Anybody ever make money with a lease back??

Dav8or

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I know it's generally regarded as a losing proposition, but is it always true? Let's say you invested in a simple basic trainer with the only purpose to put it on the flight line at a busy flight school, has anybody done this and actually came out ahead in the end? Just wondering if there is anyone here with actual personal experience and not just hearsay, or OWTs and yes, I've already heard how to make a small fortune in aviation...
 
Yes. People have made money. I've seen one aircraft (that's paid off) make 10,000 in profit at a particularly busy flight school. But we're talking over 500 hours being put on the plane during that year, with no significant mx.

I *promise* you that's the exception and NOT the rule.

The VAST majority of stories I've seen about leasebacks have been "You can make a small amount of money as long as you're not hoping for it, and you will lose a boatload of money if you are."
 
I know one student pilot with a real nice 182 G1000 on leaseback, who claims to be making money on it. I don't think she's properly accounting for engine funds and breakage, though. It's a very expensive rental, on the line for $230/hour.
 
I imagine that it helps to be in a place with lots of good flying weather. The airplane is not making money sitting on the ground waiting out the weather.
 
The post below was written by Jason "Whirlwind" Hegel, a colorful and somewhat notorious member POA who doesn't hang out here any more. Regardless, this advice has good information for all current and would-be owners contemplating putting his/her plane on leaseback. The answer to your question is near the end of part two.

Also be aware that the data in these posts is 2003-2004 vintage, so the dollar costs may be out of date. YMMV.

This is part one of two:

Captain Jason’s Leaseback Advice:

1. Leasebacks are a business, always treat them like one. Never get emotionally attached to a leaseback airplane, it will get abused just like a rental car does, and you don't go seeking those out when you buy a used car, do you? Put leaseback aircraft in corporations, run their books separately, have a separate tax return for the aircraft each year, etc. Talk to your CPA and lawyer, make sure you understand both the legal and tax issues.

2. You can make a lot of money with a leaseback. You can lose a lot of money with a leaseback. Many of the factors of making/losing money are completely outside of your control. If your goal in a leaseback is to have someone else pay for your personal airplane, you probably are not going to be happy with the result. If your goal is to defer the cost of your own flying, get your ratings, and perhaps make some money on the side, you can do well if you pick the right FBO/flight school to do business with.

3. If you leaseback an aircraft to an honest FBO, you have a chance to do well. If you leaseback an aircraft to a crook, you have no chance at all. Get to know with whom you are doing business. Ask around the airport, talk to the other owners, etc. Be careful of any FBO that pushes you to get into this too quickly. The best will be honest and upfront about the risks and will caution you to avoid it if you have doubts. Talk to other owners at the FBO, find out how they have been treated.

4. You must run the numbers from a realistic viewpoint, remember this is a business. Take what you're paid each hour by the FBO and subtract the per hour costs such as fuel and maintenance reserves (if you don’t, that $15,000 engine is going to surprise you). That figure is your actual hourly income (the rest does not exist for this calculation) Take the monthly fixed costs and divide them by that "true" per hour income. That is the number of hours the aircraft must fly each month to break even. The monthly fixed costs must include insurance, tie-down, and the "payment", even if there is no payment on the aircraft. The cash you might pay for an aircraft has value, if you don't include it in the monthly fixed costs, you're letting the FBO use your money for free. So add in what the payment would be if you had one.

5. You're still a renter, you just rent one specific aircraft for a reduced rate, but you're still a renter and must schedule your flights along with everyone else. Do you have the right to bump paying customers? If so, how much notice must you give? If you are inclined to "bump" paying customers for your own flying very often, you're probably a poor leaseback candidate. You'll upset those customers and you'll be hurting your own income stream. Find out about renting other airplanes at the FBO for a discounted rate if your plane is down, or otherwise busy. Everything in a leaseback is negotiable, so ask!

6. The standard leaseback agreement is the basic 80/20 plan. You get 80% of the per hour rental rate, the FBO gets 20%. Out of your 80% you pay fuel, insurance, tie-down, maintenance, and the "payment" for the aircraft (again, this has nothing to do with actually having a bank loan or not, it is the monthly value of the money invested into the airplane). Some FBOs do leasebacks differently, and if you run across one of them, be really sure of what they are offering before you sign on the dotted line.

7. FBOs like leasebacks because it removes all the risk from them. They get 20% of the rental rate, yet do not have to own or maintain a fleet of airplanes (and sometimes they make money off the maintenance). You absorb all that risk. In exchange for that risk, you have the chance to make some money, and you'll be able to fly for about half the price of renting (or less).
 
