Buying a boat in Charter Management: The final numbers

[Steadfast88]

What a great thread! Want to thank everyone for sharing their experiences and insights ... tremendously helpful. Cheers!

[belizesailor]

Originally Posted by henryv

Sorry - your numbers are overly optimistic. Generally charter boats only make sense if you value the personal use. If they could turn a true profit after depreciation the charter companies would own their boats.
Henry

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+1. Ive been around the charter industry since 1994 as boat owner, charter captain, and partner in charter companies. Owners do not end up making significant net profits as projected (the charter companies do). Looks nice on paper, as many business plans do, aint gonna happen in reality. You can however significantly defray the cost of ownership and maybe on a good year make a modest net.

Depreciation is an often overlooked financial plus, it applies to your adjusted income and can have a nice positive benefit to the bottom line of taxes owed.

[belizesailor]

Originally Posted by henryv

I think the budgeted depreciation number is way too low. Four cabin ex charter boats do not hold their value very well and there are usually enough boats for sale to make it a buyer's market.
...

Keep in mind that what really has a positive short term financial impact is depreciation for tax purposes as determined by the deprciation schedule used, which is not the same thing as market value depreciation.

[philduval1]

Originally Posted by belizesailor

Keep in mind that what really has a positive short term financial impact is depreciation for tax purposes as determined by the deprciation schedule used, which is not the same thing as market value depreciation.

Following the aboves comments, i'd like to know what amount of market depreciation should I use for a 400k$ vessel? I also would like to know if 20 weeks of rental income is too optimistic (as for right now, i don't intend to use the boat personnally very much).

thx

[Privleoplag]

Originally Posted by philduval1

Following the aboves comments, i'd like to know what amount of market depreciation should I use for a 400k$ vessel? I also would like to know if 20 weeks of rental income is too optimistic (as for right now, i don't intend to use the boat personnally very much).

thx

On market depreciation:
Over what time frame? I'm sure there is a curve, more or less the first few years and eventually reaching a point of little market depreciation, and over the long term possibly right down to the point of salvage value.
From what I've observed, the model of the boat and it's reputation, founded or not, will make a big difference in market depreciation.
But just to throw some numbers and a random time frame out there to look at... How about 25-50% over 5 years.

[philduval1]

Originally Posted by Privleoplag

On market depreciation:
Over what time frame? I'm sure there is a curve, more or less the first few years and eventually reaching a point of little market depreciation, and over the long term possibly right down to the point of salvage value.
From what I've observed, the model of the boat and it's reputation, founded or not, will make a big difference in market depreciation.
But just to throw some numbers and a random time frame out there to look at... How about 25-50% over 5 years.

Here is a one of many examples of what i'm look at:
2014 Lagoon 450 Sail Boat For Sale - www.yachtworld.com

So, from what i've read, this boat would sell in five years for about 318 000$ to 212 500$. The problem is that today, I can find just a few 2009 examples at around 320k$(one at 299k$), none under that), 2010 begining at around 370k$. That mean; no boat under 25% of depreciation on a 5 years term. Worst case is 20 000$ of depreciation/year (excluding heavy damage).

[RedHerring]

When I looked at the numbers for a smaller boat (Bene 35 or similar), it was pretty clear that the only way charter boat ownership makes financial sense is if you go with a large chartering company and use your owner's time to go sailing all over the world.

[Privleoplag]

Originally Posted by philduval1

Here is a one of many examples of what i'm look at:
2014 Lagoon 450 Sail Boat For Sale - www.yachtworld.com

So, from what i've read, this boat would sell in five years for about 318 000$ to 212 500$. The problem is that today, I can find just a few 2009 examples at around 320k$(one at 299k$), none under that), 2010 begining at around 370k$. That mean; no boat under 25% of depreciation on a 5 years term. Worst case is 20 000$ of depreciation/year (excluding heavy damage).

But you are talking about a boat that has already had a year or maybe close to 2 years of depreciation already. Wasn't that about a $600,000 boat to begin with?
Or are lagoons really that cheap? .

[henryv]

Keep in mind that the true depreciation is the net of your investment less the net you receive when you sell. Your investment will include some significant costs such as delivery that are immediate write offs. On the sale end you need to consider that boats rarely sell for the asking price and ten percent of the sale price goes to the brokers.

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[nautical62]

Originally Posted by RedHerring

When I looked at the numbers for a smaller boat (Bene 35 or similar), it was pretty clear that the only way charter boat ownership makes financial sense is if you go with a large chartering company and use your owner's time to go sailing all over the world.

I agree. It allows one to go on sailing vacations more economically than chartering or normal ownership would cost. It's unlikely to turn a profit.

[timinfla2]

Sorry to wake the dead here but this was a FANTASTIC thread. I have learned a ton, thanks to you contributors.

[timmillea]

I hope I am not dead yet.

Any questions?

Tim.

[timinfla2]

Ah yes! Well, I was remarking upon the state of the 3 year old (dead) thread, not suggesting the demise of its participants, but I am glad to hear you are doing well just the same :-)

I do have a few questions but before I ask them, I believe I can find the answers myself by going through the tons of links there are on this site about all things chartering - out of respect for these fine folks' time, I won't ask those until I know I can't answer them myself.

However, I did have one idea I wanted to vet... One of the commenters mentioned that they sold (or perhaps it was bought) owner time at a 30% discount. Am I to understand that in certain circumstances if an owner finds themselves unable to use their 'owner time' in a given vessel, that they are free to re-sell that time to a 3rd party without any hatemail from the beancounters at the charter operation?

If that is true, why is there no secondary marketplace where owners list these opportunities? I envision sort of an ebay for unused owner time.

If it's all the same, if I'm going to get 7 days on a Moorings Cat, I'd prefer to do it at a 30% discount while helping the owner monetize his unused time.

Does any of that make sense?

[timmillea]

It almost makes sense :-)

From the hard of experience, I would never, ever enter into a 'time share' arrangement

If you don't need/want a boat full-time, better to rent one when and where desired - far less expensive and far more versatile.

T.

[GTom]

Great thread, I am happy that it came alive! There were many speculations around how much does it worth to charter, we got a real example here.

"$27,000 Net cost for 7 years, including all..." - says the OP. This doesn't include capital costs or lost yield though. However, if this purchase saved that invested 119k from a huge brokerage disaster just a year after he bought the boat in 2007, it was for the greater good! In more peaceful times, I'd add 2%/year capital costs/lost capital gains to the equation too, this would add a good 16k$ to the costs, then we are at 43k$ or 6k$/year.

Comparing this number to a second hand, then refitted 33' boat, I don't suspect much difference or advantage to the charter model. A fair 33'-er can be bought and refitted from 40k$, keep it in a realistically priced marina for 3k$/year, write 20k$ depreciation and repairs (=20k$ boat value after 7 years) and 6k$ capital costs in 7 years, you get approximately the same, 6k$/year cost. Headache level is about the same, but you worry about different things: if you charter, you worry that renting folks will wore down your boat and your repair bill will be high at the end, charterer goes bust, etc. As an owner you'll worry about hurricanes, theft, repairs.

Personally I haven't found any advantage of the charter model for a small mono: you have to move a much larger sum of money at the beginning than in case of a 2nd hand purchase, you will be restricted to certain designs and manufacturers AND your sailing time and area will be restricted. All this for no meaningful financial advantage.