Cruisers Forum
 


Join CruisersForum Today

Reply
 
Thread Tools Rate Thread Display Modes
Old 29-03-2014, 09:36   #1
Senior Cruiser
 
nautical62's Avatar

Cruisers Forum Supporter

Join Date: Jul 2008
Location: Live Iowa - Sail mostly Bahamas
Boat: Beneteau 32.5
Posts: 2,264
Images: 12
Buying a boat in Charter Management: The final numbers

As an owner of a boat in charter, I've participated in many threads here about the costs of owning a boat in charter. (vs. owning, vs. just chartering, etc.). While I've been able to give my impressions, the problem has always been that until one sells the boat, one never knows the final costs. Well, after 7.5 years, the boat is now out of charter and sold, so I can report the final numbers. Numbers are aprox. and rounded off for ease.

Realize this is a minimum size boat purchased with The Moorings almost 8 years ago. Obviously boat prices have increased since then and larger boats cost much more. However, the percentages may be useful to anyone considering a charter management boat.

Cost (-) and income (+) in US$:

-119K: 32.5 boat, fully equipped, licensed.

+65K: Income over almost 7 years in charter

+43K: Sale price after broker's fees.

+00K: Dockage while in charter

+00K: Insurance while in charter

+00K: Maintenance while in charter
_____

11K: Net cost of ownership for 7 years, prior to after charter expenses, not including owner's fees.

+10K: owner fee 4 wk/year for 7 years 28 weeks total. (note 3 below)
______

21K Net cost of boat use for 7 years of charter including owner's fees at 4 wks/year use.

+4,500: Dockage and insurance, 9 months after charter, prior to sale.

+1,500 Fuel, parts, repairs, 9 months after charter, including sailing boat from BVI to Florida. (Does not include Custom's clearances)
______

$27,000 Net cost for 7 years, including all dockage, insurance, repair, buy price, sale price, etc. Not including flights, or provisioning.


$800/week: aprox. cost of use comes to about 1/3 - 1/4 of what chartering the same number of weeks would have cost me


$3,600/year average cost of ownership including depreciation, insurance, dockage, repairs, etc.


Conclusions: For those who feel confident they will charter for 3 or more weeks per year, owning instead of chartering may be a less expensive option.

Notes:

1. Some years, I used the boat 5+ weeks, other less than than 4. I used an average of 4 weeks per year for illustration purposes.

2. Slightly less than 5 years in The Moorings followed by 2 in Footloose. The Moorings provided a guaranteed income which was something like 43% of boat price. Footloose income was commission based.

3. Owner's fee of about $50/day included fuel, ice, water, dinghy use, linen service, boat cleaning etc. Rather than a daily fee, I understand they now have a single turn around fee per use, regardless of days used.

4. The costs used do not include transportation to the boat or provisioning, which would would also have to pay on top of a charter fee.

5. One thing to consider when comparing charter management to chartering, is who will be paying the costs. As a single person, I'd likely only be paying a portion of a charter with friends, so while the average weekly cost overall is notably less, the actual cost to me personally really isn't.

6. As stated early on, inflation, construction costs and minimum boat size have all caused the minimum price of a boat to go up notably since I purchased. Guaranteed income has also gone up however.

7. While the most expensive purchase price of 4 cruising boats I've owned, this has been the cheapest average cost to own in the end. All my other boats have cost notably more, than $3,600/year on average, but I also could sail them as long as I wanted, where ever I wanted.

8. The costs of continued ownership at the end of charter may vary greatly from person to person. Some owner's sell their boat immediately, with no additional costs, others keep them for some time at much higher costs.

9. Looking back, I have no regrets. Owning in charter was a cost-effective and low headache way to sail. As I look at the purchase price of a new catamaran in charter vs. sharing the cost of chartering with friends, I've decided that step doesn't make financial sense to me. Everyone must weight the costs and benefits in comparison to their own situation, and that won't be the same for everyone.

10. I had to declare income earned, but for me this about equaled depreciation claimed. This is something to consider that can easily be overlooked however.

