stuff. It all adds up. Capital outlay first year: $8000 Monthy expenses $340 P&I + $225 Hangar = $565, of which about $140 was applied to reduce the principle. Fuel is the largest hourly expense, at about $4.60 +/- per gallon. I flew 75 hours the first year $2900, or $38.70 per hour fuel only. Add $20 for engine overhaul and unexpected expenses makes $58.70 per hour depending on how you look at it.

Now, a Cherokee 140 isn't very glamorous, or very fast, and it takes a long time to 10,000 feet in the summer, so July and August were mostly non or light flying months for me, but spring, fall and winter were all fair game. I owned that bird for 14 years and took good care of it. I also made intelligent upgrades when able. My wife and I made about 30 long trips and a lot of smaller ones. When it sold it was the best example of the type on the market. At 500 SMOH and still in really nice condition for $32k it was worth every penny and I had enough to pay selling expenses and put money down on another bird.

When you become a partner in an airplane you actually become a partial owner. It is a lot like my experience above, but all expenses are split 2, 3, or 4 ways, with more hours building up faster on the bird. You can also get access to a newer or more capable airplane for less cost, but maintenence and upgrade choices have to be negotiated with the other owners. That means getting along with them with some give and take. Sometimes it works well, sometimes not so well. It all depends.

Having said all that, the buy-in price and other expenses seem reasonable if the bird is worth it. I'd look at what that exact bird would sell for and divide by the number of owners. If the numbers are close it is likely a good place to start.
 
The all-in hourly rate I’ve calculated for my Columbia is $340 based upon 200 hours each year (I’m pretty close at 180 hours YTD). That rate is inclusive of pretty much everything, including the loan, engine reserve, property taxes, fuel, maintenance, database subscriptions, space at the FBO ($750 a month, which is $45 an hour under my 200-hour yearly budget, to be parked on the ramp, sigh...), insurance, etc.

Interestingly, a FBO in my hometown rents an identical plane for $375. So somehow it’s cheaper for me to own than rent which may not be the intuitive conclusion. My fuel is about $1 cheaper per gallon so that explains some of the difference, and of course the FBO is charging the other owner a management fee. So in reality the math is remarkably similar for both scenarios.

With all of that being said, I place a huge premium on having unfettered access to my own plane, not having the worry about what other people did (or did not do) to it on the last flight, and not having to spend time getting the plane and avionics set up to match my preferences each flight. Just as we always talk about matching your plane to your mission, you need to carefully consider matching your preferences and expectations to how you access the plane (i.e., ownership, partnership, or rental).

I think the message here is that there are a lot of variables beyond the hourly rate and fixed expenses that determine the true “value” of ownership vs partnership vs renting to each pilot.
 
Will Kumley said:
I've seen some posts describing the difference between owning, renting, or being a fractional owner but a recent ad I saw on a 172 or 182 had me confused, pretty sure it was a 172 but its possible that it was a 182. It was a fractional ownership with a buy in of $32,000, monthly dues of $125, and an hourly rate of $90 for flight time.

As a renter I saw this and was a bit confused as to the benefit of such an arrangement. If I pay $32K to buy in, why on earth would I want to put another $1500 per year into a plane before I add in flight time. If I fly 5 hours a month that's a total of $5400 per year. All together I'm in close to $40K per year.

Now I get that renting my have limitations such as availability, how long I can rent for a weekend trip, minimum flight hours over a span of time, etc...

But is it normal to have a buy in rate with a monthly fee and hourly rate? I would think with a $32K buy in there would be no monthly fee but still an hourly rate to keep up on expected maintenance and don't think that is unrealistic but as I've never owned or been a fractional owner I'm confused at how all of this works.
Click to expand...

Think of the $32k as a refundable deposit. You'll get it back if the club is dissolved, or you decide to sell your share, assuming the airplane value holds. Only the $90/hr and $125/month really matters.
 
BrianNC said:
https://spokane.craigslist.org/avo/d/spokane-1999-cessna-182s-fractional/7250790750.html

Super nice. I'd buy into that all things being equal.
Click to expand...
Pretty sure thats the ad that got my brain moving. A little too far for me in Bremerton to even consider such an arrangement, but as a low time pilot that got my PPL at the start of Covid I haven't been as exposed to all of this as I would have liked. A year ago I would have told you that by now I should have at least 50 or 60 hours after earning my certificate. However, with all the shut downs we have had its difficult to justify a flight to go explore an area or even get food at a diner.
 