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Just looking over the books of owning several planes being rented I can't see how there can be any money made. One big repair like engine would put you in the red for several years. Just doing all the stuff for 100 hr inspections and replacing the constant square tires would eat any profit fast. Plus every renter wants everything in the plane to be perfect at all times. If I were to split my profit with you neither of us would make anything.
 
Part two of two:

8. The best leaseback deals are on aircraft that fly a lot of hours each month. A Cessna 172 that flies 80 hours a month will almost always make money. A Piper Arrow that flies 20 hours a month will almost always lose money. The breakeven point on most single engine airplanes is around 50 hours and the leaseback becomes really worth doing from a profit perspective at 65 hours. I know of a case where a Piper Arrow was leased to a flight school and it flew 60 hours over 8 months. The owner lost a lot of money in insurance and maintenance. I also know of a case where a Cessna 172 was leased to a flight school and it flew an average of 87.2 hours a month over a 12-month period, the owner made a fair amount of money that year.

9. Don’t put a brand new airplane on leaseback, they lose too much value the first few years and are very quickly not new anymore when on a rental line. An example is the 1999 172SP I bought. I paid $124,000 for it with a fresh engine installed. It would cost about $209,000 to buy that plane new, in its current configuration (in 2004). Since even a new plane looks used very quickly on a rental line, I saved $80,000 (or about 1/3 the price) in exchange for having 2,200 hours already on the airframe. Those hours do not affect the rental rate. There is one exception to this rule however, and that is the new 50% bonus tax deduction signed into law by President Bush. If you have a need for a $150,000 tax deduction this year, buying a brand new 172SP for $209,000 does make sense, because of the unusual tax benefits offered by the new law.

10. Only do a leaseback if you can afford to own the airplane without the leaseback. Used aircraft can be expensive the first few months you own them. Don't expect to take anything home the first six months. People who already have money seem to do well with leasebacks. Those who really cannot afford an airplane in the first place seem to do poorly. These are generalizations of course, but there is an old saw that says it takes money to make money.

11. Buy the right aircraft, the right way. You can do everything else right, but if you buy the wrong aircraft or pay too much, you'll lose every time. This doesn't mean pick a Cessna 172 over a Piper Warrior, this means pick the right Cessna 172 or Piper Warrior. Some airplanes just shouldn't be leased back. A Mooney or Bonanza are good examples. Very old airplanes often make poor leasebacks as well. The only airplane older than about 25 years I'd leaseback would be a Cessna 150. You want something reliable with a known history. Avoid the very high time and very low time airplanes. Avoid an airplane that hasn’t flown much recently. An airplane that has had 500 hours put on it in the past 10 years will have a lot of things break when the flight school puts 500 hours on it in 6 months. I’ve seen this happen to others and it happened to me with my 172N.

12. You must sometimes spend money to make money. People want to rent airplanes with nice interiors and good panels. If the per hour rental rate is equal, would you rather fly in a Cessna 172 with ARC radios and no GPS, or a full Garmin panel? The new panel and a new interior might add 20% to the price of the airplane but double your monthly profit.

13. Look over the past two years records of similar airplanes at the FBO you’re looking at doing business with. Not just the total hours flown, but how much has been spent on maintenance and how much total income there was after all costs. There is no more honest way to see what to expect than to look at the real world figures from existing aircraft on the FBOs rental line. Do not leaseback to anyone who won't show you the records on the existing airplanes and introduce you to the other aircraft owners.

14. Think long and hard about why you're doing this. Many people get into leasebacks for all the wrong reasons, make sure you're doing it for the right reasons. A leaseback can make sense for some people, it can be a disaster for others. It generally isn't a good way to go about having someone else pay for your own personal airplane, since it will wear faster and not be cared for as well as if it were your own. In addition, you're limited in what you can do with it, given that you still have to schedule it and can’t take it very far without it costing you a lot in lost income. It can however provide you with your ratings, some money, and some low cost flying if managed well.

15. To sum it up, a leaseback is often used to reduce the cost of flying, sometimes it is used to make money, sometimes it is used as a tax shelter (consult your tax advisor on this one). The months I did a lot of personal flying, I tended to break even, and have lost money a few months, but then if you consider what my flying would have cost otherwise, I came out way ahead. If you can't afford to own regardless of the leaseback income, consider that you're making a serious commitment and while it is very easy to buy a plane, it can be hard to sell one.

