lease back financing 5, 10, 20 years

On Wed, 11 Feb 2004 17:54:57 GMT "Dude" wrote:

What kind of tax advantages are there in a lease-back??


The main advantage today is bonus depreciatation. If you have a family
income in the 150 plus area, and want to own a new plane, then leasebacks
become a reasonable risk to help you buy the plane. Basically, you can end
up getting a very large tax rebate to then pay off a good chunk of your
loan. I borrowed 150k on my plane, got a 22k rebate (this was under 4th qtr
rule, and withonly 30% bonus. Today you get 50% bonus until Jan1.) By
putting the 22k against my 20 year loan, I effectively have a 15 year loan
with the same payments of a 20. This is why a 20 year loan is really okay.
The key is YOU HAVE TO TAKE ALL YOUR REBATES AND SEND THEM TO THE LIEN
HOLDER! (The guy that taught me this was religious about it, and now so am
I.)


Not sure I followed all this so I guess I will have to look into it some
more.



The reason to send them in is in case for some reason you have to sell the
plane, you will not be upside down with the bank or the IRS (due to
recapture).

Also, you want to have 6 months payments in a rainy day fund. You are safer
with a lower down payment, and a rainy day fund than with a higher down
payment (especially at these rates). At these low rates, I would always go
fixed.


Yes fixed is less to think about.



There's also a lot of pressure coming from new plane purchases too.
I think that has to have an impact on the used-market.
Diamond, Cirrus, Symphony, Lancair, et. al.


The new improvements of glass cockpits and other items plus bonus
depreciation is pushing really hard on the value of planes under 5 years
old. Planes built before the eighties are holding up well considering that
most of them are passing the 25 year mark. I believe you will see them
start to drop significantly, as the hulls age. If you want to fly cheap, go
get an AP certificate. If you are willing to be a mechanic, you will soon
be able to buy planes for the value of the engines and avionics.


I've thought of getting an AP but it's not likely to happen in this lifetime.
But possibly. What's it take to get one these days?





For a new plane everything is different. But in a busy club it can work.
It is working in a lot of clubs. It has to be managed properly to work
well.



The reduced outages, greater marketability, and warranty on a new plane can
help it make money. Insurance can be an issue though. The key to a new
plane on leaseback is a plan for what to do after it is 5 years old. Can
you step up, and still have a viable leaseback? Is plane number two not
going to be a leaseback at all? Do you want to leave it in leaseback
indefinitely? Are you planning to take it off the line and replace it?

All good stuff. A couple of thoughts. Some new planes require more time
to be proficient than others. The Cirrus comes to mind. High-performance,
glass cockpit (lots of features in those new devices), the chute. So there
is some impediment in the form of time/money for getting checked out and
that could limit the uptake. As for what to do after 5 years I would think
that the situation would dictate what to do. If it's in the air and paying
for itself let it ride.



My original plan was to take it off the line after the first engine rebuild.
I was planning to get a new interior, nice reman engine, and small avionics
upgrade. According to my spreadsheet, I would be able to get the plane
while I was still a student, and reduce my out of pocket costs to the point
that I was getting a new plane and only paying about 60% of the same out of
pocket costs of new without leaseback. That includes the renovation at the
end of the first engine life. So far the plan is only slightly off, which I
blame on a poor choice of FBO.


I think a club with a couple of good CFIs and some good members is the best
way to do the leaseback. At least in my case.


The new FBO looks to bring in better hours, lower commissions, and do a
better job on repairs and maintenance for about the same price.
Furthermore, I have now found leaseback opportunities that would give the
tax advantages without the high hours, rough student handling, and high
insurance costs. So I may upgrade my plane instead of rebuilding it.

Good luck.


I know people who have made a little money, but I would not count on that.
If you have expectations of reduced costs only, you are more likely to end
up happy.


Staying out of the red is good enough. And flying it too!

Thanks.

R. Hubbell