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Greg Bockelman
As long as you have a good cockpit cover to keep the temperature down a bit during the summer.
This is the Golden Age of Aviation
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MBDiagMan
Final Approach
I want my assets to be MY assets. Where is the guarantee that the investment I choose will continue its viability?
Those who choose to allow someone else to hold title to all or part of their assets have at it. I personally prefer to owe no man and have positive net worth and as much of it as possible. I have no problem with any individual managing their money however they see fit. That said, it does disturb me that so many people and institutions are so deeply in debt today. I know people with all sorts of toys and a fancy house, but with a negative net worth. When it comes down to it, they don’t have two nickels they can rub together and truthfully call their own. If they have a hick up in their cash flow, like a virus or something, they are in trouble. I don’t care to live that way, especially when raising a family that is depending on me.
Leaving adequate cash in a solid investment to cover a toy purchase while Borrowing money at a lower rate is something different than borrowing money with no cash to cover it when something unforeseen occurs.
To each his own. I’ll buy my toys with cash though, thank you very much.
Those who choose to allow someone else to hold title to all or part of their assets have at it. I personally prefer to owe no man and have positive net worth and as much of it as possible. I have no problem with any individual managing their money however they see fit. That said, it does disturb me that so many people and institutions are so deeply in debt today. I know people with all sorts of toys and a fancy house, but with a negative net worth. When it comes down to it, they don’t have two nickels they can rub together and truthfully call their own. If they have a hick up in their cash flow, like a virus or something, they are in trouble. I don’t care to live that way, especially when raising a family that is depending on me.
Leaving adequate cash in a solid investment to cover a toy purchase while Borrowing money at a lower rate is something different than borrowing money with no cash to cover it when something unforeseen occurs.
To each his own. I’ll buy my toys with cash though, thank you very much.
MBDiagMan
Final Approach
Don’t try that in Texas!
No matter how you cut it, or where you do it, a plane will deteriorate significantly faster outdoors. There’s just no way around it. It’s the owners money and they’re free to use it as they choose, but apparently some of them are fooling themselves.
if I were going to buy a plane to tie down outdoors I would look for a mechanically solid aircraft and not look for nice paint or interior and wouldn’t want a lot of expensive avionics.
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SC777
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Haha. I tried to adjust the air vent on the 172 on my first solo XC a couple weeks ago. Damn thing came off in my hand. Quality! But honestly it didn’t bother me much. Just loving the fact of being 5,500 ft above the NorCal terra firma getting to do what I love. Thankfully the upholstery was fart free.
smv
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smv
They all do that.
As I wrote earlier, I think now is the best time in the US ever to buy and fly your own airplane. And yes, it is directly as result of the technology used in GA aircraft, their associated extreme longevity and stable values. As an owner you may appreciate that. I bought my first plane, a national show winning example of the type, for about $20K in 2002. I sold it for about the same amount in 2019. Try that with some brainless status-mobile new car bought for three times the price.
Now is not the best time to look to others to buy a nice plane and rent it to you for a low price. That was better in the 70s, largely as a result of changes in depreciation tax law that some may remember. Rent if you like the deal you’re getting, but whining that nobody rents their immaculate property at the price you’d like to see is not indicative of being a grown up IMO. Wait until it’s your property and see what you think about that.
Owning is regardless better than using somebody else’s property, and especially if you want to be a proud stakeholder and not a loosely associated bystander now is better than then. Buy a plane and make it what you want as per the OPs post. Nice ones are out there, as are sound ones with potential. Meet people who can help you find the right plane and maintain it, they’re out there too.
If you aren’t happy with the current rental market and aren’t attracted to that level of commitment maybe there are better uses for your income in 2020 than light aviation. That doesn’t make it any worse for others.
Now is not the best time to look to others to buy a nice plane and rent it to you for a low price. That was better in the 70s, largely as a result of changes in depreciation tax law that some may remember. Rent if you like the deal you’re getting, but whining that nobody rents their immaculate property at the price you’d like to see is not indicative of being a grown up IMO. Wait until it’s your property and see what you think about that.
Owning is regardless better than using somebody else’s property, and especially if you want to be a proud stakeholder and not a loosely associated bystander now is better than then. Buy a plane and make it what you want as per the OPs post. Nice ones are out there, as are sound ones with potential. Meet people who can help you find the right plane and maintain it, they’re out there too.
If you aren’t happy with the current rental market and aren’t attracted to that level of commitment maybe there are better uses for your income in 2020 than light aviation. That doesn’t make it any worse for others.
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Datadriver
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wilkersk
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"...Isn't it ironic? Don't ya think?"