For the record, I had three aircraft on leaseback with two different flight schools at Addison. A 1977 Cessna 172N, a 1999 Cessna 172SP, and a 1997 Schweizer 300CB helicopter. I did well with the older 172 and the helicopter, the 172SP mostly broke even, but I did fly it about 100 hours personally without paying a dime, so it wasn’t too bad. I earned my commercial and CFI license in both airplanes and helicopters, flew almost 500 personal hours between all the aircraft, and came out $36,000 ahead at the end of the day. I sold them once I was done flight instructing, and have since bought a Piper Twin Comanche for my personal use. I considered leasing it back, but choose not to because I want it available to fly whenever I want to go, one thing that isn’t possible with a leaseback.
 
I've seen the way some leaseback aircraft are treated (flight training), I'd never consider it personally. That said when I rent I treat them like my own. People that learn to fly that aren't mechanically inclined or have ever turned a wrench really don't always understand a gentle or normal touch, IMO.
 
I know a guy in San Diego who claims to have made money. I thought about leasing back one of my airplanes, but my financial analysis suggested it was far too altruistic.
 
If it's a simple plane with a low initial cost I could see it working if it's at a flight school that's gonna put 60+ hours a month on it. A mid 70s 172 or Cherokee 140.

On the other hand, I have no idea how any flight school makes money on those Cirrus rentals that fly all of 10 hours a month if they are lucky.
 
I just purchased a zero time engine Warrior II with a Garmin 530 and new interior and low overall time 1982 with 2K hrs total that I think will work. A major renovation makes it fly and smell like new, and it has the avionics to do most everything through commercial...working AC is a plus as well. I paid cash and treating it like a business as I have an Arrow that's my Flyer...we will see and I will report back. Frankly it was the right airplane for the job and doubt I could find another like it in this kind of maintenance posture.
 
If it's a simple plane with a low initial cost I could see it working if it's at a flight school that's gonna put 60+ hours a month on it. A mid 70s 172 or Cherokee 140.

On the other hand, I have no idea how any flight school makes money on those Cirrus rentals that fly all of 10 hours a month if they are lucky.

No kidding. There's a Cirrus for rent at KSPG for $316/hr. For $10 /hr less you can rent a Saratoga.

There's also an Arrow for rent at KSRQ for $249 / hr (dual only, yeah you can't take it solo).

Aircraft rental around here is stupid expensive. Which I guess is fine cause it lets me save up money to buy instead of blowing it on a plane that (along with being expensive) often comes with all kinds of issues. I've had rentals with flat tires, dead batteries, a plane that had a prop-strike (before I flew it, not after), you name it.

Unless I need to renew my currency I probably am NOT renting again anytime soon down here..
 
I imagine that it helps to be in a place with lots of good flying weather. The airplane is not making money sitting on the ground waiting out the weather.

I think this, coupled with a lot of interest in flying/flight training in the local area are important. In my area we can have fairly long stretches of bad weather that can cause planes to sit idle for extended periods of time. I don't know how the local FBO can stand it when a few of their lesser used airplanes sit idle for as long as they do. Looking at the books, I've seen some sit unused for up to six weeks at a time.

My estimate is that if you can get the plane flying over approximately 400 hours/year and minimize your expenses by doing most or all the maintenance yourself is where you'll make money. I would be ok with breaking even, but I am not interested in subsidizing other people's flying hobby.
 
Our flight school twins are leased back to us in block hours. So you can at least recoup some of your expenses if the plane doesn't fly. I'm pretty sure the guy who owns the twins just looks to break even and have a plane to fly for personal trips.
 
I would say "no".

There was a really nice late model T206H for rent near me. I rented it a lot. It was not a cheap rental ($300+/hr wet) but I was very happy, I didn't have to deal with the expense of a plane and only paid for the time I used it. I never met the owner but had a friend who knew the owner. After a couple of years of being available for rent, the owner took it and sold it. I heard through my friend that the owner was not happy. All those extra 100 hr inspections on top of the usual maintenance issues, insurance, etc had taken its toll and they decided it just wasn't worth it any more.

I wish someone else would be take one for the team and offer up their 206 for leaseback now. I miss renting one.
 
I've made money on every leaseback I've done, the secret is four letters... A&P and IA. If you are paying to have maintenance done it makes it real hard to make money.
 
I know it's generally regarded as a losing proposition, but is it always true? Let's say you invested in a simple basic trainer with the only purpose to put it on the flight line at a busy flight school, has anybody done this and actually came out ahead in the end? Just wondering if there is anyone here with actual personal experience and not just hearsay, or OWTs and yes, I've already heard how to make a small fortune in aviation...

