Aviation finance/credit

PilotRPI said:
Absolutely nothing wrong with financing a plane, even if it is a toy, if it fits within a well defined budget. Credit used responsibly is fine. Some people on here have a total aversion to any type of credit usage, so they may not be the best to ask about loan differences.

While the HELOC may have better rates now, they can fluctuate, and have nowhere to really go right now but up. It is true they may stay low for a while as well. A traditional fixed loan may have a higher rate, but will offer the benefit of not changing over time. So if that higher rate fits into your plan it is lower risk than a HELCO which MIGHT increase during the term of your loan to something higher than the offered fixed rate.
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Very well said. Other factors to consider: amount of equity EACH partner may have in their home; some may not wish to further mortgage their home; if you're in a partnership on a plane EVERY partner had to be on same page. I believe Ed is the SOLE owner of his plane and not in a partnership. So yes, as a CPA I did figure it out.
 
JHW said:
Sure, I finance dirt, tractors, semi trucks. They make money, or at least that's what I tell my wife.

Finance a plane, car, boat? No way

In the OP's case, trying to finance a 60 year old piper that usually sells for less than a used pickup truck, you have to wonder if what the look will be on the bankers face.
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The plane is 8 years old. Cirrus SR22.
 
EdFred said:
Some banks do offer a fixed rate on HELoCs. Usually half to three quarters of a point higher than the variable.
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Never heard of that. That's pretty cool. It pays to really shop around as this shows. Just keep in mind that an inability to pay may tie the risk to your house and not just the plane. But it may offer a very attractive rate. Just more risk/reward to consider.
 
James331 said:
Overhaul on a IO520 is about 17k and 500 for removal and installation.

Not sure about a new engine factory direct.
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this is all true, but you have to have something that can be overhauled for that rate. When you have a case crack on you from the inside out, and it's not apparent what the damage is until you have shipped it out and had it ripped apart, you aren't in the best position to make those decisions.

So, yes, a NEW IO-520 including installation is about 50K. Don't have the bill for the installation yet, but we'll be close to that neighborhood when we're done, I'd think.

If we'd have had a loan, and then had to borrow money again to fix this, I don't think I'd be flying... I understand all about borrowing money. Most of America does not understand and cannot quantify risk. Bad things, unpredictable things, can happen, and occasionally they do. If you've got a plan, then fine, if you don't, it'll hurt.
 
asgcpa said:
Very well said. Other factors to consider: amount of equity EACH partner may have in their home; some may not wish to further mortgage their home; if you're in a partnership on a plane EVERY partner had to be on same page. I believe Ed is the SOLE owner of his plane and not in a partnership. So yes, as a CPA I did figure it out.
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So what would you do it were to go 4 way partners on a 200k plane. You happen to have the 50 cash laying around, the other 3 don't. Are you really going to pay interest on a loan when you don't need to? Doesn't really sound like you figured it out.
 
EdFred said:
So what would you do it were to go 4 way partners on a 200k plane. You happen to have the 50 cash laying around, the other 3 don't. Are you really going to pay interest on a loan when you don't need to? Doesn't really sound like you figured it out.
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Many partners won't want to encumber the aircraft with a loan. What happens if one partner has a loan on his share and stops paying....?
 
paflyer said:
You finance a car or a house. What's the difference?
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I don't finance cars either.

A HELOC does make sense considering the low rate you could get, but my wife is gun shy about anything that potentially puts the house out as collateral. Her parents lost a house to the bank as a kid, and I think that's stuck with her....
 
dans2992 said:
I don't finance cars either.

A HELOC does make sense considering the low rate you could get, but my wife is gun shy about anything that potentially puts the house out as collateral. Her parents lost a house to the bank as a kid, and I think that's stuck with her....
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Completely understandable position. For me, the new rule is don't buy anything unless I have 2 years of survival money if I suddenly went to absolutely $0 income. Right now, I'm at...holy crap...I just realized it's 31 years of funds that I have saved up. That doesn't even take into account selling anything (not including the house, which I would keep), which would get me another 8 years.
 
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James331 said:
Well if you're financing a toy chances are you're not exactly a good decision maker in the first place.
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Life is so short... I sometimes get judgmental with other people's decisions... Esp. When they want to tax me more because of them...BUT...

Not too long ago, I was pretty familiar with an individual actually more than just one who waited his whole life to retire... Worked hard, etc, and not long before 65 had an inoperable tumor and died shortly thereafter...

