Buying a Cat with Large Charter Company

[pteron]

Originally Posted by Doodles

I think its the risk factor when it comes time to sell the used boat that the banks are not comfortable with. Otherwise, why would it be any different from a car rental company. I don't know for sure but I strongly suspect Hertz and Avis borrow from banks to buy their car which they turn around and unload in a couple years. But with cars the secondary market is more stable and predictable, and of course the population for unloading used cars is a lot larger than that for unloading used cats.

I'm not arguing with the concept of renting out an asset, just the numbers!

Has anyone put together the business case for a charter boat recently? It must be possible to determine who makes the money.

[Johnathon123]

The hertz / Avis analogy is quite right, they lease the cars, probably through a holding company and sell it at the end of a lease term, certain number of km's or some other pre determined criteria.

I am reasonably confident, having run the numbers that the two people making money in this deal do not include the boat owner, UNLESS, they are already chartering a boat 12 weeks a year (I.e, not just doing it because they "can")

Obviously this works for someone, somewhere because every charter company does it and they all appear to have plenty of boats. But then, timeshare condos seem to sell also!

[Jeannius]

Volkhard... I actually did just what you are contemplating... Always intended to buy a 5- 10 year old boat once I'd retired but then thought... What if I buy a new boat, put it in charter and have someone else pay the costs for the first few years?

So I started looking into it and pretty quickly rejected the Sunsail/Moorings formula because they were very restrictive regarding the type of boat I could have and also the specification. I was also concerned about their maintenance standards as they pay for all repairs/maintenance so the more they do, the less they profit. I have talked to several Moorings owners and some of them have said that they believe maintenance does get skimped at times, particularly towards the end of the agreement.

I wanted a boat that I would want to sail at the end of the period so to that end I bought a Privilege 435 and placed it with one of the so-called '2nd tier' outfits in the BVI. I say so-called because some of them provide boats and charter experiences every bit as good as Moorings/Sunsail. It all worked out well for me. My boat was the busiest in the fleet and generated a lot of income every year for 5 years. Yes it got beaten up a bit but nothing that couldn't be fixed. The engines got a lot of hours on them and the generator was replaced but - and this is the important thing - at the end of the charter period I had money in the bank and a boat that subsequently took me around the world.

This approach isn't for everyone. You have to accept the occasional bit of damage and that some real idiots will be in command of your beloved boat, but if it means the difference between buying now or waiting until later (by which time you may be dead or incapable) I'd say do it now.

[yeloya]

Volkhard,

You are saying that you will be sailing 12 weeks and in various locations. If this is the case, firstly you will be restricted to couple of companies operating globally. Secondly, if you use the boat 12 weeks a year, your income would barely cover her expenses. If someone tells you otherwise, he's lying or means that yr boat will not be maintained at all and will be a wreck in couple years time..

Being someone in this industry and on the other side of the table, I can recommend to you the following:

-If you have enough time to sail away for 12 weeks (3 months), you have the option of not to give it to charter at all. As I said, the money you will get will probably cover yr expenses but not the risk you will be taking..
If in the future, you can extend this period to 4 months, then, it's not feasable anymore. Moreover, if the company pushing you towards the kind of boat that is not yr first choice, it doesn't make too much sense..

-I am amazed to see generalised comments like "charter boats are not kept well", "no charter company is investing in buying boats", etc.. Like in every business, there are good companies, bad companies. Choosing the right company for you is key. What is good to you is not necesarily good to someone else or vicea versa.

-the charter management contracts are usually one sided and prepared by the lawyers of the company. If you decide to proceed, take yr time, consult it with yr lawyer before you sign it.

-yr biggest expense will be the deppreciation and the second hand value of yr boat will be to a great extend determining yr return on investment. If you get a wreck at the of the contract, regardless how high was yr income, you will likely to lose.. So, the way yr boat will be maintained, the skill of the staff working on yr boat is crucial.

-I know some companies are proposing "guarantee income". Noone can give the money that he's mot making. If he does, then you will pay it with lack of maintenance and care.. I would stay out of it.

-Try to talk to the owners who worked or are working with the company/ies you are considering.

My experience is that the boat should pay off her purchase value with her net income anywhere beetween 6 to 10 years. The second hand value of the boat at the end of this period is yr return on investment. This is for the maximum 2 weeks of use of the owner and for a season that last 25 weeks a year. (pretty much standard in the Med.)

Good luck

Yeloya

[Charlie]

I looked into it when there was a temporary increase in the section 179 deduction (accelerated depreciation) I would have been able to right off most of the cost of the boat in one year which I could have used at the time. It turns out it didn't qualify then when I ran the numbers it didn't work. It seems like a pretty easy equation though: cost of 12 weeks sailing per year is it greater then depreciation on a five year old catamaran. I guess you need to add in the principle pay down too. So you buy a cat for $500k and then in five years you have paid down the mortgage $100k you owe $400k on a new cat that you can buy for for $425 k then it is a good deal. If it is worth $375k then you figure the cost of sailing 12 weeks a year. I couldn't get it to work.

[newlife]

There a lot of opinions on this but my 5 penny worth....
I own a cat with Moorings (5 yr contract) which transferred to another of their companies for a further 2 years. It is due to end soon, and the big thing that seems to have been missed here is that they are obliged to refit the boat before handing it back. this can be in conjunction with your own surveyor or your own inspection.

Of course fair wear and tear comes into and unless engines / generator have completely failed then you are not going to get new replacements. I have to say mine still run and sound well.

The bodywork will be gone over and any dings will be filled and repaired. Again this should be to a good standard.