The majority of the planes at the Piper school where I spent most of my instructing life were on leaseback. The owners were doctors, business owners, etc who made their money on the back end...when they paid the tax man. Unless you make enough money from your primary business to need a tax shelter, leaseback is not a paying proposition.

Bob Gardner
 
Please to explain "make money."

I own a plane named Candy. She's mine. But she only has two seats.

I've given thought to putting a C172 or PA28 on lease back so I can use it for missions that require extra seating instead of 160KTS on 7gph.

So, if I could put a plane on lease back and stay more or less cash neutral (operating) I would do it.

Would I buy a plane and expect lease back to make it cost less than renting? NO...No... no...
 
Thanks for the replies. I have no intentions of leasing back my airplane and I wouldn't do it to get cheaper flight time. It would be strictly business. I have money to pay cash for airplanes and the place I learned to fly operates on lease backs. It's quite busy and the owner is always encouraging people to do lease backs. I was thinking simple, in demand VFR trainer. Solid, nothing fancy.

I like the idea of a two seater like a 150/152, or a Tomahawk, but perhaps a four seater rents more often, so 172, or Warrior. I'm not really serious about it, but was just musing on the idea. I could easily do it, I could buy more than one, but if it turns out you only make money by wrenching on them yourself, or reducing your training costs, or getting some sort of tax dodge, I'm not as interested.

It just seems to me that there are a lot of flight schools in my area and they all seem to use lease backs. They stay in business, so it seems somebody must be making money somewhere. It can't all be a labor of love.
 
There are lot doing leasebacks but if you keep track you will notice that they have lot of turnover with unhappy owners. Hence why they are always trying to get people in the leaseback game.
 
There are lot doing leasebacks but if you keep track you will notice that they have lot of turnover with unhappy owners. Hence why they are always trying to get people in the leaseback game.

I might have to check it out, but the club I used to rent from seems pretty steady. Many of the same planes I used to rent are still there. There is some turn over, but mostly the twins and higher end planes. Like now they have a Commander 114 on the line and I hope to get a BFR / check out in it this month before it goes away. The basic trainers seem to hang in there.
 
There are lot doing leasebacks but if you keep track you will notice that they have lot of turnover with unhappy owners. Hence why they are always trying to get people in the leaseback game.

The people who are unhappy are those who think that a leaseback is a way for them to have 'their plane' while someone else pays the bills.
The people who are happy and often do this for many years are those who just see this as what it is: A small side-business that on a good day can make a couple of bucks on a without much owner involvement.
 
What theboyz says. In our market at least, there simply isn't enough profit for another party period. If we did a leaseback everyone would lose, as a result, we have no interest in leasing any airplanes from anyone.

I pretty much figure anyone that I would lease an airplane from for rental would end up hating me. There is no way it could work for us unless I screwed them over with the terms of the deal and that's simply not something we'd ever be willing to do. Community is way too small for that sort of thing, plus who wants to be the guy ripping off people who obviously can't afford the airplane in the first place (most people wanting to do a leaseback fit in this category).

IMO the only way to make the rental business work is to own the airplanes outright. Even then, you need to really play the long game. A lot can go wrong that could trash your numbers for many years before you'd make up the loss. We've been really lucky in that regard. Even then, you still get nickle and dimed. We buy a lot of damn tires....

The rental business is a lot of work given the small profit margin. However, when it's a really beautiful day, and I'm out at the airport and see our three Cessnas banging out touch & go's in the pattern it suddenly all becomes worth it to me. The students in those airplanes would likely never become pilots if we didn't exist.
 
The majority of the planes at the Piper school where I spent most of my instructing life were on leaseback. The owners were doctors, business owners, etc who made their money on the back end...when they paid the tax man. Unless you make enough money from your primary business to need a tax shelter, leaseback is not a paying proposition.
Leasebacks aren't a tax shelter (and have not been since I've been involved in leasing). They're passive activity and hence the deductions you can take on losses are quite limited.
 
Leasebacks aren't a tax shelter (and have not been since I've been involved in leasing). They're passive activity and hence the deductions you can take on losses are quite limited.
It was back in the 70s and 80s, Ron. I'm not surprised that tax laws have changed...but I was not aware of the changes.

Bob
 
Leasebacks aren't a tax shelter (and have not been since I've been involved in leasing). They're passive activity and hence the deductions you can take on losses are quite limited.
?
What if one was actively managing said asset through owner maintenance, upkeep/cleaning, promotion, etc?

Seems like if owning something not being able to realize a loss would screw over a lot of people with a rental property managed by someone else. Can that person write down a loss if they need to fix something or have vacancies for several months?

