Buying a Boat in Charter

[Svan]

Hey cruisers,

Short question: When would you consider buying a boat that's in charter (and leaving it there) if it's the only realistic way you can own it? And it's the perfect boat for you?

I'm looking for some input into a decision I'm looking at. It's a biggie.

By way of background, I'm approaching 40, have a wife and a one-year old son, and few land ties that I care about. My wife and I have skills that allow either of us to earn over $100k (Canadian), but not lots more, and I can work anywhere I have an Internet connection. For now I'm being a stay-at-home dad, and have been using my idle time to shop for boats.

I've been interested in sailing since my youth, and have been active at my local yacht club for over a decade crewing on cruisers and racers, lately foredeck during spinnaker races. The last, and only, boat that I've owned is a Hobie 18. I've been reading the boat owner's library - Practical Sailor, Nigel Calder's books, etc over the years. I am very certain that I want to live aboard for as long as practical, starting with journeys for a few months, then a year, and then multi-year.

The thought of trading up through boats as I undertake this just fills me with dread. Getting to know a ship, with all its quirks, ironing out the ones that bug me, only to trade it out for something bigger and better sounds like a great way to be annoyed and spend money.

We've chartered in the Caribbean, and my wife has announced that the only type of ship she feels comfortable on is a catamaran. Heeling is the main problem for her, and the main benefit is not having to scramble around collecting stuff before taking off in the morning. I've seen people swear they won't let their wives onto a cat for just such a reason.

I have come across a 10-year old cat that is intriguing. Just over 10 years old, a brand known for a well-built reputation. I've chartered the boat for a few days, and have convinced myself that it's solid, meets my needs current and future, and is a hell of a lot of fun (10 kts in 20 kts of wind with 2 reefs in). The list of deficiencies is modest, but it does exist; the worst is that the GPS/chartplotter is dated and an ill-considered vent in a hatch that people obviously step on has cracked the hatch. I am sure the boat has kissed the charter dock a few times, but not humped it.

Its first 5 years were in salt water, in the hands of someone not especially great at maintenance. Typical example: The sacrificial bits on the outboards sacrificed themselves.. and weren't replaced. The current owners picked it up and relocated it to the Great Lakes, where it is in charter. As a cat, it's the busiest boat in the charter fleet and sees perhaps 7-10 charters a year. The charter company owner is picky, and required the current owners to invest significantly reviving the boat from its hard first five years. It is my view that the chartering area attracts a more modest sailor, not your typical 30-somethings on a booze cruise in the caribbean.

The boat's asking high in the $100,000's; the charter revenue after the dust settles produces income of around 7% of that. While in charter the boat might cost me $3k a year; out of charter... closer to $20k. I'd better be having a hell of a good time for that kind of money!

I think the only thing giving my wife and I pause is the fact it's in charter about 5 hours away, and to pay it down I'll have to leave it in charter for another couple of years. The fact we need to take the boat out during the off-season for longer cruises is not a big deal.

I would welcome some input into this decision.

[Cheechako]

A large cat ought to be chartering for at least $2500 a week. So 7 charters a year should be more like $17-18k....?
I think the key is how much will you use it? It sounds like it might be a bargain at $100k (did I get that right?) and fresh water will be a lot more forgiving. If it's a design that's readily resellable, then it can just be an adventure for a few years... you can always opt out if you keep it maintained.
OTOH, maybe you should just charter it each year yourself... in the good season!! Then you can always charter somewhere exotic the next year instead of having to go back to the same place again! It doesnt sound like you are going to get the use out of the boat that most owners would being 5 hours away... so why buy it?

[Svan]

I don't mind giving actual numbers.

Asking is $180k, which for this class of boat is the lower end of the asking prices I see. It's not a common boat in the charter trade, which to me is a good thing.

Revenue is $4.5k per charter-week or so (it's the only game in town), which after the split with the charter co, less direct expenses (equipment upgrades/replacement) comes to a cheque for $10k each year.

It's worthwhile to me only as a boat I'd eventually live on for an extended trip. If it's a couple of weeks here and there, then yeah, better to rent. If I don't do a month on it every year, then I'm a dummy.

If we depart for a year, we'd pull it out of charter, relocate it close to home in the spring, outfit, and leave in the fall.

I'm being a chicken about my cruising plans, if I'm being honest with myself. Should I be less concerned about buying then trading up on boats?

[Svan]

To actually answer your question, why buy it:

Because this is the boat I can see myself cruising on, and it will help pay for itself over the next couple of years while I learn the boat and my son gets his feet and learns to do what I say, at least sometimes.

[Vasco]

180k for a PDQ36 with outboards? Kind of pricey. I would not charter out my boat to net 10k a year. And there is no guarantee of charter revenue. Save your money and buy a boat when you're ready to go cruising. Who knows you might get the same boat in a few years at a much better price.

[Svan]

Vasco, thank you for your input. To be clear, 180 is the asking price. Most definitely not the selling price. I am interested in your rationale for your views. Returns aren't guaranteed - duh - but 7-10% sure seems reasonable.

[Vasco]

Svan,

Before you jump into anything read this fully, it might help.
The Usual Suspects - Caribbean Sailing Adventures

One point you should consider is that once you buy the boat the risk is all yours. I see the charter company claims that "Most owners with new boats are able to have the debt carried by the charter revenue". Quite a claim in a region where the season is relatively short. I realize that the PDQ in question is not a new boat. And it's getting older fast. The 2008 boat will be five years old and the upkeep costs start getting bigger and bigger at this stage. That is why many first tier companies get five year old boats out of their fleets.

It's interesting that the charter company touts that the boats aren't used as much as southern charter boats, and that this is a good thing. I would think one would want the maximum charter weeks possible to get a better return.