MooneyDriver78
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It’s definitely the golden age of avionics, but until we come up with self driving cars that can fly, I think the golden age was 1960-1980
EdFred
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denverpilot
Tied Down
They don’t. Not by a long shot. 70% are estimated to be living paycheck to paycheck with inadequate short-term emergency and long-term retirement savings.
When they get anxiety is when an absolutely inevitable life-change happens (never met anyone who did not have one at least every seven years), and they suddenly can’t make the payments.
That is the risk that isn’t factored in, by the “I can afford the payment” mindset.
As far as holding cash while also holding a loan, you take the interest hit but also take an annual 3% inflation hit at least at current savings rates. If you invest very well, minus inflation, you’ll make maybe 6% on average and it’ll likely be taxable as you withdraw it to pay the loan, if all goes perfectly.
So it essentially becomes a wash. 1-2% up or down on 100K but a bunch of fussing around to maintain it (monitor investment, plan the taxes, blah blah blah...). The system is pretty much designed that way and we’re bottomed out on loan deals that might incentive the behavior further and actually make holding the loan worthwhile. Only place to go now in monetary policy is negative interest to stimulate more lending.
There have been times when one could make significant money holding cash back and keeping a loan, but in general not now. It’s just busiwork with the nearly “guaranteed” seven year risk that something will change in the negative direction.
But like I said up top, 70%+ think nothing ever happens to them in their lives. And they make that mistake consistently and repetitively.
I love the offers right now that businesses are making saying payments don’t need to be made during Covid. All sorts of folks think that means those are skipped. The fine print on nearly all of the mortgage related ones says they’re all due in full by September. Gonna be a bloodbath.
AA5Bman
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He who ironically no longer flies an AA5B
FWIW I have always kept my planes outside, for an overall total of maybe 10 years of ownership. I have never noticed any special degradation to the plane. I’d pay $150/mo for a hangar just for the convenience and storage (mostly storage/workspace), but no way I’m going to be adding $5,000+ per year to the ownership burden just for convenience.
In my opinion, hangars are a nice-to-have. Exceptions might be for areas with big storms (either tropical storms or damaging hail), in certain circumstances near the ocean, or with fabric planes. Other than that, just get a cover and save the money, in my personal opinion.
In the end, $500 a month (or $750 or more which I have seen in California) is a crazy amount of yearly expense for a metal shed building and a good example of exorbitant costs and why this is not the golden age of aviation.
PS - the only thing that makes me bite my tongue in saying the above is the comparable cost of a boat slip in a marina. Holy toledo!
EdFred
Taxi to Parking
Had hail at our airport a number of times over the years I've owned (16). A cover doesn't keep birds out of the cowl (they get in through the gear door even if cowl plugs are in) then there's bird **** all over the plane. They loved to sit on the tail and prop (3 blade) and crap all over the v-stab and spinner. But yeah, I wouldn't even bother with flying if I had to pay $500+ for a hangar.
denverpilot
Tied Down
Same here. Multiple significant hail events every summer season at my home airport. The outdoor parkers are regularly beat to hell.
Interestingly the birds seem to beat up the ones in the open shelters far worse than the tie-downs, because they live in the rafters. Those things are just bird magnets.
AA5Bman
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He who ironically no longer flies an AA5B
Those would be among the exceptions I mentioned. Never noticed any bird activity related to my planes, poop or otherwise, but I wouldn't deny the possibility. I get a little hail on my plane once in a while, but we don't get the kind that gives the plane the ol' ball-peen hammer look.
Tantalum
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Thanks, I was referring more to a few posters and people in general who as principle don't finance things
EdFred
Taxi to Parking
When I can get a GUARANTEED return that's higher than an interest rate I would pay, I would be all over financing stuff. Heck, I would finance the investment. Until then I will save and pay cash. None of the 7%-10% returns people talk about are guaranteed.
denverpilot
Tied Down
I don’t. But I don’t beat anyone too hard over the head about it. If they ask, I just point out their risk they’re not accounting for in the decision.
Or they can just ask me what it’s like to wake up one day with a condition that could kill a paycheck for life given the circumstances. Happens to all sorts of people every day. Cut my salary by more than half in the bad months.
Plus the job loss in the 90s, the startup that went under in the early 2000s, the stuff that breaks, the natural disasters like lightning hitting the house, car wrecks, all completely normal stuff for almost everyone. But not budgeted for like it ain’t gonna happen...
Of course with an estimate at 80% never doing nor following a written budget... this too, is not really a surprise.