No real dog in this hunt but have thought about leasing trainers as something on the side so your statement about writing off losses is a little shocking.
 
It was back in the 70s and 80s, Ron. I'm not surprised that tax laws have changed...but I was not aware of the changes.

Bob

Tax Reform Act of 1986. AKA TRA86 to the real estate investor/syndicator crowd.

-Skip
 
I thought it was very telling when I got to know the owner of my PPL flight school/FBO and as a business owner myself, we got talking operations as I was interested in learning about the business side of aviation. All the planes were in the air non stop all day, it was a busy operation.

He said bluntly regarding leasebacks:

"Leasebacks almost ALWAYS work out in the FBO's favor and rarely in the owners favor...we love them!"
 
?
What if one was actively managing said asset through owner maintenance, upkeep/cleaning, promotion, etc?

Seems like if owning something not being able to realize a loss would screw over a lot of people with a rental property managed by someone else. Can that person write down a loss if they need to fix something or have vacancies for several months?

The trick is to turn income that is normally passive into active income. Yes I believe it can be done but you have to have iron-clad documentation, complete with photos of yourself cleaning out clogged toilets at 3am. Remember that absentee ownership of real estate is the example given in the regs for passive income, so your friendly local IRS agent isn't likely to let a marginal case slide. Proving the active nature of your involvement won't be easy. -Skip
 
I've made money on every leaseback I've done, the secret is four letters... A&P and IA. If you are paying to have maintenance done it makes it real hard to make money.
Rvguy can you elaborate? What type of AC? What were your annual maintenance costs? How many hours did they fly month? What type of insurance did you carry(did you need liability coverage since you worked on and signed off the logs)? I'm an A&P(working on IA) and have been thinking about pulling the trigger and starting with a 172 and run it as a side business. Thanks.
 
We ran 150's, 152's and Cherokees on lease back. Both me and my father are a&p's. He holds an IA. All maintaince was done by the two of us. Including 100hrs and annuals, so the only "real" expenses were parts. We also ran a pilot shop so we had dealer status with a lot of suppliers. The aircraft flew 50 to 150hrs a month. I had a twin commanche that I kept as a personal plane so any breakdowns out of town were quick road trips so no outside maintence. The 150 was factory IFR and very low time so it was a rental favorite. It paid for itself in a couple of years. If you are paying outside people for annuals and 100hrs the profit margin is eaten up quickly. If you are looking at 1 amu for a 100hr that's $10/hr right there. Insurance was handled under the flight schools policy, as for liability, talk to your accountant and lawyer and see what you can get by with.

Bob
 
The more wear and tear on the plane, the more money spent on MX. Normal contracts have the owner responsible for the MX costs. If you dont care about the plane being beat up, you can make some money.
 
I like the idea of a two seater like a 150/152, or a Tomahawk, but perhaps a four seater rents more often, so 172, or Warrior.
You might be surprised. Location and volume of renters play a big role. The school I learned at had 2 152's and 2 172's. Obviously the 152's flew the most considering the cheaper cost. If one was down for overhaul or extensive mx, the other which was on leaseback was the dominant aircraft. Flying it 6+ times per day almost everyday cut down on operating costs and the owner ends up making some $$. You just have to consider the wear and tear they get having student after student flying it. Most people won't treat them with kids gloves..but they keep the oil hot!
 
I just purchased a zero time engine Warrior II with a Garmin 530 and new interior and low overall time 1982 with 2K hrs total that I think will work. A major renovation makes it fly and smell like new, and it has the avionics to do most everything through commercial...working AC is a plus as well. I paid cash and treating it like a business as I have an Arrow that's my Flyer...we will see and I will report back. Frankly it was the right airplane for the job and doubt I could find another like it in this kind of maintenance posture.
Well? Eight years later, what's the report? Did you make money?
 
No and ended up in five lawsuits when an active FAA employee, probably committed suicide, also killing his five year old daughter in a bad domestic divorce situation…child was kidnapped and was given Reds Apple ale and over 2 times the limit for an Adult. Worst time in my life…all resolved now but took its toll…
 
I knew one guy who came out ahead. Leased 4 or 5 to a flight school. Strictly a business proposition for him; he didn’t fly any of them. Had another airplane for his own use.

The more typical, buy airplane for personal use and lease to a flight school, is mostly a partial recoupment and not a money maker. It can also be a drain. So much depends on the airplane, the mix of pilots, and the fees it can generate.

My first private rental was a Turbo 182RG. I first flew it as a flight school rental. One day the owner called to tell me he was taking it off leaseback. “It’s costing me more and all I’m getting back is a tired airplane.”
 
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