It's a big chunk of change. Whether it's 180k or 150k. You say you might go cruising in two years. Wait till then to buy. For the next two years you will not have slip fees or insurance payments or boat worries. Have you checked what the insurance will be on a charter boat?

Of course you will need an accountant to properly run the numbers. You say you're going to do a month a year on the boat. Of course this will be during the short sailing season, further cutting into the revenue.

[Svan]

Vasco/Rick:

Thanks for that link; it was insightful, and vaguely depressing at the end, as the author didn't even see his boat for two years.

I recognize the boat we're considering won't be in charter forever, and that suits me fine. The fact the boat isn't being run through 20 weeks of chartering is a tremendous plus. Small wonder that boats last five years in charter. This particular one is the busiest one in their fleet, FWIW.

If I only planned on being aboard a month at a time, I agree we would be better advised to simply charter. However, our goal is to develop skills on, and understand the quirks of, the particular boat we'd be travelling on.

Harrumph.
How did you make the decision to purchase?

[David_Old_Jersey]

My first thought was that the Charter Company was onto a good deal.........

But that alone not a reason not to buy - if the numbers work for you. Apart from making sure that the Charter Company will in fact also be happy to continue the arrangement (likely the boat Vendor can't "sell" the agreement without consent) I would also want to make sure of what (if any) upgrades or refit the charter company would be expecting either now, or within the next few years.

My feeling is that (at the right price) given your plans and not a Charter forever deal and the likelihood of you being able to use the boat (in season now and again, as well as out of - even if simply for sitting aboard and dreaming of warmer weather!) then worth getting the calculator out. Sure there are compromises, but free annual boating costs not to be sniffed at!

IMO the big plus on this is that you can manage the Charter Company (and boat) hands on, rather than having to accept pot luck at the end of 5 years.........

[Vasco]

Originally Posted by Svan

Vasco/Rick:


How did you make the decision to purchase?

Being in Toronto I always said the season was too short and resisted buying a boat. One day I realized, short or not it was the only season I had. I then started my research into owning a boat.

There were two areas to research, the actual boat and where to keep it. At the time most of the clubs in the area had waiting lists for slips. I found a club that suited my needs and my research led me to a CS30. I was hoping to get a bigger boat but new members in many of the clubs were limited in the size of the boat that they could bring into the club. The CS plant was near Toronto and I visited my boat every weekend during the build process.

While owning the CS30 I looked into many charter/ownership schemes as I wished to sail in the sun. None of them seemed such a good deal. I always wondered, if it was such a good deal why didn't the charter operators buy their own boats? I ended up just chartering for a few weeks every winter.

Three years later I moved up to a CS36M which I still sail. Two years after getting the 36 I took off in her on my first trip south.

Buying a boat is a difficult process that can be enjoyable if you are patient. All the planning, and usually in a first boat we do not really know what we want. I think setting your sights on a specific make/model at the outset limits the possibilities. I know of more than one person that has set his mind on sailing around the world and bought an expensive bullet-proof boat only to end up just day sailing. On the other hand I had a good friend that bought a 35 for Lake Ontario and ended up sailing across the Atlantic more than two or three times and did the Med and the Caribbean in that 35.

You will learn a lot more by active ownership. You say you're only going to keep it in charter for two years. You say you will net 20k in the two years. Get a boat now that's 20k cheaper than the one in charter. You will not learn a lot about cruising and boat maintenance owning a charter boat. You will learn a lot about creative accounting.

[Svan]

I appreciate everyone's input.

We've gone for it, done a deal, and the boat is ours assuming things happen as they should before closing day.

In with both feet,
Steve

[GaryMayo]

Buying a Baskin Robins is not as much fun and dropping in a couple times a year when you want two scoops.

Enjoy!

[mausgras]

I have just done it seems what you are thinking of doing. Buying a boat but putting it into charter for most of the time.
It was not one of these lease/purchase or timeshare schemes like Sunsail" I really cannot comment on them, but they sound expensive and not good value.

My new boat was a private owner who already had it out on lease with a charter company. They said it was a popular boat and asked me if I wanted to keep it in charter.
This suited me fine as I travel a lot and would be lucky to use it for more than 3-6 months a year.
The deal goes something like this. They do everything, marketing, maintenance and accounting. They take 35% but fixed costs like insurance, marina fees and repairs come out of my 65%. I can have the boat whenever I like for as long as I like, but of course that also means it is not"earning" anything when I am using her.
Based on her figures for the previous 12 months she would have earned 13% net on my purchase price.
I have only had her for not quite 2 months and she has had 4 weeks of charter and it is not even high season yet.
I am not in it to make a huge profit. I will be happy if she just covers her coats. Anything extra will just be a cherry on the cake and I will put back into some upgrades and options.
Anyhow that is the two year plan. After that? ????, who knows?

[Vasco]

Originally Posted by Svan

I appreciate everyone's input.

We've gone for it, done a deal, and the boat is ours assuming things happen as they should before closing day.

In with both feet,
Steve

Congratulations. I am always interested in how things turn out. Many on this site will be interested in hearing of your experiences. Bet you can't wait till spring!

[GaryMayo]

You pay the repairs. Someone over reeves the engine while taking her our, smokes the engine, and you have the repairs? Someone gets caught in high winds and goes not reef the sail, and the sail rips, or mast damage.

My 32 is the closest boat to the marina, And people frequently ask to rent her, I am told by the marina staff. It has crossed my mind, but the wear and tear on my boat just makes me cringe at the thought.

I could see the business model if you had six sailboats, and one was always getting worked on while the others were out making money. Then the idea works in my mind. But all the eggs in one basket, and something happens to your only single boat, and all the income stops, and you also loose your personal craft while you spend money getting it back up to lease / rent again.

Let us know how it goes.