Some will plan a cross country route for three days but not know what their savings account will have in it the next week. LOL.
Debt addiction is real. I’ve seen it doing volunteer fiscal counseling. It’s not everyone but it’s a big big percentage. Everything can be fixed with a loan. Gets ugly fast.
AA5Bman
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He who ironically no longer flies an AA5B
Ding ding ding - Exactly. This is the thought burning through my head whenever I hear "but I can get 6-10% in the market and borrow at 4%! Winnnning!". Yeah, but you can also get negative 100%, in which case you have no money, no investment, a loan with its guaranteed 4% cost, and (probably) a plane that is upside down because the market just crashed. How anyone could make this argument after the poop the market just went through vis-a-vis the 'rona is beyond me.
The logical test for me is like this: say you own a home that is paid off. Would you put a loan on it to invest that money? No? If not, why not? I think a lot of people are like "Well hell no!" in that scenario, but don't connect that same logic to financing a toy.
Maybe it's the golden years because you can saddle yourself to a 20 year loan at 4.5% and be just as reckless as you want to be?
PS - That's not to pretend that I haven't made this financial mistake before, thank goodness we get the chance to mature and get smarter!
Tantalum
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No one is advocating taking a loan out to invest it (at least I am not), that's a bit of a strawman.
I would not however drop $30K in cash onto a car either. Have a diversified, well managed portfolio, find a good rate for the car, and you can probably make payments off even just the dividends, all while still having quick access to the cash. I'd rather pay $300/mo and keep 95% of my money. Hell, if you do real well nothing stops you from adding a few extra payments onto that.. like putting extra principle payments on the house either.
I would not however drop $30K in cash onto a car either. Have a diversified, well managed portfolio, find a good rate for the car, and you can probably make payments off even just the dividends, all while still having quick access to the cash. I'd rather pay $300/mo and keep 95% of my money. Hell, if you do real well nothing stops you from adding a few extra payments onto that.. like putting extra principle payments on the house either.
EdFred
Taxi to Parking
On the flip side, I was making money on the money I was saving up, rather than bouncing from installment loan to installment loan. Also, If I pay cash I can immediately dump what I would have been making as a monthly payment right into the next investment, and I don't have the burden of worrying about a monthly payment.
N1120A
Pattern Altitude
Greyhound or Amtrak is much safer than driving a personal car too.
I can see value in financing a plane if the rate makes sense. The value of cash now vs. later has to be considered, especially for people who are self-employed.
EdFred
Taxi to Parking
Only based on accident rate. Never know what you might catch on a Greyhound.
denverpilot
Tied Down
On the first no, nobody here is — since we are talking buying airplanes. As we stray from that some might. But for airplane purchases, nah.
On the second, how does that math work?
30K invested and assuming a fat 10% ROI on that, won’t make a 30K car payment at any number of years currently offered by lenders. Not even close.
Did you mean it would barely pay the interest on those payments that you’re making from other income or dwindling the investment? Especially after short term gains taxes as you slowly pull it?
That is true, and compared to the loss of value by inflation and taxes, it ends up roughly a wash, with you taking the risk of stealing that money for “something else” that comes up.
Not everyone does that mistake, of course, but a huge number do. “Oh we have that money that is paying the car payment that we could use for X emergency right now, and then we’ll just save up and put it back...” but then the next “emergency” hits or the current one gets worse or the income level falls or ends for some other reason... or... that great investment loses value... all of which are way more common than not in life.
And then there’s the depreciation and the gap between what’s owed and what’s owned. Cars (since they cane up) that’s all so front loaded that gap insurance and such can almost get mandatory if cash flow is tight. Wrecks bad enough to total vehicles eventually happen to what, one in seven? That’s from memory.
Airplanes, usually not so that helps. And many strangely appreciate instead of depreciate — so the math changes somewhat on risk. Neglecting maintenance and engine time are the things that beat the holy snot out of resale value the fastest.
Well besides mass world events. Those are always a roller coaster for airplanes too usually. And we are currently in one.
Not just airplanes that people are firing up the spreadsheets and looking hard at whatever scheme they concocted to buy expensive toys with. Be interesting to see what shakes out on that risk. But we’ve all seen that one multiple times in a lifetime also, so again, no surprise nor unplanned for some. Surprise to many.
But anyway, yeah. Trying to keep it to airplanes. Very optional purchase, and weird market. Buying outright removes a ton of interaction with the personal budget whenever possible.
But if someone wants to set aside the money, invest short term, and take on a risk that’ll definitely see some life changes over the typical ownership timeframe, and also knows how to be disciplined about it no matter what, they can net a whopping single percentage digit gain for all the work involved. Along with the significant possibility they lose more than they gain, also.