William Pete Hodges said:
I have been lucky enough to own my airplane outright. In 2004 I bought a 1968 Cherokee 140, 4400 total time, 0 SMOH, 160HP, new interior, 4 year old paint. The airplane was tight and looked like new. I paid 40,000, financed with $8000 down, minimum payment was $270, but I paid $340 per month to pay down the principal faster. Insurance at first was $1300 per year, hangar $2700, annual maintenence $1000-2400 depending on... stuff. It all adds up. Capital outlay first year: $8000 Monthy expenses $340 P&I + $225 Hangar = $565, of which about $140 was applied to reduce the principle. Fuel is the largest hourly expense, at about $4.60 +/- per gallon. I flew 75 hours the first year $2900, or $38.70 per hour fuel only. Add $20 for engine overhaul and unexpected expenses makes $58.70 per hour depending on how you look at it.

Now, a Cherokee 140 isn't very glamorous, or very fast, and it takes a long time to 10,000 feet in the summer, so July and August were mostly non or light flying months for me, but spring, fall and winter were all fair game. I owned that bird for 14 years and took good care of it. I also made intelligent upgrades when able. My wife and I made about 30 long trips and a lot of smaller ones. When it sold it was the best example of the type on the market. At 500 SMOH and still in really nice condition for $32k it was worth every penny and I had enough to pay selling expenses and put money down on another bird.

When you become a partner in an airplane you actually become a partial owner. It is a lot like my experience above, but all expenses are split 2, 3, or 4 ways, with more hours building up faster on the bird. You can also get access to a newer or more capable airplane for less cost, but maintenence and upgrade choices have to be negotiated with the other owners. That means getting along with them with some give and take. Sometimes it works well, sometimes not so well. It all depends.

Having said all that, the buy-in price and other expenses seem reasonable if the bird is worth it. I'd look at what that exact bird would sell for and divide by the number of owners. If the numbers are close it is likely a good place to start.
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Great insight and thanks. If I was closer to retirement my dream would be to outright own an aircraft. I'm partial to the Cherokee/Warrior lineup as all of my PPL training was in a Cherokee 140 and I like the way she flies. Still honing my skills in the Cessna as I've discovered they are less forgiving when you come in a couple mph fast on final. My wife seems to think the kids will want to fly with us all the time though so she wants more space, more capable load, and two doors so a 182 seems to be her minimum. I'm a realist and understand our kids (19 and 16) are not likely to join us much longer and an IFR equiped Warrior or Grumman would work in my brain. I prefer the IFR equiped plane so I can then use it for IFR training.
 
Will Kumley said:
Great insight and thanks. If I was closer to retirement my dream would be to outright own an aircraft. I'm partial to the Cherokee/Warrior lineup as all of my PPL training was in a Cherokee 140 and I like the way she flies. Still honing my skills in the Cessna as I've discovered they are less forgiving when you come in a couple mph fast on final. My wife seems to think the kids will want to fly with us all the time though so she wants more space, more capable load, and two doors so a 182 seems to be her minimum. I'm a realist and understand our kids (19 and 16) are not likely to join us much longer and an IFR equiped Warrior or Grumman would work in my brain. I prefer the IFR equiped plane so I can then use it for IFR training.
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The nice thing about the Cherokee series is they all have similar flying characteristics. If you are comfortable in a Cherokee 140, going to a 180, or even a 235 is pretty straightforward, other than the CS prop and more precise engine management, they fly about the same but faster with higher fuel burn. I bought my Mooney and go faster with lower fuel burn, but the interior is smaller. It will also handle the grass strips I frequent, just like the Cherokee, but not as forgiving in slow flight near the stall. Everything is a trade-off.
 
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Full or partial ownership is all about availability and airplane condition, certainly not saving money. Rentals are highly variable in condition and rarely available or prohibitively expensive for vacation trips. If traveling somewhere by GA for a week or so is your thing, ownership makes sense.
 
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