Tuesday, April 23, 2013

Three Common Mistakes when Buying & Selling Jet and Turboprop Aircraft. Step 6 of 9.

Setting a budget and understanding the trade difference:

Hello, Jake Huling here with Aircraft Sales Advisor. I’d like to welcome you to the sixth video report in a new series called, 9 Steps to a Successful Sale or Purchase of Your Plane.

In the last report we covered one of the more confusing factors when determining a plane's value, and that is, aftermarket upgrades. We looked at upgrades from three different perspectives. 

One, if you own a plane with upgrades, what they are worth. 

Two, if you own a plane and are thinking of adding upgrades, what makes the best type of upgrades and where should you spend your money. 

And three, if you are buying a plane what type of upgrades you should be looking for, and how much you should pay for them.

In today’s report we’re going to cover budgets, realistic expectations, and the three most common mistakes sellers and buyers make in this area. 

And in addition to that, we're going to talk about the importance of keeping your eye on the trade difference, when both selling and buying a plane. And what in the world a build plane is? 

So let’s get right to it.

Setting your budget:
Two of most common and potentially challenging questions when setting a budget are: 

One, how much of what we want and need in a plane, can we get with our current budget? 

And two, how much of what we're hoping to get for our current plane is realistic? If that sounds at all familiar, you are not alone. 

These two very common questions both have very similar answers.
So let’s start by taking a look at the three most common mistakes sellers and buyers make in this area.   

·  #1 is What I originally paid for my plane.
Now stay with me, because this one gets a lot of owners in trouble and I'll give you an example of how it happens. 

Let’s say an owner paid 5 million for their plane when they bought it used. It’s now three to five years old and they would like to get close to what they originally paid for it. After all, a new one costs 7 million and mine is in excellent condition and the paint and interior still look great. So shouldn't I be able to get at least close to what I paid for it? 

And I can honestly understand their thinking, certainly no one wants to lose money.

But here’s the thing: There are a ton of factors that come into play here, condition is one of them, and so is how much time you've put on the engines and airframe,  how many years you've had the plane, if you've added any upgrades during that time, and the biggest one is: what the market is currently doing. 

The good news is I do cover all of these topics in previous reports, and I'll make sure to add links to them after the report in both the video and text so you can check them out, because I cannot stress enough how important accurate and realistic expectations are in order to have a successful outcome with the sale of your plane and purchase of your next one. 

Otherwise you end up going down a road that leads to frustration and disappointment.

·  #2, What I need to sell my plane for.
Another way I see owners deciding on the sale price for their current plane is by basing it on the cost of the next one they want to buy. 

They'll take what they believe the next plane will cost, subtract the additional amount they are willing to pay above the sale price of their current plane (which is the trade difference, and we’ll get to in a moment), and whatever that amount turns out to be, is the sale price they want to set for their current plane.
Now, it might surprise you to know that this way can work if its done properly. And keeping an eye on the trade difference is a way you can make up for the sale price of your plane being lower than what you had hoped. 

If the trade difference is greater than your budget, or what you'd like to spend, you can make that up by finding a plane (almost always it ends up being an off market plane) that you can buy for a wholesale number instead of retail price to make up some of the difference. 

For this approach to be a success, we need to keep our eye on the overall transaction; how much you will have paid out after both the sale of your current plane and the purchase of you next one. 

Which leads us to the third most common mistake buyers and sellers make.

·  #3, What my next plane will cost.
Here’s how a lot of buyers decide what their next plane will cost and what their current plane is worth. They'll look to one of the more popular listing sites like Controller for example, to see what planes are selling for. 

And that’s the mistake; the prices you see on those sites are not what the planes are actually selling for. In fact there are several things you should always remember about these sites.

1- The listed price is almost always higher than what the market will support and even what the seller would actually take for their plane. Which is great news if you're buying, but can be very disappointing when you're selling. 

Especially if this was the only source that was used to determine the value of your current plane.

2- It’s also important to know and remember, these sites are not the only place you can find a plane to purchase. An off market plane, like we talked about earlier, that isn't listed on any of the sales sites, can often be a much better option. 

You or your broker get to work directly with the owner instead of through an additional broker. It can be faster, less expensive, and it can help shrink the important trade difference down to fit within your budget.

3- Is what I call a build plane. This is usually an excellent option if you are looking for a plane with many upgrades, especially upgraded engines. 

But this is a plane you will not find on any these listing sites. In fact, the build plane doesn't actually exist... yet. 

What do I mean? 

Well, this is something I do for clients and customers, where I look for a plane with stock engines that are as close to their overhaul times as possible, if not completely run out. 

Then we change out the engines with an upgraded version, new paint and interior if that’s important or needed, and any other upgrades they might want for performance and entertainment. 

The result is a brand new looking, high performance custom plane that fits your tastes, wants, and needs, and saved you a bunch of money!

Lastly let me leave you with this.
It’s very natural for us as humans to look at each of these areas separately rather than as a whole. And we tend to focus on that one problem or challenge that’s right in front of our faces and that, of course, puts us in danger of missing the bigger picture. 

When going through this process it’s so important to look at the end result in order to have complete success. If you sell for a good price but buy too high, you go over budget. And likewise, if you are unable to sell your plane for the price you were hoping, then you’re not able to get the next one that you really want. 

So my advice to you is always look at this as a whole, and first decide if you want or need any extra help.

If want to do this on your own be honest with yourself and make sure you have the extra time that’s needed to have a successful outcome: get your plane sold for the top of what the market will support, find your next plane for a wholesale price, and make sure it’s the best one in the world for you.

In my next report, we’re going to take a look at the market, and I am going to show you how to find the three most important pieces of information you will need to determine the value of your current plane, and to find out what your next plane will really cost.

So that’s it for this report, thank you so much for joining me on this sixth step in my newest series of reports called, 9 Steps to a Successful Sale or Purchase of your plane. This is Jake Huling with Aircraft Sales Advisor, and I really look forward to seeing you on the next one.

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