Well I wish you the best of luck. Leasebacks don't have a good reputation and the horror stories abound, but maybe your situation is the exception. Dumb was a wrong choice of words, I probably should have simply said unrealistic.

I was mostly calling out your 20% cap rate as unrealistic. A 20% cap rate investment would make it one of the best investments possible, especially if you think it's a sure thing. It's entirely realistic that you can make a profit on a leaseback in the right circumstances, it's not realistic that it will pay back $337k in 5 years.

Given the numbers you gave you need to make about $105/hr net (2 hours per day, 365, 5) to hit your 377k number.

A Cessna 172 in AZ (I'm guessing AZ, but it could be FL or probably a few other places that get a ton of flyable weather) rents for about 180-190/hr I'll give you 190.

The schools cut is what? 25% is commonly quoted so $142.50/hr net? Maybe you got a better contract with the school.

Ok so now fuel. 9gph is probably about ballpark for the 180hp 172. $6/gal currently at the D's in the Phoenix metro area (maybe you get discounted fuel perhaps?). $88.5/hr net.

Ok so now maintenance. I've never owned a 172 so maybe this is wrong, but my experience with my own plane says you probably can expect $4k/100hrs or so. Maybe it's less because a 172 is simpler, or maybe it's more because it's a school and students break things. (88.5*100-4000)/100=48.5/hr net. This one is a bit complicated because maintenance is partially fixed (100hr inspection) and partially variable (fixing things). I've rolled them together here, but more hours makes maintenance a bit cheaper per hour.

Ok so ballpark numbers I see your cap rate being 10%, not 20%. Which is close to what I'd expect from a higher risk investment like this. Buuuuttttt we haven't really finished yet.

Engine overhaul fund/depreciation. Engine overhaul of a IO-360 is 30-35k every 2000/hr or so or about $15/hr. $33.5/hr net.

Airframe depreciation. I used aopa vref and found that it approximates that a 172 will lose about $9/hr in value. $24.5/hr.

What about insurance? I have no idea what it costs to insure a 172 used in training. Possibly the school pays this? I doubt it. 1% of hull value/yr is a common value quoted for 172 and a reasonable ballpark figure, though probably low because I suspect commercial operation insurance to be higher than personal. So $3370/yr. At 2hr per day 365 that makes insurance $4.5/hr. So the final net $20/hr.

Now that's a realistic value. You perhaps do a bit better, maybe they give you a 10% fuel discount, or maybe they have a smaller cut for the school. Or maybe the schools maintenance is bunches cheaper with their on staff mechanics. Maybe you're accounting for the plane as a tax deduction and scoring 110k in reduced tax liability.

In the end I would be shocked if you're netting better than $20-40/hr with a cap rate of 5-7%. Which puts it in line with most small business investments. I personally wouldn't sniff at it for less than 10% because flight school demand is highly cyclical, high risk, and with a 20yr payoff technology changes that might change the market entirely get pretty scary. These numbers get a bit friendlier with higher hours (4 hours per day instead of your 2 hours). However, they aren't that much better because the fixed costs (insurance, 100hr inspection) don't represent a significant fraction of the costs and most of the costs are proportional to the hours used.

If I have the math wrong I'd love to know. Investing into a small business has been something I've wanted to do for a while now. And having it being aviation focused would be great. There's nothing wrong with a 5-7% cap rate, that's a pretty reasonable return in the Real Estate business (another market I've looked at). But Aviation feels a lot higher risk, and your $105/hr profit needed to hit a 5 yr payoff seems extremely suspect to me and I hope you did your proper due diligence when coming up with that.