By ANDY McGRADE
Whether you plan to travel abroad or spend time on the beach, with summer just around the corner, now is the time to finalize plans and travel arrangements. But what if this season, instead of your usual summer routine, you had the option to buy a plane, yacht or vacation home?
Investing in a plane, yacht or vacation home can improve the overall vacation experience for some travelers, serving as a personal measure of return-on-investment and fulfilling a lifelong goal while enhancing an appetite for travel. Nevertheless, with such highly specialized assets, there are several important implications to be aware of when making an investment decision, specifically when considering options for financing.
Crafting a thoughtful plan is of the utmost importance when one is considering taking the next step in financing a plane, yacht or vacation home. The plan must carefully consider monthly or quarter payments, interest rate alternatives, and competitive amortization schedules.
When considering an aircraft purchase, it is essential to determine the type of plane and avenue of financing that best suits the investor”™s needs. To hedge some or all of the exposure to interest rate risk, credit solutions could include progress payment construction loans for new jets that can convert to tax leases, or permanent loans and interest rate swaps for aircraft financing. Both the Federal Aviation Administration (FAA) and Internal Revenue Service (IRS) regulations can make a significant impact on the investor”™s final decision. Therefore, it is important to take time to determine which type of ownership structure is financially beneficial to an investor”™s plan.
Likewise, tax implications also may impact financing decisions. An aviation finance specialist can help ensure that maximum tax benefits of ownership flow through to the appropriate individual or shareholder. Specialists can assist in understanding FAA and IRS guidelines for ownership and operation of an aircraft, as well as work with tax advisers to evaluate tax lease financing as a viable option to traditional debt financing.
Choosing an aircraft and making an informed purchase decision can be daunting, especially with a large supply of aircraft currently on the market. To help with the process, review current market information on values and available aircraft ”” from single-engine turboprops to long-range jets. Educating oneself on the aviation market is the best solution whether for a refinance or refitting of an existing aircraft or evaluating the purchase of a new or pre-owned aircraft.
Investing in a yacht can be an extraordinary purchase for sea-lovers, but one that requires considerable expertise in both the acquisition and financing processes. An appropriate credit solution aligned with a structure of ownership and cash flow should be established, whether the client is searching for the right craft, constructing a new one or having a current yacht refitted.
Just as a yacht reflects her owner”™s lifestyle, so, too, should her financing structure. Work with an adviser on a recommended approach to structuring credit, including loan terms, repayment options and amortization schedules. Solutions may be simple or more complex, such as incorporating an interest rate swap as a risk management strategy or implementing a currency hedging approach for a foreign construction project.
U.S. Trust clients often choose to register their yachts in a foreign jurisdiction, for reasons, including crew hiring, estate planning issues and tax considerations. Our goal is to help clients best meet their individual needs by providing them all relevant and necessary information.
When building a custom yacht instead of buying a completed yacht, keep in mind that construction projects require an added level of expertise and knowledge of working with clients, surveyors, brokers and shipyards. Before embarking on custom creation, consider the vast amount of planning and funds required as part of the construction.
Investing in a vacation home may be ideal for clients who travel to a specific destination annually or often throughout the year. Home buyers are slowly starting to return to the residential real estate market for second homes given the historically low interest rates and attractive prices.
Low rates and bargain house prices notwithstanding, purchasing a vacation home can be complex. The most effective mortgage solutions take into account a detailed understanding of an investor”™s wealth management goals and economic status. As part of the overall wealth management strategy conversation, further discussion should take place around how long an investor plans on owning the property and how the purchase fits into the investor”™s estate plan.
As summer quickly approaches, perhaps travel and destination can become part of your long-term financial plan this year. Bon voyage!
Andy McGrade is Fairfield County-based managing director and market investment director for U.S. Trust with responsibility for investment culture, client experience, platform leverage and risk controls.