I know I know, so what... I will tell you though really made me think about the 12% I was putting into the 401k. Who really wins when you save and save and prepare.... And draw the short straw on the timing of life. What if...in order to be "responsible" wait 7 more years so pay "cash" but 10 years hence craps out on the medical... Now who has really learned about time value of money....

All I'm saying is life is really short sometimes and I don't need to believe my way of living (relatively conservatively mind you) has to be everyone else's or "they're not a good decision maker." Some like planes, some rvs, some boats, some dollars on a paper stmt.... Who am I to judge.

I ended up not too long ago....buying a plane I could afford...it's worked out well... But the family has enjoyed flying so much that now they're on board for something much more expensive... Was being "prudent" in the first instance the best choice??? Or should I have bitten off more then in hopes it would have worked out...predicting the future is hard and balancing all the factors that go into this "vapor" of a life.
 
gov98 said:
Life is so short... I sometimes get judgmental with other people's decisions... Esp. When they want to tax me more because of them...BUT...

Not too long ago, I was pretty familiar with an individual actually more than just one who waited his whole life to retire... Worked hard, etc, and not long before 65 had an inoperable tumor and died shortly thereafter...

I know I know, so what... I will tell you though really made me think about the 12% I was putting into the 401k. Who really wins when you save and save and prepare.... And draw the short straw on the timing of life. What if...in order to be "responsible" wait 7 more years so pay "cash" but 10 years hence craps out on the medical... Now who has really learned about time value of money....

All I'm saying is life is really short sometimes and I don't need to believe my way of living (relatively conservatively mind you) has to be everyone else's or "they're not a good decision maker." Some like planes, some rvs, some boats, some dollars on a paper stmt.... Who am I to judge.

I ended up not too long ago....buying a plane I could afford...it's worked out well... But the family has enjoyed flying so much that now they're on board for something much more expensive... Was being "prudent" in the first instance the best choice??? Or should I have bitten off more then in hopes it would have worked out...predicting the future is hard and balancing all the factors that go into this "vapor" of a life.
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why stop there? you could die tomorrow, better just quit your job and spend every cent today

I've got no problem with YOLO people as long as they would crawl off into a ditch and starve to death quietly when they run out of money. Unfortunately though, when they reach that point they mostly seem to think that us taxpayers owe them something in the name of "fairness"

BTW if you're only saving 12% you're probably already in the YOLO camp. We're putting aside 25-30% and discussing amongst the family that it probably isn't enough and we need to cut back on some expenses to save more.
 
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This thread is a repeat of many others I've seen on POA. Someone asks for advice or recommendations about financing an aircraft, and it attracts those that unequivocally state financing a plane is crazy and only losers would do such a thing.

It's pretty certain the OP has considered the pros and cons of borrowing money. In all probability he also examined the costs of ownership and the likelihood of unplanned expenses, up to and including an engine replacement.

I don't imagine he needs people wagging their fingers in his face.
 
EdFred said:
Some banks do offer a fixed rate on HELoCs. Usually half to three quarters of a point higher than the variable.
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Usually if it is fixed rate, it is a straight up home equity loan, not a line of credit.
 
dans2992 said:
I don't finance cars either.

A HELOC does make sense considering the low rate you could get, but my wife is gun shy about anything that potentially puts the house out as collateral. Her parents lost a house to the bank as a kid, and I think that's stuck with her....
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I should point out that I did have the cash to pay outright at any time so the house was never at risk (not to mention it's a "balloon" loan that had real minimal monthly carrying charges (interest only).) The LOC was a convenient way to not use any capital or have to apply for a loan at double the rate .
 
JHW said:
why stop there? you could die tomorrow, better just quit your job and spend every cent today
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Because, and this is the key, that's just as unwise as living solely for when I'm 93.

Live for a proper balance of today and tomorrow, not out of fear for when I'm 93 or out of reckless abandon at 33.

And over 25% of my current salary is goes into retirement planning already.
 
3393RP said:
This thread is a repeat of many others I've seen on POA. Someone asks for advice or recommendations about financing an aircraft, and it attracts those that unequivocally state financing a plane is crazy and only losers would do such a thing.

It's pretty certain the OP has considered the pros and cons of borrowing money. In all probability he also examined the costs of ownership and the likelihood of unplanned expenses, up to and including an engine replacement.

