Person interested in buying jnto our plane
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JeffDG
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Maintenance reserve...engine rebuild fund
alfadog
Final Approach
AOPA VREF, ASO and Controller for comparison (remember those are asking prices). How many hours and what avionics? If I were buying in, I would discount the value of any MX reserve by 50% or more. That represents time already flown and benefit already accrued to the existing owners and adds little to the value of the airplane once it is used for repairs and maybe 50% if used for upgrades/rebuilds.
bqmassey
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alfadog
Final Approach
That money is earmarked for mx to the airplane. Give it to the mechanic and have him use it all up doing good things to the airplane. How much have you increased the value of the airplane by doing that? That is how much the reserve is worth as far as valuation goes. But that is just my opinion. It is money paid for wear and tear that has already occurred. I do not need to pay for that as the buyer.
bqmassey
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That doesn't make any sense at all.
jesse
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I think it does. That money won't be spent on anything but, for example, replacing the engine. Replacing the engine is not going to increase the value of the airplane by the dollar amount spent.
So if you buy into a $40,000 airplane with a $25,000 mx reserve and you decide to value that at $65,000. That would mean you'd pay $21,600 for your third share.
If a week later the engine is overhauled because the owners feel that its getting to about that time and they have the money anyways you will not have a $65,000 airplane. More likely you'll have a $50 to $55 thousand dollar airplane.
Sell it after that week for that $50 / 3 at $16,600 and you just lost $5,000.
alfadog
Final Approach
Think it through. There is a guy talking about buying into a 150 on another thread. Let's take that example. The 150 has a run out engine. Let us say it is worth $20,000. There is a reserve of $20,000. You would value you that at $40,000, right? Let us say you are buying 50% so you would think $20,000 is the right price?
Now the day after you buy in the engine is rebuilt for $20,000 (it was run out to begin with) and the reserve goes to zero. How much is your share worth now? Maybe $15,000. And that is what you would have paid if you bought in after the rebuilt. Why should one day make any difference? It does not. And that is on a rebuilt that actually adds to the value.
Actually, I could make a case that you should not pay a dime toward the reserve as it was built up for mx on hours that you did not fly.
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Ventucky Red
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I have been using the AOPA Vref to determine the value of the airplane plus taking into account any of the reserve funds... if there are any!
Funny, many that I am talking too are looking for a partner due to needing a new engine etc...... Not a partnership I want to get involved in.
alfadog
Final Approach
That would be OK provided they understand that you only recover in value about 50% of what that engine will cost you. If they are willing to work with you on that basis, it might be a fair deal.
In other words, you buy in at the VREF of the airplane with a fresh engine, not the VREF of the existing airplane plus the full cost of the rebuild.
bqmassey
Line Up and Wait
This only works if you value the plane for the hours and condition it was in when the mx reserve was zero, before the usage.
I've never bought an airplane, but my guess is that if you pay less for an aircraft with a 1500 SMOH engine than you would for the same airplane with an engine with a 200 SMOH engine.
To put it another way, if you have two identical airplanes for sale, same condition, same usage, both worth $20,000 as they sit. If one of them came with a $10,000 reserve and the other came with no reserve, you most definitely would expect to pay $10,000 less for the one that didn't come with the reserve.
I've never bought an airplane, but my guess is that if you pay less for an aircraft with a 1500 SMOH engine than you would for the same airplane with an engine with a 200 SMOH engine.
To put it another way, if you have two identical airplanes for sale, same condition, same usage, both worth $20,000 as they sit. If one of them came with a $10,000 reserve and the other came with no reserve, you most definitely would expect to pay $10,000 less for the one that didn't come with the reserve.
alfadog
Final Approach
But the $10k is not your money when you buy a share. You can't take that $10k, buy a boat with it, and make your two deals equal. The $10k is not cash, it is payment for wear and tear that the existing owners already put on the airplane.
alfadog
Final Approach
Exactly. Now, what I would be willing to do is value an airplane with a heathly reserve at the very top of the reasonable price range.
bqmassey
Line Up and Wait
The airplane is X.
X + $0 = $20,000
X + $10,000 = $30,000
It really is that simple.
X + $0 = $20,000
X + $10,000 = $30,000
It really is that simple.
alfadog
Final Approach
So I have a partnership in my airplane that I would like to sell you.
bqmassey
Line Up and Wait
Is it in Bend?
