Leaseback. Right for me?

saddletramp

saddletramp

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saddletramp
I'm going to be bit vague here because this deal is still in the works.

I'm consider buying a high performance single that has been owned by a reputable FBO for over 20 years. I'd buy it with cash & lease it back to them. The airplane isn't flown much presently mostly due to high insurance requirements & they were considering selling it.

Here's why this might work for me:

I only see myself flying 75 to 120 hours per year. Some business but mostly personal.

This would allow me to buy more airplane than I could justify if I were just buying it for just my personal use.

I need something to invest in where I could stop the IRS bleeding of my bank account. This would not be a big deal financially for me. I don't see a lot of risk here. I'm not in the ownership of the business where I'm employed so I can't buy it through a business.

This would help the FBO justify keeping it on their flight line. I would schedule it's use just like any other customer & pay operating costs each hour I flew it. They would rent it out about 100 hours per year.

I'm not looking for income here. I've owned an FBO before & owned airplanes in the past so I haven't got starry eyes about making a profit.

Unless I'm missing something I think this would defray some of the costs of ownership & let Uncle Sam pay for some of it too.

Opinions? :dunno:
 
saddletramp said:
I'm going to be bit vague here because this deal is still in the works.

I'm consider buying a high performance single that has been owned by a reputable FBO for over 20 years. I'd buy it with cash & lease it back to them. The airplane isn't flown much presently mostly due to high insurance requirements & they were considering selling it.

Here's why this might work for me:

I only see myself flying 75 to 120 hours per year. Some business but mostly personal.

This would allow me to buy more airplane than I could justify if I were just buying it for just my personal use.

I need something to invest in where I could stop the IRS bleeding of my bank account. This would not be a big deal financially for me. I don't see a lot of risk here. I'm not in the ownership of the business where I'm employed so I can't buy it through a business.

This would help the FBO justify keeping it on their flight line. I would schedule it's use just like any other customer & pay operating costs each hour I flew it. They would rent it out about 100 hours per year.

I'm not looking for income here. I've owned an FBO before & owned airplanes in the past so I haven't got starry eyes about making a profit.

Unless I'm missing something I think this would defray some of the costs of ownership & let Uncle Sam pay for some of it too.

Opinions? :dunno:
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You are gonna get screwed....:rolleyes:
 
How so?

If the deal goes south with the FBO I'll still own a nice airplane.

When you have time. A bit more information would be very useful to support your statement. :wink2:
 
Have them keep the plane and you just rent it for however many hours you need it. Negotiate a block rate of 50hrs with a payment of 8hrs/month so they have a steady baseline cash-flow.



The technical term is 'affinity fraud'. All the snares have been put out. 'you save taxes', 'you can afford more plane that way'.....
 

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saddletramp said:
How so?

If the deal goes south with the FBO I'll still own a nice airplane.

When you have time. A bit more information would be very useful to support your statement. :wink2:
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If the numbers work for that FBO..... Why are they selling it to you??:dunno::dunno::rolleyes:
 
Actually, I approached them.

I realized the airplane wasn't flown much & I was in search of a 182 so I started the dialog. This FBO has been in business for 50 years, family owned, & have a stellar reputation in the community.

So, I'm the dog that dug up this bone.
 
N801BH said:
If the numbers work for that FBO..... Why are they selling it to you??:dunno::dunno::rolleyes:
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It wasn't working for them. They were thinking of selling the thing because it was barely breaking even. I've seen the numbers.

I figured if I bought it & kept it in their line...I could benefit from some tax write-offs & they could keep the plane for the few pilots who do rent it.

Edited due to excessive wine consumption.
 
saddletramp said:
It wasn't working for them. They were thinking of selling the thing because it was barely breaking even. I've seen the numbers.

I figured if I bought it & kept it in their line...I could benefit from some tax write-offs & they could keep the plane for the few pilots who did rent it.
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Because the motor is close to TBO ?:dunno:..