I don't imagine he needs people wagging their fingers in his face.
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Thank you.
 
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Oh, and being self employed I put 25% into my SEP. I could pay for the share in cash, but why bother when a loan is 4.7% fixed and my investments are yielding 12%? Not to mention if I cash out investments there will be capital gains taxes to pay. So contrary to EdFred's lectures about not figuring it out, I believe I have. Each situation is different, and Ed needs to wake up and smell the coffee.
 
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3393RP said:
I don't imagine he needs people wagging their fingers in his face.
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So then, that means that you need to wag yours into their faces?


Why do you have the moral "high ground"?:nono:
 
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asgcpa said:
Oh, and being self employed I put 25% into my SEP. I could pay for the share in cash, but why bother when a loan is 4.7% fixed and my investments are yielding 12%? Not to mention if I cash out investments there will be capital gains taxes to pay. So contrary to EdFred's lectures about not figuring it out, I believe I have. Each situation is different, and Ed needs to wake up and smell the coffee.
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Not sure that it was a "lecture". He has a different viewpoint, and to some a valuable one. If not you, then let the water roll off your back and enjoy your new plane. I hope it works out for you and you get everything you want.
 
retailguy said:
Not sure that it was a "lecture". He has a different viewpoint, and to some a valuable one. If not you, then let the water roll off your back and enjoy your new plane. I hope it works out for you and you get everything you want.
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Thank you for your opinion and your well wishes. However, I was very specific in what I asked in my post. I asked about specific recommendations about a finance company and their recommendation. Several folks were kind enough to answer my question and I thank them. I certainly wouldn't have asked if I had not done my analysis. I certainly viewed Ed's response as a lecture, and if you go through his comments I am sure you would believe it was. Frankly, in speaking to many in the past this is the reason I have mitigated my interaction in asking questions of the folks on this board is because responses are not on point with the questions asked.
 
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OP, I'm glad you asked, I have never heard of Dorr. I am just beginning the process of buying an airplane and checking financing options. Of course, as with any Internet message board, you have to separate the wheat from the chaff. People love to tell you you're doing it wrong.
 
Still haven't gotten an answer as to why a higher non deductible loan is a better choice than a lower rate deductible loan. Each party has to bring money to the table, how each person brings it there is their choice. Why are you choosing a higher rate non-ded loan?

As a CPA you should be able to easily provide a reason why you are choosing to finance your part in such a manner. If you can't I know who to NOT ask financial advice from.
 
asgcpa said:
Thank you for your opinion and your well wishes. However, I was very specific in what I asked in my post. I asked about specific recommendations about a finance company and their recommendation. Several folks were kind enough to answer my question and I thank them. I certainly wouldn't have asked if I had not done my analysis. I certainly viewed Ed's response as a lecture, and if you go through his comments I am sure you would believe it was. Frankly, in speaking to many in the past this is the reason I have mitigated my interaction in asking questions of the folks on this board is because responses are not on point with the questions asked.
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Appreciate your perspective. I obviously have a different one. I'm of similar background to you and I have a completely different opinion. I wouldn't do what you're doing, but that's neither here or there.

The risk you're taking far exceeds my comfort. In your initial posting I didn't see any of the things that I'd be concerned about. So I brought them up, in spite of the fact you didn't mention them. While I wouldn't like hearing them either if the situation was reversed, I'd want to consider things I might not have thought about.

Again, I wish you well and hope your partnership goes well. If it doesn't go well, feel free to PM me. I've been in several partnerships, most went very well, and a couple didn't go so hot. I was well funded, but others weren't, in spite of the educational background or what they told me.
 
EdFred said:
As a CPA you should be able to easily provide a reason why you are choosing to finance your part in such a manner. If you can't I know who to NOT ask financial advice from.
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Again, your comments are completely off point from my question to the group and strictly noise/static. Frankly, I wouldn't even accept you as a client as in my perspective, you would be hard to deal with. As to your original question, it has to do with demographics and the fact that everyone in the partnership has to be on the note. What if one partner does not own a home, and therefore does not have a loan and does not want to liquidate investments? My point had NOTHING to do with my part. While I own a home, we as a group have to go by what the entire group must do. Maybe you don't fully understand the ramifications and nuances of partnerships. Obviously you did not read my responses. If you did, you wouldn't have made that last comment. It seems to me you just love to tell people what they are doing wrong whether you are correct or not, or if it's on topic or not. Unless you can contribute by responding directly to my question posted, then I would respectfully ask you to stop throwing around red herrings.
 