Ventucky Red
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I am in a conversation right now on something similar.. The partners had agreed on a value of $45 per hour dry for use on the plane to take in account the wear and tear, engine rebuild reserve, and avionics upgrade fund..
The partner I am looking to buy out wants his share of the avionics upgrade back, as well, a percentage of the engine rebuild fund back as they were thinking (emphasis on the word thinking) of moving from a 150 hp to a 180 hp at that time of the rebuild. I am agreeing to the avionics upgrade as this is something he will not use, but not the engine. The asking difference between the 150 to 180 upgrade is about $9000.00 for the share which is a large chunk of the current fund.
My exact words were, put the engine in and get a professional appraisal and I will buy you out predicated on that number...
The the other partners are not that interested in doing the bigger engine, nor are taking part in the negotiation... Things that make you go hmmmmmmmm!
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jesse
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So you would be willing to pay $65,000 for a $40,000 airplane with a runout engine that has a $25,000 reserve fund if the owners told you they were spending that reserve fund on a new engine the day after you bought your share? Because if they did you wouldn't be able to sell your share for $65,000 anymore. $50,000, maybe $55 if you're extremely lucky.
Or you could buy that same airplane for $55,000 with a brand new factory overhaul. Save $10,000 and have the same result. Think about that.
Money in reserve is a good thing if you're looking at buying in a partnership but it's not as simple as just adding that money to the Vref value of the airplane.
To further complicate things. The current owner and I are 50/50. We bought the plane a year ago with 1000 hrs TSMO. We both knew going in the hours in the engine. We have split all costs 50/50 for everything regardless of fly time. I know the arguments here. If I fly it for 200 hrs and he flies 10 I should be paying more for expenses.
We decided at the very beginning not to do that. Our arrangement has been fine so far.
Plane in question has a fresh annual and I had someone approach me about buying a third. The current owner and I are fine with this because we will want to upgrade in the next few years and so does the guy who wants In now.
We do not have a reserve. If the plane has problems we pay half each. I don't care if its a tire or a engine. Now this is ok with us but not sure how a third party would feel.
Just trying to get something to tell this guy if he wants in on the plane.
We decided at the very beginning not to do that. Our arrangement has been fine so far.
Plane in question has a fresh annual and I had someone approach me about buying a third. The current owner and I are fine with this because we will want to upgrade in the next few years and so does the guy who wants In now.
We do not have a reserve. If the plane has problems we pay half each. I don't care if its a tire or a engine. Now this is ok with us but not sure how a third party would feel.
Just trying to get something to tell this guy if he wants in on the plane.
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wabower
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Do the work, then do the math. Call every owner whose plane is advertised on any publicly-available listing service and chart the asking prices. Adjust the prices based on TTAF, TSMOH, Equipment, upgrades, avionics, cosmetics (P&I), damage and other stuff.
Use the valuation guides to help with the arithmetic and provide a record if you don't used excel or some other spreadsheet method. Discount the asking prices by some reasonable amount based on your perception of marketability and desirability of the particular plane.
Once you're convinced you have a good handle on the FMV, divide it by the number of owners to determine the value of each share. FWIW, anybody who doesn't think reserve funds should be included in the price of the package is missing the point.
The value of the package is the current FMV of the plane as adjusted for all the variables mentioned above plus all of the money in the bank account. The value of the piece being acquired should equal the sum of the two elements times the percentage being acquired.
If you have adjusted the plane value accordingly and somebody shows up trying to somehow associate the reserve fund with past use, just assume tell they don't understand either arithmetic or airplanes and tell them to take a hike.
Use the valuation guides to help with the arithmetic and provide a record if you don't used excel or some other spreadsheet method. Discount the asking prices by some reasonable amount based on your perception of marketability and desirability of the particular plane.
Once you're convinced you have a good handle on the FMV, divide it by the number of owners to determine the value of each share. FWIW, anybody who doesn't think reserve funds should be included in the price of the package is missing the point.
The value of the package is the current FMV of the plane as adjusted for all the variables mentioned above plus all of the money in the bank account. The value of the piece being acquired should equal the sum of the two elements times the percentage being acquired.
If you have adjusted the plane value accordingly and somebody shows up trying to somehow associate the reserve fund with past use, just assume tell they don't understand either arithmetic or airplanes and tell them to take a hike.