Both accountants I know best boggle ya airplane ownership until I tell them I bought old, maintain it reasonably, shared the ownership, and limited it to the price of a top of the line luxury car. Ha. They usually google and find new or super high performance stuff and think that’s what I own.
“Nah. I’m fine with it taking six hours, and a fuel/pee/lunch stop, to get to Vegas from here. Anything that approaches airliner speeds would cost more than my first house.”
Then they just shake their heads. LOL
AA5Bman
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You’re making my point - no one advocates taking out a loan on a paid-off house in order to invest the proceeds, but they often advocate taking out a lot to buy a toy because “I make better returns in the market!”. They are the same issue financially, but people don’t see why what they would not do for a house doesn’t somehow apply to a car/boat/plane, etc.
denverpilot
Tied Down
Ahhh. I see what you guys are talking about.
Yeah, a loan against a dwelling also puts the place you live at risk for a toy. That makes zero sense.
Get caught unable to sell the toy, and the right personal finance problem like a job loss, and you get to sweat a little.
The scenario I saw personally was three co-owners and everything fat and happy. Two lost jobs. Airplane suddenly needed an engine.
All three sat grounded for three years until a deal was made for the third to get to keep the airplane for the cost of replacing the engine.
The two even found jobs way before that, but not at their previous salaries AND their spouses found other things to spend money on that had been going to operation and regular maintenance costs. Their little coup against the large cash flow that had been going into flying.
Third guy fixed the airplane, flew it another three years, and sold it for a small gain over the price of the engine replacement. Everyone technically ended up happy at the end. But numbers-wise, and grounding the third guy for three years, it was a mess. (Well grounding them all really...)
I don’t think any of the three flies anymore. The airplane is definitely still flying. Nice old 182. Have seen it around. Don’t know who owns it nor have looked it up.
Tantalum
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But people do borrow against their home, it just tends to be for things like renovations, upgrades, etc. But it's still a "loan" that you have to pay back, and in some cases, and depending on market factor, there is no real return on investment
If you already have $100K invested in the stocks, I wouldn't sell $30K worth of stock to buy a crappy car. I'd take out enough to get a good finance rate and watch that ~$100K keep growing
Do you guys NOT max out your 401K contributions? Or more..? I'd rather let me student loans pay themselves off on (good fixed rate, set monthly payments, so I know the exact date they're paid off) and instead put 10% (until I hit the yearly cap) into 401K.. similar logic. No? Or should I abandon all 401K contributions to pay this student loan off. I don't see any benefit to getting out of that loan 5 years earlier and sacrifice over $100K of 401K contributions (and far greater earnings).
AA5Bman
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@Tantalum You're still making my point. The fact that some people do a thing (borrow against their homes) doesn't mean it's a good idea. Yes, people borrow against their homes to buy toys. In my opinion, this is the worst idea of all - if you're going to borrow to buy toys, at least use an unsecured facility (credit card or similar) so that when you fail to make your payment you just get a ding on your credit score and you don't put your home into foreclosure!
Obviously it's still a loan you need to pay back.
Financially speaking there really is no difference between paying cash and incurring the debt, so why would you be willing to incur the debt but not pay the cash? If you're not willing to pay in cash, the answer should be to not buy the thing, not to finance it.
If I were in your shoes, I would pay off the student loan debt first. It's never going away, but your 401k might. I will admit this is a controversial opinion, but it flows logically from the rest of my points.
Obviously it's still a loan you need to pay back.
Financially speaking there really is no difference between paying cash and incurring the debt, so why would you be willing to incur the debt but not pay the cash? If you're not willing to pay in cash, the answer should be to not buy the thing, not to finance it.
If I were in your shoes, I would pay off the student loan debt first. It's never going away, but your 401k might. I will admit this is a controversial opinion, but it flows logically from the rest of my points.
Tantalum
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Fundamentally I think we just look at the nuances of it differently. I wouldn't borrow against a house for a "toy" - I also wouldn't put a toy on a credit card and pay the exorbitant CC interest rate, and carry a credit dinging revolving debt
But paying cash and incurring debt are different. If I pay cash that money is gone for good. If I finance it, that money is still in my account, and has the potential to earn more, or at the minimum be used on something else, should the need arise.