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mikeinbama said:
OP, I'm glad you asked, I have never heard of Dorr. I am just beginning the process of buying an airplane and checking financing options. Of course, as with any Internet message board, you have to separate the wheat from the chaff. People love to tell you you're doing it wrong.
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Mike, glad I helped. And you're right you have to separate the wheat from the chaff.
 
asgcpa said:
I'm in with a good group. My FICO is near the top. They are quoting about 4.5-4.75%, 20 year term. I'm a CPA so I'm very familiar with the time value of money. There are no prepayment penalties so the combination of lower rates and ability to pay extra makes it very affordable. I want to have extra cash around for those unexpected things that are expected to pop up. We also built in all sorts of reserves with our monthly cash budget, and are conservative with our variable per hour flight budget.
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When looking at debt versus cash isn't a big consideration comparing loss of ROI in addition to the cost of the money?

It would seen the interest rate of 4% is compounded by the loss of opportunity to earn 2 or 3%. So the real cost to take on debt is the 4 + 3 or 7%. The inflation rate would affect both so I assume that part is a wash.

If you have the cash to make the purchase and a reserve is not a factor, would you buy the debt anyway?
 
LoxaBagels said:
When looking at debt versus cash isn't a big consideration comparing loss of ROI in addition to the cost of the money?

It would seen the interest rate of 4% is compounded by the loss of opportunity to earn 2 or 3%. So the real cost to take on debt is the 4 + 3 or 7%. The inflation rate would affect both so I assume that part is a wash.

If you have the cash to make the purchase and a reserve is not a factor, would you buy the debt anyway?
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Look at response #57 and my response regarding partners. Again, I asked for specific referrals in my post not why we are doing this.
 
dans2992 said:
Better yet - cash.

I'm not sure I'd want to finance a plane (unless it was for business use).
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It depends on the time value of the money and your position. If you have money, it's often cheaper to use other people's money instead of your own.
 
asgcpa said:
Oh, and being self employed I put 25% into my SEP. I could pay for the share in cash, but why bother when a loan is 4.7% fixed and my investments are yielding 12%? Not to mention if I cash out investments there will be capital gains taxes to pay. So contrary to EdFred's lectures about not figuring it out, I believe I have. Each situation is different, and Ed needs to wake up and smell the coffee.
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Please tell me where I can get 12% without going to Vegas.
 
Henning said:
Most markets, if you were smart in 2008, rental real estate is making better than 12%.
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Got a time machine? It isn't 2008. My experience was that real estate started to sputter in 2006/2007. Lots of cities saw big declines in real estate prices in 2008.
 
Cap'n Jack said:
Got a time machine? It isn't 2008. My experience was that real estate started to sputter in 2006/2007. Lots of cities saw big declines in real estate prices in 2008.
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Exactly, and a lot of people with money laying around bought at the bottom of the market and have their money invested there where it is returning more than 12%. Simple answer to a simple question which for some reason you felt nit necessary to make a pointless comment on because you really love the smell and taste of my anus.
 
paflyer said:
Please tell me where I can get 12% without going to Vegas.
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One of my tax clients is a senior VP at a large brokerage firm. He takes care of my investments based on my risk profile.
 
Henning said:
Exactly, and a lot of people with money laying around bought at the bottom of the market and have their money invested there where it is returning more than 12%. Simple answer to a simple question which for some reason you felt nit necessary to make a pointless comment on because you really love the smell and taste of my anus.
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And you made a pointless post since it hasn't been 2008 for some time. There isn't much making 12% now. Farm real estate here seems to be going down right now here. If real estate is increasing by 12% per year, it is a few localized places. If you don't have a time machine, it is pointless to post what one should have done in 2008.
 
Right now just about any safe haven real estate investment returns 12pct.

Thats not Nebraska, mind you.
 
mtuomi said:
I was talking about safe havens, not the market as a whole.
Safe havens are places where old money buys. Parts of CA, NYC, PCL and so on.
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Like I said, a few localized places. Detroit is also reported to be showing high growth too, mentioned in one of the articles I cited. Even so, e growth is also reported to be slowing.

The places you mentioned seem to be where the fall was the farthest in 2007 for the most part?
 
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