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poadeleted21
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I would tally up what the plane's worth, then add in a little bit of a factor for the extra pain in the ass of having a 3rd partner. More down time less availability, money issues, disagreements on upgrades etc... What's that worth to you? My current price to take on a partner is about 150% of what Vref says.
wabower
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And the financial guys say the plane should trade for a little less when co-owned due to all the constraints, so you have effectively eliminated a large portion of the potential market. If that's your goal, all is well.
When I'm confronted with these situations in the turbine markets, I advise both sides that the purchase price is chump change anyway, and to be willing to make the deal if the price is somewhere in the ballpark. 50% over clearly isn't a number anybody with a lick of sense would pay.
When I'm confronted with these situations in the turbine markets, I advise both sides that the purchase price is chump change anyway, and to be willing to make the deal if the price is somewhere in the ballpark. 50% over clearly isn't a number anybody with a lick of sense would pay.
alfadog
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Ventucky Red
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Not complicated at all and glad to see this arrangement is working for you.
This is a similar story of two gents I was talking too about a AA-5B... They split the cost 50/50 on everything regardless of who and how long they fly it. They are talking to me because the engine is getting a little long in the tooth along with a few other things that they don't have a reserve to done. Neither of them want to come out of pocket and they were pretty upfront about this which can be appreciated..
Nice guys, but they wanted a little more than what the Vref was telling me, and like you they don't want to levy a hourly fee for using the plane which to me is only fair...
That said, could I recommend that maybe you take a third of what your thinking of asking and starting a reserve fund, as well, start charging an hourly rate... If anything when all three of you decide to upgrade, you can use the cash towards the new plane if not the maintenance of the current one..
wabower
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Why the hang-up on the reserve? If the plane is fairly valued with a run-out engine, why does it matter whether you pay less for the plane and then pay your portion of the O/H cost when the time comes? Won't the total investment be the same either way?
Many long-tooth engines run for a looong time and well past Mfr-recoomended interval prior to requiring O/H, in which case all those hours are essentially free.
Many long-tooth engines run for a looong time and well past Mfr-recoomended interval prior to requiring O/H, in which case all those hours are essentially free.
Ventucky Red
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Yes, I am very well aware of these engines running long beyond their TBO time.. I was using a 152 that had 3040 on the engine before the rebuild.. That was a dam good little airplane.....
The key words here are fairly valued... but that is not what I am finding..
I would love get a plane with a run out engine, and get it rebuilt with the comfort of knowing I have some fresh hamsters up front... But, let's talk a fair price... not a pie in the sky this is what they are advertised for price..
Regarding my hang up on the reserve.. not so. I have more of a hang up on not stipulating an hourly rate. To me this is the only fair way to plan for future maintenance..
bqmassey
Line Up and Wait
The $10,000 that goes missing has nothing to do with the source of the funding. It has to do with the marketplace determining that the timed-out aircraft is worth $40,000, and with a $25,000 upgrade is only worth $55,000.
That $10,000 loss is absorbed by whoever the owner is when the overhaul happens, and would occur whether the bill was paid from a maintenance fund, put on a credit card, paid from a personal bank account because there was no maintenance fund, and so on.
So to answer your question, 'no', I wouldn't be willing to pay the $65,000. Not because I believe that $25,000 is only worth $15,000, but because I don't want to be the poor bastard who has ownership of the aircraft while it generates a $10,000 loss. Reserve or no reserve, I'd rather buy it the day after the whole setup takes a $10,000 loss than the day before.
If I wanted to buy the airplane and for some reason was unable to wait until after the overhaul to buy it, it wouldn't make any difference to me whether they charged me $40,000 for no reserve or $65,000 to include a $25,000 reserve. What difference does it make if I pay the money to the prior owner who then pays $25k to the shop, or whether I buy the plane with no fund, and then have to pay an additional $25,000 to the shop myself. It's $65,000 either way.
So you guys that are for the hourly rate I have a question. If the plane is available to both parties why would one be more responsible for maint costs? Not trying to start a war just curious. If I chose to fly 5 hours and I could have flown as many as the other guy should I kick in more money? I see the logic and I suppose I'm coming out on the better end of the deal cause I fly more and I am still only responsible for half.