Happy to answer any questions.
__________________

__________________
nautical62 is offline   Reply With Quote
Old 29-03-2014, 10:01   #2
Registered User
 
transmitterdan's Avatar

Join Date: Oct 2011
Boat: Valiant 42
Posts: 4,029
Re: Buying a boat in Charter Management: The final numbers

Thank you for the summary.

Are you ignoring the time value of money for the 120K initial investment? Over 7 years that money could have generated significant income to offset charter costs. My guess is the passive income would more than pay for the charters.
__________________

__________________
transmitterdan is online now   Reply With Quote
Old 29-03-2014, 10:12   #3
Registered User

Join Date: Mar 2013
Posts: 1,440
Re: Buying a boat in Charter Management: The final numbers

Thanks for posting this.

There were no financing costs? Did you pay cash?

One calculation this review doesn't provide is the opportunity cost (or interest) of any money invested. 119K seven years ago is worth more in today's currency, and would have likely earned some return if invested during that period.
__________________
letsgetsailing3 is offline   Reply With Quote
Old 29-03-2014, 10:30   #4
Senior Cruiser
 
nautical62's Avatar

Cruisers Forum Supporter

Join Date: Jul 2008
Location: Live Iowa - Sail mostly Bahamas
Boat: Beneteau 32.5
Posts: 2,264
Images: 12
Re: Buying a boat in Charter Management: The final numbers

Quote:
Originally Posted by transmitterdan View Post
Thank you for the summary.

Are you ignoring the time value of money for the 120K initial investment? Over 7 years that money could have generated significant income to offset charter costs. My guess is the passive income would more than pay for the charters.
I purchased my boat shortly before the market "crash" of 2008, so for me, it saved a loss (at least short run) rather than lost income/gains. Obviously that will vary depending on market conditions. As with the purchase of a non-charter boat, one obviously needs to consider the cost of their money and/or cost of taking out a loan. That's one of the reasons, I'm not buying into a more expensive catamaran.

added:

Many of the scenarios charter companies give are based on a 15-year loan with 25% down and the guaranteed income more than covering the monthly loan payments, generating a small positive monthly income, and the loan balance at the end of charter being less than the predicted yacht value. Personally, I'd rather not bank on that, and prefer a larger down payment with the guaranteed income going to own the boat outright when it comes out of charter, but that's up to each individual to decide.

Great points - I did not include the cost of money over time in my breakdown, which is something that does need to be considered with any boat purchase.
__________________
nautical62 is offline   Reply With Quote
Old 25-06-2014, 02:40   #5
Registered User

Join Date: Jun 2014
Posts: 6
Re: Buying a boat in Charter Management: The final numbers

Great information.

I am looking at this from the UK. I checked my savings account yesterday and am getting 1.15% interest!

Over here in the UK there is nearly a negative opportunity cost of holding money. The European Central Bank has just brought in negative interest rates from institutions I think.

Deflation is on its way.

So I think spend now and worry later is the name of the game!
__________________
roblpm is offline   Reply With Quote
Old 25-06-2014, 07:14   #6
Registered User

Join Date: Dec 2010
Location: W Carib
Boat: Wildcat 35, Hobie 33
Posts: 7,962
Re: Buying a boat in Charter Management: The final numbers

Good generally representative numbers I think (many years in charter industry). Many folks have the fantasy that the boat will generate profit and/or be paid off by the end of charter use. As your numbers illustrate, charter use can reduce the cost of ownership, but in the end owners still typically have lost money or at best broke even. But of course there are other non-financial benefits like: big reduction in the time you must spend working on the boat.

One question though, your net sale revenue is listed as only $43K from a purchase of $119K. That's an ugly drop. In my experience most boats hold their value much better than that. I've sold a few for approx what I paid for them after years of ownership. Broker fees are typically about 10%, so why such a low net sale amount?
__________________
belizesailor is offline   Reply With Quote
Old 25-06-2014, 07:36   #7
Registered User

Join Date: Dec 2010
Location: W Carib
Boat: Wildcat 35, Hobie 33
Posts: 7,962
Re: Buying a boat in Charter Management: The final numbers

Quote:
Originally Posted by transmitterdan View Post
Thank you for the summary.

