I need some insight from the experienced re: Financing....

I'm a PPL thinking about buying an LSA (I'm still debating EAB kit or SLSA).

I need some guidance on two subjects: Financing and Insurance. I'll start a thread for each.

Financing: with rates so low, it seems foolish to cash out equities and tie up capital. How does aircraft financing work for kits and LSAs?

Providers?

 

Dont finance toys.

Debt is debt not matter the interest rate.

An E/AB is a poor asset to consider as an investment. Every part of the AC goes down in value. $50k EFIS upgrades don't add $50k to the value. Every tick of the hobbs is money out the door.

 

I wouldn't hesitate to finance a plane (or any toy for that matter and have done so), but I wouldn't cash out equites to do so. I don't consider any of them investments just assets because I'm enjoying the hell out of all of them and expect them to depreciate. Bottom line, debt in and of itself isn't bad, poor debt management is what's bad. Everyone's circumstances are different and what works for one may be a disaster for another. YMMV...

 

Financing for an EAB will be either a HELOC or personal loan.
I'm building a Kitfox "out of pocket". While experimental aircraft may not be investment grade the prices are going insane. I'm not building it to sell. If I were I would just need to include"normal" engine, panel, covering choices.

 

financing is a tragedy of the commons though, yet that never gets talked about for some reason.....

 

It may be simpler to take out a personal loan, if possible, rather than trying to finance an aircraft.

Of course this may be problematic for a number of reasons such as loan limits, credit rating, and your personal financial situation.

 

Agree. If you ever find some entity that will finance an E-AB Kit, let us know.

Cheers

 

I generally agree. But it’s a balancing act. With the market doing so well, I hated to pull the cash out, particularly with borrowing rates so low.

still, I did cash out some gains & put the money into a toy.

 

Because most of us are Commons and want to fly an airplane of our own before we die.

 

No experience with buying AC kits or parts but as long as banks via CCs will loan money for free for 12-18 months its a nice and easy option to have. While flipping a few cars Ive had $35K+ on CCs for parts and services, only paid 3% once on a balance transfer. Applied for different ones every year or so. I did know I would cash out and pay them off before long though. Not to mention the points/cash back offset.
PS- NO PAPER BILLS TO THE HOUSE

 

Well, by definition it's not yours, if it's financed. The problem is that people captured by the dogma of debt peonage don't really understand the distinction between usufruct and wholesale ownership. Your retort is merely an appeal to the former while confusing it for the latter. That's not a distinction without difference either, though I understand why it would seem like one for people who believe in the inevitability of said tragedy of the commons in the first place.

I know I won't change anybody's mind on that on here, so I'll digress. TETO.

 

SO you're willing to bet the house on it? If you never finish the project (and E/ABs have a horrific track record overall) you're 15+ years into paying for something not even worth the metal its made of. If you HELOC the E/AB, does your spouse know? Wait, don't tell me she also get a new toy... because 'thats only fair'. Good luck being a wage slave.

The only real value in an E/AB is the engine. I might consider a loan for an engine (but not factory new) because that asset, as long as properly cared for (mechanically and legally) will hold value.

RIght now I have less than $6k into my E/AB. I bought it two years ago and it still has at least another year until finished. I figure $10k all in for a flying plane.

I watch all the builders on youtube and they paint a rosy picture... putting out a nice 30 minute video every 2 weeks. Then I realized that most are several years into a project, and still haven't paid for all the parts (ie motor and interior). They talk about financing the build like everyone has $80k to put on the line.

 

IMO the risk isn't that great. Anecdotal evidence, at least for RV kits, suggests that resale on partial kits is at worst a break-even proposition. But there aren't absolutes. Financing isn't for everyone, but it can be a useful tool for those who know who to mange their cash flow and debt load. I built and fly an RV-10 which cost me somewhere around $165K to build all in. I financed $105K of that. I also have 2 motorcycles (which are paid off now), and a boat. There's no way I could have these things without financing, at least at this point in my life. Oh and I don't give a crap on who technically "owns" them, because I'm the one that has possession and is having a blast enjoying their use. YMMV.....

 

I don’t think you have a clue. Vans kits are so popular and slow to ship these days you can sell one partially complete or even started easily, occasionally for more than the purchase price.

 

That’s today. But how about in 3/5 years?

 

Who knows? The trend is they’d be worth more.

 

Maybe not for more than you paid, but you certainly won't take a bath. I'll been around RVs since 2003 and the market for partial kits has been remarkably stable throughout numerous economic cycles. I do think there will eventually be a correction in the market prices for used aircraft, boats, etc which are stupid-crazy high right now. For example, RV-10s selling (not just asking) at $300K+, 5-year old boats selling for over what sellers paid for them new, etc, etc.

 

The very wealthy use debt on a regular basis. Debt for their homes, debt for boats, debt for their planes, debt for their businesses.

Pay cash all you want. When I'm paying 2-6% interest on assets and making 12-15% on investments I'm making the best use of my money.

