achimha wrote:
You make it sound as if there is a choice whether to operate on borrowed money or not. Only very small or very old businesses typically have that choice and even then typically only when they don’t have substantial growth.
Not actually true, you just need a good business with a consistent positive cashflow.
Achim,
I am not into $ 10 M startups, and I am bot comparing our small truck dealership with a Silicon Valley startup, or amazon or Zalando. I just mentioned that it feels good to me (!) that we are independent from banks. It’s even very imprtant. The company started with € 10.000 and it grew fast, and ten years later we could build our new office and service center from cash.
I “could” take the money for a $ 1 M Cirrus G5 from the company, but to me buying an 8 year old one for € 200 K felt better.
I KNOW that you are right, for the examples you made. But not everybody is into the businesses you are in.
I just think putting this in a black/white scenario is silly. It’s like saying I will never again fly Lufthansa because last time, the boy sitting next to me spilled milk shake in my lap.
Some people find it difficult to pay future payments for money they have already used, while other people find it difficult to put money aside for something specific that may never happen. Most people take the middle road. They save/invest in unspecified future spending, and take up loans for specific spendings of some material items typically. People and most businesses generally use the banks (and other financial institutions) for what they are good at, and that is to even out peaks that would be impossible to handle on a limited budget otherwise. Of course, if you have no problems handling the peaks (or there are none), then you are in a no brain – no headache situation, and the services the bank can offer are of not much use to you.
As with all services you pay for, you have to shop around. Change bank/insurance company from time to time, or at least threaten to do it to get better offers
As to take a loan to purchase a plane? If you think you can afford it, and you are committed operating it, go for it. Buying a plane for personal use is “stupid” no matter what (economically speaking). Buying in cash doesn’t make it less stupid, it only makes it 100% certain you can afford the transaction. Buying things you cannot afford is also stupid. There is no right or wrong, it’s just a matter of how much risk you are willing to take to get what you want. So, one person who are not afraid of taking risks, purchase way over his head hoping for the best, and it ends up he must sell it for far less than what he paid a couple of years down. So what? He gambled and lost, and another person take the opportunity and gets the plane at a very reasonable price with a loan he can manage. The real loser is the one at the age of 55 and finally have saved enough money to get a plane, only to find out his medical can no longer be renewed.
Some are born with a silver spoon in their mouth, and can afford to slide through life only maintaining the assets. Others aren’t that lucky and has to gamble a bit from time to time. That’s just the way it is. Myself I’m not particularly interested in economical aspects and not very good at it in my personal life, but I have a rather decent income, I can work from wherever I want now and I’m not afraid of using my hands. Maybe that’s why I’m building two airplanes and have four cars (one electric), a boat and a canoe 
There are so many uncertainties about the future that one is more often better off grabbing opportunities when they surface, even if this means less than optimal financing. The only thing we do know for certain is that each day we are one day closer to death. Buying with cash isn’t a poor advice, far from it, it’s 100% secure, it cannot fail. It’s just that most people can live happily with much higher risk if the advantages are right, like getting a plane today rather than 10 years down.
The only thing we do know for certain is that each day we are one day closer to death. Buying with cash isn’t a poor advice, far from it, it’s 100% secure, it cannot fail. It’s just that most people can live happily with much higher risk if the advantages are right, like getting a plane today rather than 10 years down.
I can relate to that aswell. In January 2013 I was rushed to the hospital in the middle of the night. My gall bladder was removed and the
and the following days I was sometimes in so much pain that I was screaming (but thats another story). I mean REALLY screaming!
In the hospital i decided to take the money from the company and buy the Cirrus. I had thought about it for 10 years at that point and already in the hospital I started to search the ads.
It’s the things in life you don’t do which you will regret later, I am sure.
PS: The next time I’ll buy a TBM, but unfortunately I have only one gall bladder :-))
Flyer59 wrote:
The next time I’ll buy a TBM
I’d like one too, but would prefer a Wildcat… 
Some are born with a silver spoon in their mouth
Very few of them around in the modern age. Not in GA, not in it for the long term for sure.
My family came to the UK from Czechoslovakia with £20 in 1969, and I still don’t borrow money to buy stuff (except the house).
Sure things aren’t black and white but borrowing money from a bank to buy a piston aircraft is nuts – unless
The reason it’s nuts is because
)Peter wrote:
Very few of them around in the modern age. Not in GA, not in it for the long term for sure.
There you can actually look at Piketty, LeSving’s favorite economist. He’s done a lot of research on where the current generation’s wealth comes from. For Germany, the statistics show that 50% of the assets of the current 40-50 cohort is inherited. The amount of money being inherited is at a record high. The combined wealth of all households in Germany is estimated to be 11 trillion Euros and 1/3 of that amount will be inherited during the next 10 years.
So I would argue that never before in the history, more people were born with that “silver spoon”. I’m not sure how comparable Germany is with e.g. the UK because in 1945 nobody had anything (= communism) and most of the wealth was created 1950-1973.
In order to avoid that “silver spoon” issue for the next generation, I’ll do it like Flyer59. When I get rushed to the hospital, I will ask my wife to bring the airplane ads. However, boats are actually a much more effective way to burn money fast
I view my “things” as assets, to be sold when cash is required, to be enjoyed when times are good. I have worked this way for a long time, and it has treated me well as a strategy. Particularly now, when our friends in the bank, give you 1% on your savings…everything I have, both in business, and personally, has been free cash funded, with the exception of the house and commercial property. If you wish to see an industry that has used the finance/ buy cash model to great benefit to itself, check out the photocopier market. Now there is a racket, on items that are worthless as soon as you unwrap it……..
It’s funny how the economy here in the US, and especially in California is “booming” again (I say that fully knowing the US is leveraged to the hilt and it won’t last, but for now at least). House prices have gone up about 100% from just 3 years ago. Cars are selling like crazy. Shops and restaurants are busy again. Fuel is cheap.
Yet.
Used aircraft prices continue down. During the last boom before 2007, and especially the one before, you couldn’t get an Aerostar for a dime below $300K. That was a bargain, and a Superstar 700 would command a cool $500K. Today my plane sits unsold after a year with a price of $135K and new engines. So, something’s changed. Back when I lived in the UK, I called Close Brothers to ask about financing a plane for me. They would lend you a higher amount depending on good engine times. The considered that to have a real value. Wanna bet they don’t do that anymore? Engines have no tangible value in todays market. Glass cockpits perhaps, but not engines.
I would buy your Aerostar, Adam but after watching what happened to the last guy that bought your ride…
In Europe aircraft prices have gone up considerably the last year. This is entirely due currency effects and it will get even worse if Yellen has the balls to increase interest rates (first time in over 9 years). Companies like Socata are printing money because what would sell for €2.9m now brings in €3.4m even though they haven’t changed the price…