Are you ignoring the time value of money for the 120K initial investment? Over 7 years that money could have generated significant income to offset charter costs. My guess is the passive income would more than pay for the charters.
Theoretically correct, assuming $120K earning 5% per year, thats $6K per year which should cover at least one charter vacation per year of a comparable boat.

But of course it all depends on what was ACTUALLY happening with that money during that time. For example, I took some cash out of market based securities in 2004 and bought some real estate. Those particular securities would not only have not earned income, but would have lost substantial value too. The real estate got tied up in legal issues until just last month...and now I'm getting my full capital amount back. So, in effect it was like stuffing the money in the mattress. End result: Ive still got the cash. Market result over that time (assuming same securities), maybe still have half. (Fluctation in currency valuation not factored in).
__________________
belizesailor is offline   Reply With Quote
Old 26-06-2014, 18:18   #8
Registered User

Join Date: Jun 2014
Location: Huddersfield, UK & Stoupa, Greece
Boat: Jaguar 27
Posts: 12
Re: Buying a boat in Charter Management: The final numbers

As the ex-owner of a charter yacht in Greece, I would like to add that the analysis, while much appreciated, fails to take into account the risks vs. putting money into government bonds.

My yacht was 4 years old when I bought her.. For me it was a choice between a new 34 foot yacht that would rapidly depreciate, as in this example, or a four-year old, 44 foot, five cabin yacht which could also be used for skippered charter and had probably done all its rapid depreciating. I chose the latter. All was working fine until an unforeseen calamity, of all things, the effects of the Athens Olympics.

Yacht charter in Greece is a massive industry and there was a sentiment that the Olympics would bring mega-bucks in for yacht charter. All the charter companies, big and small, bought new yachts in anticipation. The biggest such as Kiriacoulis, were buying 50-100 new yachts each.

The immediate consequence was a massive over-supply, therefore low charter rates and lack of interest in an 'old' yacht like mine. She was given to a professional skipper on a season-charter. He promptly ran her into rocks with a massive repair bill.

There was a court case where the skipper was found legally culpable and therefore my insurance had to pay very little. The skipper claimed he had no money and the loss was therefore mine. I received his pocket money for a year.

Such a chain of events are rare but do happen. The nuances of different legal systems are complex and yachts by their nature are international creatures.

Before entering into a yacht charter-purchase agreement, one has to ask why doesn't the company just buy the yacht themselves?

They are shifting risk onto the private 'buyers' but taking the profits. They charge 'top whack' for all their services - cleaning, laundry, 'turn around charge', repairs, parts etc. and the surrogate owner has no say whatsoever. There is no competition. Charter companies are printing money.

The risk is the single biggest factor not built into the above calculations. Insurance can never cover all eventualities. If it did, you would be guaranteed to lose by teams of very highly paid actuaries.

My hard-earned advice would be decide between being 1) a charter business, where you let the punters provide the money and take the risks, and you use their yachts whenever you like for free; 2) being a charter customer when the costs and risks are fixed and for the short period of your holiday; or 3) a private yacht owner where you make the decisions and bear the responsibilities.

The fourth option, of providing the capital, taking the risks and having no say in expenditure or management in my view is a fool's investment and should be regulated out of existence.

I have just agreed to buy a 1978 Jaguar 27, strictly for private use. She doesn't have far to depreciate and most vital systems were renewed in the last couple of years. I live by my word, most of the time.

Tim.
__________________
timmillea is offline   Reply With Quote
Old 26-06-2014, 18:32   #9
Registered User

Join Date: Mar 2013
Posts: 1,440
Re: Buying a boat in Charter Management: The final numbers

Quote:
Originally Posted by timmillea View Post

Before entering into a yacht charter-purchase agreement, one has to ask why doesn't the company just buy the yacht themselves? They are shifting risk onto the private 'buyers' but taking the profits. The risk is the single biggest factor not built into the above calculations. Insurance can never cover all eventualities. If it did, you would be guaranteed to lose by teams of very highly paid actuaries.
Well, it's both the risk and the financing that they've shifted to the owners in the program. They've also got a guaranteed sale of owner time, so that's like what, four weeks per year? Then there's the sales fees... It's a rather brilliant strategy on their part.

