Club Homepage Forums Classified Ads Buy & Sell - Everything But Airplanes Appreciative asset?

Kirk,

Your opinion is right on the money! Virtually every "asset" has associated costs/expenses which eat away at their respective appreciation. Anyone who thinks otherwise has their eyes wide shut.

Take your house for example. No hangar fee, but it sure has a hell of a lot of other overlooked expenses. Electricity, gas, water, cable, phone, and an "annual" in the form of general maintenence. What about friggin TAXES. If my taxes don't increase a PENNY over the next twenty years (which of course they will!)I'll pay out well in excess of $100,000 in property taxes.

If you really want to see how little your house has actually appreciated, add up fifteen years of utilities, general upkeep expenses and TAXES and subtract this number from your "equity". Of course NO ONE ever does this. It's much more gratifying to tell your friends that your house has appreciated $150,000 over the last fifteen years. Yeah right!

Apple for apple, planes hold there value better than most possessions. Case in point- Do you know of anyone who would like to give me $23,000 for my (hypothetical) 1971 dodge pickup? Now, how about my 3600 TT, 150 SMOH, NDH, "9" in/out 1971 150K which retailed for around $12,500, thirty four years ago?

Point well made Kirk!

p.s., sorry for the rant, but apple and orange analogies drive me nuts!

It seems to me that you are mixing apples and oranges, capital and expence.

The way that my accountant explains it to me there are two classes of expenditures (capital and expense) and two classes of income (ordinary and capital gains).

What you pay for a hours, car, airplane, etc. is a capital expenditure. The money that you pay to operate and maintain it is expense. Major expense such as remodeling a house or a major overhaul are a little of both.

The cost for utilities (water, sewer, gas and electric for a house, fuel, oil, hanger etc. for an airplane), taxes, routine maintenance, insurance, etc. are cost of ownership and have nothing to do with the underling asset value. These are cost of ownership.

According to GAAP (generally accepted accounting practices) and the IRS (you know what that stand for) appreciation or depreciation is calculated by comparing the difference between the acquisition basis (what you paid for it) and the sale price. If when you sell it the sale price is greater than you basis your have a capital gain, it the sale price is lower than the purchase price you have a capital loss.

Example (a real case):
We buy a Cessna 150 for $7,500 in 1995.
After flying the airplane for 1250 hours,
We sell the airplane in 2005 for $17,500
We have realized a capital gain of $10,000.

During the ten years of ownership we spent an estimated:
$15,000 fuel
$ 8,000 for insurance
$15,000 for hanger rent
$ 3,000 for annual inspections
$ 7,000 for a major overhaul
$10,000 for maintenance
$ 3,750 for interest
$61,750 TOTAL EXPENCE ($49.40 per hour of flying time)

The $61,750 of expense has no effect on the asset value; we still have a capital gain of $10,000 (on which we will have to pay a long term capital gains tax of 15% or $1,500).

Did it cost a lot to own and fly the airplane? You bet it did ($6,175 per year).
Did the airplane appreciate? It sure did, $10,000 ($1,000 per year). When we sold the airplane we netted, after tax, $16,500 on a $7,500 investment, that is appreciation.

Might I add that you couldn't rent an airplane for what you paid in hourly operating cost, so you're even more money ahead! An appreciating asset any way you want to look at it, unless you want to give up flying altogether?

My bride, with her accounting self, who has been in total disagreement with this discussion, finally agrees with Wayne's assessment.

Bengie

Thanks Wayne, you just put the question into the perspective of which I originally intended. In 10 years you realized an increase in value of $10,000, even with the additional hours put on the aircraft. We purchased 72G in 1999 for $15,000. I would say we would be lucky to get much more than that for her today. And, I certainly cannot forsee getting $25,000 for her four years from now. I think aircraft appreciation has reached it's peak, if not actually on the decline. Other opinions?

I still think a well cared for 150-152 will continue to hold it's value for the foreseeable future. The alternatives, Experimental or Light Sports, just cannot be bought or built, for the $20,000 which WILL buy a decent 150.

The increasing cost of fuel will do no more than cause a little heartsearching, we will soon get used to the new numbers and continue to fly.

I don't have or need a crystal ball to know this, just friends in Europe and Australia who still fly their small planes just the same way we do despite much higher costs.

The people who do get discouraged are the prospective student pilots, many of whom see the cost of obtaining a licence as totally out of reach. Hopefully the new Sports Pilot scheme will help here. It will get people started and many will move on to a Private rating, I believe new pilots wanting to own their own plane are a big factor in 150 resale prices.

The 150-152 is way ahead of anything else as a value for money primary or instrument trainer or recreational plane.

Long may it remain so.

The rain has stopped, lets go fly!

Joe 150F