The example of $30K for a car vs $100K in savings is extreme. If we make it more representative of the typical US taxpayer.. then what about the person who earns $50K/yr.. has $10K saved up.. and needs a car because their clunker finally gave up (the cost to repair the engine is more than the car is worth). I think that person is better off getting something they can finance for $100/mo and keep most of that $10K. Should they lose their job tomorrow that $8K they still have in the bank will have a lot more value to them than if they had blown nearly all of it for a "new" car.. or maybe they don't lose their job but get their hours cut so now they're earning $30K.. having $8K and a car they can drive seems optimum
There's a spectrum there somewhere. Carrying debt=bad as a principle is smart. But the hardline "never finance" has its limits as well, at least if it comes to the prospect of someone having to spend 25% or more of their savings at once
RE: 401K
I won't retire for another 30 years.. shoring up a healthy 401K now seems to be prudent. The student loan is not hurting anyone, it's a number on a spreadsheet somewhere that gets an automatic monthly payment and hasn't had any negative (in fact some say it actually helps) on a credit score. And all the doom and gloom about COVID, I believe most people's 401Ks are actually up YTD.. plus, that money is "tax free".. that's an incentive in and of itself.
But I think we both agree that you shouldn't willy nilly take out loans. I'm just arguing that the option of financing something doesn't need to be automatically considered "financially dumb" - there are valid reasons.. taking out 10 credit cards and maxing them out when you don't earn enough to pay that stuff off is bad. And financing a lawnmower at Sears also is not smart. But if comes to using up a sizeable chunk of your actual savings I think that's where the prospects of financing make sense
EdFred
Taxi to Parking
If it's going to use up a sizeable chunk of your savings, you should be saving more before buying! Of course I also have like 25 years of survival money stashed away before I touch the 401k type stuff. I can't retire on it, because I want to live a little better than Kraft Mac N Cheese and grits.
Even my next house won't be financed - that's the plan at least. Current one, the mortgage has been paid off for 15 or 16 of the 20 years I've been in it.
Even my next house won't be financed - that's the plan at least. Current one, the mortgage has been paid off for 15 or 16 of the 20 years I've been in it.
AA5Bman
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@Tantalum in terms of a positive way to structure a life, I'm going to stick by the idea that if you’re not willing to pay cash, the solution is to not buy the thing, not figure out a way to finance it. The solution to not enough cash is either more cash or don’t buy.
I’m not a perfect adherent to this philosophy, but in my opinion, it’s the best fundamental strategy for the most people.
Using your $10k car situation: that person should buy a $2k car outright, not put $2k down and borrow the rest! Sorry, but they can’t afford a $10k car, however they structure the purchase!
The fact that taking out 10 high interest credit cards is bad, does not make taking out a HELOC good. They can both be bad.
I’m not a perfect adherent to this philosophy, but in my opinion, it’s the best fundamental strategy for the most people.
Using your $10k car situation: that person should buy a $2k car outright, not put $2k down and borrow the rest! Sorry, but they can’t afford a $10k car, however they structure the purchase!
The fact that taking out 10 high interest credit cards is bad, does not make taking out a HELOC good. They can both be bad.
I've always figured that one should borrow money to buy things that appreciate in value... and nothing else. I did have three mortgages for a while but each had conservative loan to value ratio and meanwhile I borrowed NOTHING else, especially not for cars, and also not for airplanes.
Kenny Phillips
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We paid $160/month in Cincinnati twenty years ago, for a 1930s (at least it seemed like it, built for tail draggers) hangar after two years on the waiting list.
N1120A
Pattern Altitude
There's the ability to pay cash and the willingness to pay cash. These aren't necessarily the same thing. There are reasons to not pay cash, which Tantalum very clearly and accurately articulated.
NHWannabe
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Nothing like paying for a $2K vehicle to solve the problem of unreliable transportation, lol. You probably just advocated for that person to trade an unreliable vehicle for another unreliable vehicle. Sometimes that extra $8K of financing gets you the reliability/stability they needed to ensure the ability to generate income continues and quells most of the unexpected expenses.
Everskyward
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I think it's funny how people like to give unsolicited advice about money. People have widely different wants, needs, and risk tolerances. It's probably a good idea to look at the logic of different ideas then decide for yourself.
denverpilot
Tied Down
I don’t consider answering someone purposefully bringing the topic up on a discussion board “unsolicited” though.
Or were you thinking of the weirdo that walks up with drunken investment and budget advice at a cocktail party? LOL. I’ve talked to that guy.
He’s drunk. And gives really bad advice.
LOL
Whether we are... well Tantakum gets to guess but he knows I’m not allowed to drink right now. LOL
Everskyward
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But the topic was about whether or not it is the 'golden age of aviation', not someone asking for investment advice or whether or not they should finance. Not sure how we got there, but we often do.
That guy I can excuse.