It can also work out for the owner, if the situation is right.
__________________
letsgetsailing3 is offline   Reply With Quote
Old 26-06-2014, 18:55   #10
Moderator Emeritus
 
Ex-Calif's Avatar

Cruisers Forum Supporter

Join Date: May 2007
Location: Singapore
Boat: Maxi 77 - Relax Lah!
Posts: 11,514
Images: 4
Re: Buying a boat in Charter Management: The final numbers

I guess another purpose is "Charter to Own" - Having the real world income is great.

I am trying to get my head around that.

It should be relatively easy to look at putting 20% down, financing for 5 years, putting in charter and then taking possession after.

There would be a "refit" cost at the end maybe to get the boat back in fighting trim.

I know this is different than your example but if you also did not take the owners time (and incur that cost) or the post charter fees - you claw back $11,500. The "loss" on the boat is also an "unrealized" loss so the boat actually cost me $119 - income. Let's assume you got better income in the first 5 years when boat was newer and say the income was 50k instead of 65k - So the boat cost me $69k

So I have a boat (and can live without owners time) and if I were 5 years to retirement - I could consider buying a ~40ft leopard and putting it in charter. Until I am ready to go. The numbers are bigger but maybe scalable so - Am I willing to trade a 57% discount for a 5 year old used boat?

Hmmm...
__________________
Relax Lah! is For Sale <--- Click
Click--> Custom CF Google Search or CF Rules
You're gonna need a bigger boat... - Martin Brody
Ex-Calif is offline   Reply With Quote
Old 26-06-2014, 19:34   #11
Registered User

Join Date: Dec 2010
Location: W Carib
Boat: Wildcat 35, Hobie 33
Posts: 7,962
Re: Buying a boat in Charter Management: The final numbers

One significant value not factored into the original post is depreciation for tax purposes. Depending upon your tax situation this can result in a nice reduction in your taxable income each year.
__________________
belizesailor is offline   Reply With Quote
Old 27-06-2014, 03:26   #12
Registered User

Join Date: Jun 2014
Location: Huddersfield, UK & Stoupa, Greece
Boat: Jaguar 27
Posts: 12
Re: Buying a boat in Charter Management: The final numbers

Quote:
Originally Posted by belizesailor View Post
One significant value not factored into the original post is depreciation for tax purposes. Depending upon your tax situation this can result in a nice reduction in your taxable income each year.
Yes but that is a real depreciation, not just a paper depreciation for tax purposes. Unless your marginal tax rate is over 100% you won't win!
__________________
timmillea is offline   Reply With Quote
Old 27-06-2014, 04:06   #13
Registered User

Join Date: Jun 2014
Location: Huddersfield, UK & Stoupa, Greece
Boat: Jaguar 27
Posts: 12
Re: Buying a boat in Charter Management: The final numbers

Quote:
Originally Posted by Ex-Calif View Post
There would be a "refit" cost at the end maybe to get the boat back in fighting trim.
That is another good point. From my observations with the charter companies based in Athens, when a charter company buys a yacht, they will spend whatever it costs to maintain as if she will be used forever. The charter fees they receive in one year can easily approach the value of the yacht and so it is very much in their interest to do so. It is a high-turnover, high maintenance model.

When it is a privately owned yacht under management they spend as little as possible and knowing precisely until what date they have to keep her 'serviceable'. 5 years of hard charter is about all modern yachts can take before they need very major expenditure - hence the common 'new yacht/5 years' agreement.

I suggest it would be better to buy an ex-charter yacht from a charter company that actually owned it (but still caveat emptor) than to buy new on an owner-charter agreement for these 'moral hazard' reasons. The value/price will be about the same but you will almost certainly get a much better-maintained boat.

