Can you (and others with leaseback experience) clarify some of this for me? My CFI is the sole proprietor of a small flight school with himself as the only full time instructor and a fleet of two or three airplanes for instruction and rental, and he has asked if I'd be willing to lease my PA28-140 to him. He showed me the agreement he and a partner of his use to lease their own Cherokee back to the flight school through their LLC. I don't currently have an LLC, and am not real excited about forming one... don't want a business, another tax return to fill out, more complexity in life, etc... but I don't want to lose my house and personal investments in a lawsuit, either.
The agreement he's proposing leaves the owner of the aircraft responsible for virtually ALL expenses, including damage caused by renters. My insurance cost would be about $4000/yr (compared to the current $700/yr as a non-commercial use private pilot) with a $1000 deductible. In the posts above, I've seen quite a few posts indicating that damage would be the renter's responsibility. Is that typical and what my CFI is proposing atypical, or (very likely) are there points here that I'm missing?
Assuming there's no major damage or repairs, I'd stand to break even and start turning a profit at around 150 hours based upon the rate he's offering to pay me, but the possibility of damage by renters is very real and it doesn't sit well with me that I'd be responsible for someone else's mistreatment of my aircraft.
Comments? and ... thank you.
Renters never have any money, why sue them? The clubs insure because they know the renters just leave if the clubs when make the renters are required to pay.
Renters don't have money? You're kidding, right? Nearly every renter of my aircraft is a millionaire if not a multi-millionaire. We're talking about a hobby that burns ten thousand a year...when you're doing it on the cheap. There are no poor walking into the FBO.
So...typically (my situation included), it's a wet lease. Meaning, yeah, the owner is responsible for absolutely everything on the plane. On the flip side, the club does take a fee for operating the aircraft, but it's you that's paying them from revenues, not them paying you for the use of the plane. It's less than ideal, but it's the only deal you're going to get. On that same note, you set the rate for your aircraft. You need to factor in stuff like cost of fuel, cost of insurance, etc. You must include holdbacks for overhauls and inspections, too, when doing the math. Realize you'll be doing 100hr inspections, which are 80% the way to an annual multiple times a year. You'll also not be doing much of the maintenance yourself that you thought you'd be doing, like oil changes, because a successful leaseback means that the cost of paying a mechanic to do it beats the lost opportunity cost waiting for you to be free to do that work.
On damage: yeah, if the renter is found at fault, they will be responsible for those damages by contract. At a minimum, the deductible. At my club, for non-negligent accidents, the deductible is $3000 and the negligent deductible is $5000. The renter owes that. They can also pay into a waiver fund each year and be allowed to skip the deductible. However, if blame can't be assigned, you're on the hook before the club is (unless it's clearly the club's fault somehow). And if the renter skips the bill, it's on you. They'll be kicked out of the club, but that's small solace. If the insurance company decides it's not liable for some reason, it's on you. Welcome to leaseback...in exchange for a chance to make a penny or two with your plane, you take on big risks.
It's working for me. The 172SP was specifically chosen because it rents extremely well. Even so, I break even. Do not think it will line your pockets. And you'll need closer to 300 hours, not 150, to get there. But...my clientele is the kind you want. Engineers, doctors, executives, typically. Very experienced, careful CFI. Established and large club with experienced leadership. You'll have to evaluate who you'll be renting to and make your own choice.