Or they found corrosion in the last 100 hour inspection:dunno:

Or..........:rolleyes2::rolleyes2::rolleyes2::rolleyes2:
 
saddletramp said:
It wasn't working for them.
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Going forward, it will be working for them. It just won't be working for you.


There is no magic that turns actual loss into a tax benefit. This is not a situation where you benefit from bonus depreciation, in this setup the only 'tax savings' will be from the actual losss you incur on this business venture. The may reason why this will remain to be a sinkhole is insurance. A commercial policy on a complex plane is expensive. The other problem is that the FBO manages the maintenance so whenever their mechanic has some downtime, he can find something wrong on your plane, fix it and bill you for the hours. If it is just the low utilization that causes the plane to be a loss at this time, then offering a block lease should make the deal worthwhile for them. That way, you can use your cash for something less risky and you still have the plane available for your travel needs.
 
weilke said:
Going forward, it will be working for them. It just won't be working for you.


There is no magic that turns actual loss into a tax benefit. This is not a situation where you benefit from bonus depreciation, in this setup the only 'tax savings' will be from the actual losss you incur on this business venture. The may reason why this will remain to be a sinkhole is insurance. A commercial policy on a complex plane is expensive. The other problem is that the FBO manages the maintenance so whenever their mechanic has some downtime, he can find something wrong on your plane, fix it and bill you for the hours. If it is just the low utilization that causes the plane to be a loss at this time, then offering a block lease should make the deal worthwhile for them. That way, you can use your cash for something less risky and you still have the plane available for your travel needs.
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Thanks. You have given me some information that I can ponder.

Block time might be the answer. I planned on renting the plane in the next few weeks to see how it fit my wife & I.

I'm approaching this whole endeavor at a snails pace.
 
I think you're looking for a partner, not a leaseback. 2 or 3 on a high performance single is no big deal to the insurance company, scheduling is a breeze, and you get to keep the key in your pocket :) I don't see how the taxes are going to help much, certainly when you balance it with the insurance for a high end rental.
 
jbarrass said:
I think you're looking for a partner, not a leaseback. 2 or 3 on a high performance single .
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Agree with partner plan. Worked for me with two partners. Finding like minded pilots can be a challenge, but is a better way to go.
 
This topic has been beaten to death both here at over on the AOPA Board (and I'm sure other places).

I'd do a pretty careful search on this topic. You'll probably see there are only a few VERY specific circumstances where a "modern" leaseback works out for the owner, and that's mostly very high volume, with good depreciation for tax purposes and little, if no flying by the owner. It is treated strictly as a business.

If the FBO can't make money at it, with them paying wholesale for fuel, MX, tiedowns, etc, the chances of you making anything with it (paying retail, or even wholesale plus) are pretty slim.

Leasebacks "to make flying cheaper" virtually always results in disappointment these days. I think the last time anything like that worked out for the owner was in 1983.

Richman
 
Checkout_my_Six said:
anyone else seeing an opportunity to make a small fortune?.... :D
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IF only I had a large one...but I'm always curious. I had a 150, then a 172 and a partner with both. He and I were always butting up against weekends when we both wanted to fly.

How does having more partners in a complex and/or HP aircraft work? Does the plane only fly when someone wants to do some serious xcountry flying? Otherwise it's too expensive for the $99 burger and it sits?
 
iflyvfr said:
How does having more partners in a complex and/or HP aircraft work? Does the plane only fly when someone wants to do some serious xcountry flying? Otherwise it's too expensive for the $99 burger and it sits?
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It works well. We go around the table and pick weeks at the annual meeting. After that it's either trading or asking someone for a day or weekend. The plane mostly travels on weekends or for longer trips. In between people do some proficiency flying or a $200 crabcake.
 
Talk to your insurer. Last time I checked out a leaseback it appeared more like altruism than anything else.
 
steingar said:
Talk to your insurer. Last time I checked out a leaseback it appeared more like altruism than anything else.
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I hope he's already done that, and then talked to the "few pilots" who would rent it and shown them what the hourly rental rate is going up to, to see if they'll still be renting it.