I did pay cash for my share in the plane I co-own. We had the cash and often co-ownerships don't want debt on the asset due to the risk of another owner having financial issues. We've paid cash or had car loans, but those are short term assets of declining value. Oddly my car is worth what I paid for it 4 years ago, but that's an odd temporary situation in the car market. Normally cars continually lose value.

 

12-18 months?? Which cards do that?

 

That's a noble goal, but very few people can afford to drop 100k +/- cash on a toy.

I'd also like to hear from people who have been through the financing process. My sense is that it isn't much different from other financing, but the rates seem much higher.

 

From a guy who has never paid a penny in credit card interest his entire life, finance it if you want to. Interest these days are rather low and bankruptcy laws favor the borrower.

 

I'm not a financial expert, but I'm pretty familiar with risk management, and they're somewhat related.

As far as I know, there are 2 main kinds of loans, secured and unsecured. Unsecured include credit cards and personal lines of credit. Secured is normally tied to the asset you're buying, but doesn't have to be. I wouldn't suggest mortgaging your home to finance an aircraft, if only because you're going to feel silly if you trash the plane and end up having your house tied up in that debt. Just me. And I don't see someone financing a kit based on the equity of the kit. If you finance an aircraft, there's going to be a required down payment, and I'd bet a requirement for hull loss insurance. So that if you trash the plane, the bank is paid, and you walk away - hopefully that is. If you take out a personal loan or put it on a big CC, you don't have to have the plane insured, but you probably should, because you aren't going to be able to walk away from that unsecured loan easily, assuming you have a home, investments, etc.

So my 2 cents would be to get an aircraft loan if you want to buy an aircraft, and if you buy a kit consider if you're willing to take the risk of financing it. I think the risk of the kit is mostly that it sits in your garage while you try to find time to build it, meanwhile you're paying for it plus interest.

As far as the own/finance argument goes, a rough expression of that is the Archie Bunker quote "You don't buy beer, you rent it." Or, that at the end of the day, we start with nothing, we end with nothing, and in the middle we have toys. Some things can be considered investments, but they all have risk. Ownership is fragile for most things. My close friends with grandparents or great-grandparents from eastern Europe can vividly attest to that.

 

I was in your position a couple years ago when I bought my plane. There were some EAB and SLSAs that I liked, but financing a certificated aircraft was much easier than financing an EAB or LSA. Based on the conversations with the banks I spoke with, Vans RVs were kind of an exception (some banks would finance some RVs). Overall, if you don't need a sport pilot qualified plane, then a Cessna 150, Grumman AA1/A/B/C, or some other certificated airplane would be much easier to finance.

I have read (but I did not research them myself due to price limitations), financing some new SLSAs can be made simpler though manufacturer/distributor deals with banks.

 

This might have already been said, but another nice thing about EAB is you can buy the kits, avionics, engine as you go, allowing you to save up and avoid financing rather than having to plunk down > $100,000 at once.

 

Of course while you’re spending money, you’re not flying. Personally I like flying a lot more than building.

 

That's why I'm keeping the 50+ year old Mooney which is 75% of what I need until I finish the RV-10.

 

Maybe—that was true for me when I first started building but in the latter half I was flying regularly and even managed to earn my Instrument Rating. Again there aren’t absolutes in this business.

 

If you think it’s a good idea to finance one then you should finance two maybe three

 

Time for responses to show how useless this comment is. I'll go first.

If you think it's a good idea to have a wife then you should have two maybe three.
If you think it's a good idea to get a colonoscopy then you should get two maybe three.

 

If you think it’s a good idea to give a pint of blood, you should give two or three.

 

If you think it’s a good idea to read one of the above posts, you don’t understand.

Cheers

 

Sorry, I am off my game. Work has been...a distraction. Lots of bad drama. I’ll do better next time.

 

If you think it's a good idea to get a root canal, maybe you should get two or three!

 

I recently inherited a sizable amount of money. Normally, I would invest most of it, but things are unsettled in my family, and I've begun flying lessons, with the goal of earning my PPL, after my SPL. I plan on buying a certified plane soon after, using part of the inheritance as a down payment, and more as a reserve. I'll probably invest some of the money in income securities to generate enough cash to make the monthly payment, so when the plane is paid off, I'll still have the cash. That's essentially the plan we had when we bought our second home.

Once I have the certified plane lined out, I want to build a EAB; and will probably pay as I go. A lot of kits come in sub-kits, so I can buy and build one while I'm accumulating money for the next, plus add to the engine and avionics fund.

 

https://www.comparecards.com/best-c...id=1d231778-8137-4681-8158-08f0e991c664&mta=1
We even have most of our monthly bills paid with CCs. My dad would be ashamed of me using a CC for groceries...until I explained the game. Discover is giving me 5% on groceries this quarter. A bit more than chump change but its still better to receive than give.

 

How did I not think of that one, I just had a root canal yesterday!