Let me get this straight...

Big loan on a luxury item - obviously he could buy a King Air (must have some source for the other 50% of the jet purchase price). Must have JET fever....

Can't get traditional financing - but somehow has the other $ 600K for a down payment (other loans perhaps?)

Individuals are supposed to outsmart banks and/or other lending sources who make all of their money loaning money?

Does the borrower even have the ability to pay the operating, insurance, maintenance costs associated with a jet?


Too much risk for me for 6% return, way too much downside.

Peace,
Don

From a finance standpoint this would be a textbook exercise in direct finance asymmetric information and adverse selection. In other words, exactly what not to do from a lender's standpoint.

Is your friend going to let you see all of his personal financial information? What controls do you have? What is YOUR cost of capital? Even if it works out, he could end up getting a great deal at your expense. A high cost lending proposition is only attractive to high-risk borrowers who can't get it from lower cost intermediaries. This is called adverse selection in the lending world and was the basis for the subprime mortgage meltdown.

Even with T-bills in the trash right now, and it working out perfectly you are going to lose money.

The eclipse is sitting in the hangar and he just sold his King Air. Banks dont want to touch eclipses for some reason.

No joke, compared to a 150gph old citation, the eclipse costs more to own and fly. It is expensive to fix, the type rating is a pita and the parts are expensive.

I appreciate the advice and help, i dont think this deal is for me.

Anyone know where to stash some money for a few years? I am bearish on the market.

Mike

600k

Buy me a G5 cirrus, 6% and you get all the accelerated depreciation. Great deal, I swear

Why did he need the money? That's the story. He may have needed it to update the Eclipse. I know that there was a deadline to update avionics and fiki. If you didn't do it, the plane is grounded. It was something like $250k for the early serial numbers.

The plane is updated, i think it cost $440k to update.

If anyone wants this deal, i can put you in touch. Super nice guy, honest and has owned 10 or more turbines.

Mike

boy does this sound familiar. I have done what you are proposing, albeit not on a million dollar aircraft. Both times not only cost me money, but the loss of what I considered a great friend. YMMV. Sure.... they paid on time for awhile, and then it started. They viewed our friendship as a reason not to get the payment due to me on time. Why?, since I was a great friend, I would surely understand a week or two late,after all we're,"BUDDIES" yada...yada...yada. Again, YMMV.

NEVER,NEVER,EVER AGAIN!!!!


Helping one with the basic needs in life?. Sure!!! But a million dollar toy? ummmm

This is something I'd like to hear more about.

Sounds like your friend would be better off with a partnership?

No, you did NOT lose a friend. You may have been drinking buddies, but you were not friends.

Your path forward is still valid though. Don't go there unless you *and* your friend can separate the relationship from the business. If you can do that, it doesn't really matter if they are actually friends.

Dan

Mike,

This is a particularly interesting post. Presumably a man blessed with a Bonanza a Baron and a Luftwaffe Jungman can figure out how to handle his finances.

How is it that someone can ask a bunch of strangers whether or not to lend a friend a tidy some of money and then within an hour and a half of public board banter decide not to help his friend? Interesting indeed.

Mike,

This is a particularly interesting post. Presumably a man blessed with a Bonanza a Baron and a Luftwaffe Jungman can figure out how to handle his finances.

How is it that someone can ask a bunch of strangers whether or not to lend a friend a tidy some of money and then within an hour and a half of public board banter decide not to help his friend? Interesting indeed.

I have one simple question I ask myself when it comes to loaning MONEY to ANYONE anymore:

Am I willing to loose this money and never get it back and will it cause a financial burden to me if I don't?

The answer is:

YES or NO


Don't try to complicate it by trying to justify it, real simple question and the answer is just as simple: YES or NO

This protects me from myself.

I found this thread of strangers and friends VERY helpful to making an important decision. I was on the edge and it swayed me to NO.

When I don't know something, I ask.

Despite my qualifications both with airplanes and with managing money, I'm still smart enough to ASK and seek advice from others. I've gotten good ideas from the most random of people. Anyone that has this market figured out is someone I'm interested in hearing ideas from.

Mike

ATP, CFI, CFII, MEI, MSA, CPA, DMD, Series 7/63 stockbroker.

A insightful choice, supported by recent data.

The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations, published in 2005, is a book written by James Surowiecki about the aggregation of information in groups, resulting in decisions that, he argues, are often better than could have been made by any single member of the group. The book presents numerous case studies and anecdotes to illustrate its argument, and touches on several fields, primarily economics and psychology.
http://en.wikipedia.org/wiki/The_Wisdom_of_Crowds