That said, 182s are amazingly cheap to insure. Ours went down again this year.
 
denverpilot said:
I hope he's already done that, and then talked to the "few pilots" who would rent it and shown them what the hourly rental rate is going up to, to see if they'll still be renting it.

That said, 182s are amazingly cheap to insure. Ours went down again this year.
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So are 150s, if you aren't leasing them back. If you are, insurance is anything but inexpensive.
 
If a leaseback could make money, the FBO would do it themselves. Because it doesn't, they look for suckers to do it for them.

Don't do it. If you can't afford a plane out right by yourself, find a partner.
 
A partner and I bought a Deb in 1984 and leased it back to a not for profit flying club we were members of and where I was a CFI.

Insurance - Club paid for insurance and tie down for all of its planes getting a lower price than if we had to pay for either. Can you put your leaseback under the FBO's insurance policy?

Maintenance - we sourced parts, assisted in annuals, and did the approved owner maintenance. How much can you, or want to, participate to lower costs?

Taxes - Nice to be able to use depreciation but it gets recaptured when/if you sell for more than the depreciated value. Who sets rental cost and can you adjust to cover expenses? Because this is not your primary source of income, you may accept a lower, or break even, profit than an FBO would. I assume the goal is a paid for aircraft at some point.

Rental - We would see a low of ~15 hours during winter months with bad weather and ~50 hours in the summer months with everyone taking trips. Easy to get a mindset of not wanting to use the plane when it could be generating income. Also, problems seem to crop up on Friday afternoons with someone scheduled for the weekend.

It worked for us for 16 years but it was a more controlled environment than the average FBO leaseback. Feel like running a small business?
 
You ran an FBO and you think you can make this fly? You're going to lose your shirt on leaseback if you don't treat it as a business. If you want to use the plane for 100+ hours a year of personal use, you're not treating it as a business. If it is a business, your use get's behind any of your PAYING customers who want to use it. You don't do that, and I guarantee you won't have many paying customers, but you will have the expense of increased insurance and maintenance costs, etc..

I've been both lessor and lessee on aircraft.
 
coloradobluesky said:
You ran an FBO for 20 years and you are asking US???????????
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You mid-read my post. I owned an FBO for 3.5 years. The airplane has been owned by the FBO for 20 years.

I leased my first airplane to an FBO in 1974. I talked my father into buying it when I was 17 to finish my ratings. It was a brand-new Warrior. It worked out well for us.

I can afford the airplane I'm now considering by myself but can't really justify it without making some sort of business venture out of it.

I'm not looking to making money, or even breaking even on the plane. It was just an idea on getting some tax benefits from it.

I have a high income presently, good luquitity, & cash reserves. I don't see it as a huge risk considering my situation.

The way most responses have been...apparently I'm totally nuts.

I'm still just exploring possibilities. :wink2:
 
You can't have "tax benefits" really unless you have a business motive. Not ever caring if you make a profit is not a business motive.
 
flyingron said:
You can't have "tax benefits" really unless you have a business motive. Not ever caring if you make a profit is not a business motive.
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Valid point Ron. I know it has to pass the IRS smell test.

My ex-wife started a horse operation. We ended up buying a small farm & training horses. Problem was, She never wanted to sell any. Out CPA finally said that we had to show some income. We started selling horse & as each one sold I became more happy!

I realize airplanes are akin to very expensive horses.
 
IMHO, leaseback makes you nothing more than a renter with a LOT of skin in the game. You still have to schedule your own airplane, a bunch of other random schmucks fly/abuse it, you can't leave stuff in it, you probably can't assist with maintenance (the FBO probably won't allow it) and when a fat maintenance bill comes in (which the FBO has no incentive to keep down because they're profiting from the maintenance), you write the big check(s). Sure, you get to tell people you "own" an airplane, but that's about the only real benefit. Even a partnership brings more true "owner" benefits.
 
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