Tim.
__________________
timmillea is offline   Reply With Quote
Old 27-06-2014, 06:43   #14
Senior Cruiser
 
nautical62's Avatar

Cruisers Forum Supporter

Join Date: Jul 2008
Location: Live Iowa - Sail mostly Bahamas
Boat: Beneteau 32.5
Posts: 2,264
Images: 12
Re: Buying a boat in Charter Management: The final numbers

Quote:
Originally Posted by belizesailor View Post
One significant value not factored into the original post is depreciation for tax purposes. Depending upon your tax situation this can result in a nice reduction in your taxable income each year.
See point 10:

Quote:
Originally Posted by nautical62 View Post
10. I had to declare income earned, but for me this about equaled depreciation claimed. This is something to consider that can easily be overlooked however.
I think it is prudent for anyone considering buying a boat in charter to consult their tax professional regarding the financial consequences of earned income and depreciation.
__________________
nautical62 is offline   Reply With Quote
Old 27-06-2014, 06:54   #15
Senior Cruiser
 
nautical62's Avatar

Cruisers Forum Supporter

Join Date: Jul 2008
Location: Live Iowa - Sail mostly Bahamas
Boat: Beneteau 32.5
Posts: 2,264
Images: 12
Re: Buying a boat in Charter Management: The final numbers

Quote:
Originally Posted by Ex-Calif View Post
I guess another purpose is "Charter to Own" - Having the real world income is great.

I am trying to get my head around that.

It should be relatively easy to look at putting 20% down, financing for 5 years, putting in charter and then taking possession after.

There would be a "refit" cost at the end maybe to get the boat back in fighting trim.

I know this is different than your example but if you also did not take the owners time (and incur that cost) or the post charter fees - you claw back $11,500. The "loss" on the boat is also an "unrealized" loss so the boat actually cost me $119 - income. Let's assume you got better income in the first 5 years when boat was newer and say the income was 50k instead of 65k - So the boat cost me $69k

So I have a boat (and can live without owners time) and if I were 5 years to retirement - I could consider buying a ~40ft leopard and putting it in charter. Until I am ready to go. The numbers are bigger but maybe scalable so - Am I willing to trade a 57% discount for a 5 year old used boat?

Hmmm...
I second what Timmillea said.

If you want a used charter boat, but don't wish to use it while it's in charter, I think it makes more sense to keep your money invested and just buy a used charter boat at that time rather than buy a new one you won't use for 5 years.

As for refitting, that will depend on the what obligation the charter company has and what your needs are. After the Moorings, I kept my boat in charter with Footloose. The agreement with them is that the boat must be in charter ready condition when turned over to the owner which is a lower standard than had I taken it directly after the Moorings contract was done. I sailed the boat back to Florida with no further refitting costs. Obviously, those with longer-term cruising goals would want to do more refitting, but that is not unique to charter management boats. The cruising boats I've purchased that were not in charter, had no such guarantee of fitness and required much more work to be cruise ready.
__________________

__________________
nautical62 is offline   Reply With Quote
Reply

Tags
buying, charter, men

Thread Tools
Display Modes Rate This Thread
Rate This Thread:

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Buying a boat in Charter Management: The final numbers nautical62 Dollars & Cents 3 30-03-2014 08:42
Used Boat Shopping, Adding Up the Numbers? Jason2Hawks Dollars & Cents 51 18-02-2014 13:46
Reverse Lookup of Boat Numbers Chief Engineer Rules of the Road, Regulations & Red Tape 19 09-02-2014 22:36
Good Charter Management Companies in the Virgin Islands ? rlpconsult Boat Ownership & Making a Living 0 30-09-2011 19:38
San Diego Charter Management Companies: Any Good Ones? wakejumpr3 Boat Ownership & Making a Living 0 16-09-2009 02:29



Copyright 2002- Social Knowledge, LLC All Rights Reserved.

All times are GMT -7. The time now is 07:07.


Google+
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.
Social Knowledge Networks
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.

ShowCase vBulletin Plugins by Drive Thru Online, Inc.