We’ve designed a calculator to help you project the specific costs of owning your aircraft, we’ve looked at ways to optimize the key factors affecting your costs, and we’ve seen how you can put your reserve funds to work for you. Today we’re going to look at a few ways to raise money to buy your first plane.
Savings + Training
The first step to owning an airplane is to start saving something every month. If nothing else, put a few hundred dollars in your future airplane fund. Yes, that means opening an account and transferring this month’s funds now. I’ll wait.
One of the biggest revelations for new aircraft owners is that the purchase price is only a fraction of the ongoing cost of owning an aircraft. I recommend calculating the total cost of ownership of the aircraft you want and setting your monthly savings equal to the amount you will need to spend each month to own and fly your future machine.
Let’s look at an example:
This shows what it would cost a single person to own and fly 200 hours per year in the 1975 C-172M we used in our example, after paying the full purchase price in cash. Purchasing this aircraft is a commitment to spend $1,769.43 per month for as long as you own it.
This particular aircraft will likely sell before you’ve saved $79,900, but I’m confident a similar aircraft will be available for a similar (or lower) price. So, you should start by putting at least $1,769.43 per month into your future airplane fund.
Not only does this immediately start building a kitty for buying a plane, but it helps you and your family get used to the expense. It wouldn’t be nice to go from zero airline expenses each month to adding almost $2,000 in bills. If instead your budget has already worked around this monthly expense and you have accumulated a lot of money to use for your purchase, owning a plane will be much more enjoyable.
Put that money to work
While you could just put your future airplane funds into a regular savings account, we know you can do better, right? A savings account allows inflation to erode the value of your money. Why not open a brokerage account, deposit your future airplane funds into it each month, and let that money grow in the meantime?
Let’s see how your future airplane fund wilts or grows assuming you let your $1,769.43 per month corrode due to 3% inflation in a savings account, or grow to 5% adjusted depending on inflation.
- At the end of your first year, you would have an impressive $20,943.62 in your savings account, but still over $21,726.58 in your investment account.
- This difference of $782.95 increases to $3,297.22 after two years.
- At the end of the third year, the difference is $7,581.33.
- In less than 42 months (just under 3.5 years), your investment account will have all the $79,900 you need to buy your plane.
- By contrast, it would take you a full 48 months, and an additional $12,386.01 in principle invested, if you keep your future airplane fund in a regular savings account. Investing saves you thousands of dollars and gets you a plane six months earlier.
Win even if you fail
A skeptic might complain that it’s hard to wait a full 42 to 48 months to save for a plane. I agree.
What if you’re tired of waiting, or the right deal comes along and you just can’t wait? At this point, it’s always better to have saved anything than to start from scratch. Remember, it’s not just about having a bunch of cash on hand for the purchase price. We are also trying to train ourselves to incorporate aircraft ownership into our monthly budget.
Even if you fail to save the full purchase price of your aircraft before purchasing it, you will have gained by saving at least something and preparing your finances for the ongoing expenses of ownership.
It turns out that there are several financing options that can help get this job done.
We are about to discuss the use of debt, but we must start with a warning. Consumer debt is a disease that paralyzed much of our world. Debt is not a shortcut to airplane ownership for the unprepared. Don’t use debt to buy an airplane unless you have no outstanding consumer debt and you’ve already saved your equivalent cost of ownership for several months without negatively impacting your family’s finances.
As long as you’re not already in debt, getting a loan can help reward your good savings habits to get to the finish line with airplane ownership. Most banks offer some type of aircraft loan program. AOPA has a go-to partner, though I would shop around.
With interest rates as low as they are, you should be able to get a loan with a low single-digit interest rate.
No matter what type of loan you get, the bank will expect you to put between 10-20% down. If you invest your ownership costs each month, you may be able to put in an even bigger down payment. If you have $40,000 to pay for a $79,900 plane, you may be able to find the remaining $39,900 elsewhere.
Do you have equity in your home? Rates for a home equity line of credit (HELOC) are in the range of 4-6%. Setting up a HELOC is one of the least cumbersome ways to get a loan, and you’re essentially lending yourself money.
Has your home increased in value since you bought it? (If you’ve been a homeowner for more than a few years, the answer is almost certainly “yes” in today’s real estate market). This means you might consider a cash refinance. Many homeowners receive spam emails daily begging them to refinance. In effect, banks receive bonuses paid for each refi they close. You could shop around and get the banks to compete for a cash refinance with interest rates approaching 2%.
If you don’t feel like risking your house as collateral (which I understand) do you have a wealthy relative, especially someone who’s already retired, who happily collects 3-4% interest on low volatility investments? If you’ve already saved half the price of a $79,900 plane, your relative can give you a personal loan. Maybe you’ve been looking for an excuse to help out your parents and could pay more than the 3 or 4% they get.
I think the vast majority of new aircraft owners can do just fine with a conventional aircraft loan; However, there are many more efficient options if you want to put in the effort.
Save while you shop
The most important part of this whole process; however, is to make sure you save while you shop. Yes, you save for a down payment or pay cash for the full purchase price of your aircraft. Yes, you use compound interest to grow those savings while you shop. More importantly: you condition your budget to include the expenses of owning an aircraft in your daily life.
If you do this, I promise you will start your aircraft ownership experience on a better financial footing. You’ll thank me for helping you enjoy flying more with less stress. So start saving while you shop.