We don't need the third guy as we own the plane without money being owed. We just figure it would be good to get a third to split costs with and there are plenty of opportunities for someone to fly. We flew it 36 hours total last year. I flew 31 and he flew the diff
We don't need the third guy as we own the plane without money being owed. We just figure it would be good to get a third to split costs with and there are plenty of opportunities for someone to fly. We flew it 36 hours total last year. I flew 31 and he flew the diff
wabower
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You can handle the hourly rate in several ways that end up within a few bucks of the same number, but the owners must also take the long view in anticipation of changes in composition of the group over time.
Some protection against disproportional use should included in the formula, but unnecessary book-keeping may eliminated if all the owners fly roughly the same amount of time. For example, lets say your group decides that an owner should be expected to fly 50 hours per year or incur the costs associated with that level of activity. If so, all expenses are shared equally until and unless one of the owners flies more, at which point a reasonable usage charge is assessed.
Seldom does a day pass that I don't work on at least one airplane deal of some kind, and I can count on one hand the number of times that a prospective co-owner has said "I recognize that the value of having 2/3 (or 3/4 or whatever) of the total cost of the plane, hangar, insurance, maintenance, upgrades, tires, batteries, brakes, taxes, oopsies and other expenses paid by somebody else is such a significant amount of money over the projected ownership period that getting wrapped around the axle on the billing, reserves and other stuff is really somewhat shortsighted on my part."
Being the sensitive and tactful soul that I am, I normally don't bring it up for at least the first two minutes of the discussion.
Some protection against disproportional use should included in the formula, but unnecessary book-keeping may eliminated if all the owners fly roughly the same amount of time. For example, lets say your group decides that an owner should be expected to fly 50 hours per year or incur the costs associated with that level of activity. If so, all expenses are shared equally until and unless one of the owners flies more, at which point a reasonable usage charge is assessed.
Seldom does a day pass that I don't work on at least one airplane deal of some kind, and I can count on one hand the number of times that a prospective co-owner has said "I recognize that the value of having 2/3 (or 3/4 or whatever) of the total cost of the plane, hangar, insurance, maintenance, upgrades, tires, batteries, brakes, taxes, oopsies and other expenses paid by somebody else is such a significant amount of money over the projected ownership period that getting wrapped around the axle on the billing, reserves and other stuff is really somewhat shortsighted on my part."
Being the sensitive and tactful soul that I am, I normally don't bring it up for at least the first two minutes of the discussion.
poadeleted21
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Supply and demand. http://www.barnstormers.com for the supply heavy place to get a plane. How many nice birds are sitting at the airport with a for sale sign on them for 1/3 interest? That supply just took at hit if that's what you need. If you're not flying much and market it, maybe the price needs to be right to get the fish on the hook. If he's already on the hook and you weren't even fishing... It better be worth the effort. My $0.02
wabower
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I have at least two file drawers full of co-own deals. I can count on no fingers those that resulted from a sign on the plane.
bflynn
Final Approach
No, what this means is that you didn't have a $40au airplane to begin with. If you spent $25au to put a new engine in it and you only have a $50au airplane afterwards, that means the airplane was only worth 25au and you overpriced it at the buyin.
When I'm looking at an airplane, I always seperate out the engine and the airframe. Yes, sometimes that means the airframe isn't worth much in a smaller airplane. That's the reality with old airplanes and expensive engines, the engine really is 70% of the value of the airplane.
Is the OP looking at a specific airplane? Can you give us the year, model, total airframe time, total engine time and any exceptional electronics?
What I also see frequently in partnerships is a group that says "well, we each pitched in $5,000 to buy into the airplane. Each new owner has to pitch in $5,000 too." Pretty soon, they're asking 5k to buy into a 1/10th share of a $20,000 airplane, if they got that many people on board. A buyin should be distributed to the current owners so you keep equity equal to value.
wabower
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Many clubs are based on the "just let me in and then pull up the ladder" concept. The number of failed country clubs supports this theory about as well as any example you can find.
Ventucky Red
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And what if this new owner flies more than 300 hours a year? What would be your position on that?
bqmassey
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The same. If I agree on half or thirds and I choose to fly very few hours that's my problem. I had the opportunity to fly just as many hours.
There are prob not many like us when it comes to our plane. I like the arrangement and so does the other owner. Does that make it right or wrong, I don't know. It works for us.