Overall there is a set maintenance plan BUT it really depends sometimes on the individual base and personnel. I have always been happy with the service in the Med, but not so with some of the Caribbean. eg I arrived to my own boat (Caribbean) and the chartplotter had failed. Someone came along 20mins later and confirmed it had failed and needed replacing. 1hr later(!), someone came along with a new unit and fitted it without a word. Contrast with the same charter company in Turkey where I had the same problem (no - its not me!) and the plotter was replaced within 15mins with an apology!

The charter income is good for the time you are in contract, and I think the real reason that charter companies dont buy thier own boats is that they would be responsible to sell them at the end of charter. As it is, owners use the charter company's broker to sell your boat and makes another 10%!

Some of the list of items required to "change" a charter boat to a cruiser seems a bit out of date. Its true the electrics tend towards engine driven fridges / hot water etc, but the newer cats now have fridges and decent freezers which are driven by batteries and sound an alarm if voltages drop too low. (We never had to start engines purely for charging or running items in a weeks crusiing). I turn off the engines as soon as I can, so no long charge ups either.

By the way - I have a 47ft cat for sale if you are looking!

[JamuJoe]

Bill,
On the charter ownership option: We bought our yacht (Leopard 42) through The Moo..... ownership program five years out from retirement. We enjoyed sailing her and sister ships in many beautiful locations around the world. We then phased out concurrent with my planned early retirement, upgraded her for cruising (extensive list of gear - about $40K total, mostly my labor) and are now enjoying her for seasonal cruising (5-6 months per year). The entire experience made economic sense for us, provided sailing that would have been hard to afford otherwise, and left us owning a fine yacht. Yes, there were some headaches and risks. I haven't looked at current ownership/charter contracts - due diligence and analysis for your personal situation is important. Would I do it again? Yes.

[raphaella]

My wife and I have receintly purchased Raphaella 46 ft fountain pajot from sunsail cie. Only one thing we can assure you, you will have lots of love to give her when they finally had her over to you, for these boats are thrown around and worked on by un professional people. The reason for this is the agreement they have with the governments of the countries that they have their bases in, in another words the local people that have no faintest idea of what they are doing are the ones that take care of your boat. We just purchased our in Oyster Pond St-Marten and you would freak out to see what happens to the boats that they rent. Just looking at them at the docks, with 6in fenders, the cheapest kind you can find, rubbing on the docks, getting scratched and scrubbed by the docks in the wind and waves, million dollar boats being misstreated.... Basically if you do this be prepared for many surprises. We are actually happy for we did get an excellent price, 150Kus for a 2001 cat, but gosh lots of love and 30k up to know just to bring her back in sailable condition.

[SailFastTri]

Originally Posted by raphaella

My wife and I have receintly purchased Raphaella 46 ft fountain pajot from sunsail cie. Only one thing we can assure you, you will have lots of love to give her when they finally had her over to you, for these boats are thrown around and worked on by un professional people. ...snip.

Consistent with what I observed as a charterer in the BVIs. The guys in the chase boats do whatever they need to to keep a boat going. If a fuse blows they'll grab power from another wire without regard to what else is on the circuit or purpose -- if it works it's good to go.

You will need to have the systems checked out thoroughly and make sure there are proper fuses on every device/circuit.

[Jon Hacking]

Originally Posted by raphaella

... We just purchased our [FP] in Oyster Pond St-Marten and you would freak out to see what happens to the boats that they rent... We are actually happy for we did get an excellent price, 150Kus for a 2001 cat, but gosh lots of love and 30k up to now just to bring her back in sailable condition.

We bought Ocelot from the same place - Sunsail in Oyster Pond - & she was in pretty good nick. OK, Sunsail had a different boss then & Ocelot had a skipper for much of her chartering carreer. We did put in $40K to turn her from a charter boat into a cruising boat (more info here) which was a bit more than expected, but we're quite happy with the results. Hope you are too!

[nautical62]

I have a boat in charter with The Moorings which ends it's contract at the end of this month.

I agree with those who say charter boats get a lot of use. What I think many fail to recognize however is that they get maintained to cruise ready conditions and contractually they must turn the boat over at a certain quality. They can't turn it over with blown out sails, etc. I also recently purchased a used Hunter 30 which was in much, much worse condition than my charter boat.

Also, one needs to consider the income generated and the income saved by having to pay no maintenance, no insurance, and no dockage.

Maybe the boat is depreciated 10% more than non-charter boats, but income generated and costs saved amount to several times this amount.

I've owned 4 cruising boats so far. My charter boat has been by far the most economical and hassle free ownership.

In my mind there are two reasons one should not consider buying a charter boat:

1. The time restraints and/or locations don't work for you.
2. You are happy with a much, much less expensive used boat. For example, despite the notable charter savings, a used Hunter 30 is probably still cheaper to own than their entry level monohull. A used Catalac 9M is probably still cheaper than a new charter cat.

[nautical62]

Originally Posted by Johnathon123

I am reasonably confident, having run the numbers that the two people making money in this deal do not include the boat owner, UNLESS, they are already chartering a boat 12 weeks a year (I.e, not just doing it because they "can")

In my experience, owning a boat in charter with one of the big companies is not about making money. It is about owning and enjoying a newer boat for much less cost and headache than if you purchased it and maintained it privately.

It's like chartering 6 weeks per year for the cost of 2, assuming you sell the boat at the end.

Or it's like buying a new boat now for what you would pay for a used one in 5 years, but getting to enjoy it a few weeks per year in the meantime. (except you have to have the money now instead of in 5 years)

[Doodles]

Originally Posted by nautical62

In my experience, owning a boat in charter with one of the big companies is not about making money. It is about owning and enjoying a newer boat for much less cost and headache than if you purchased it and maintained it privately.

It's like chartering 6 weeks per year for the cost of 2, assuming you sell the boat at the end.

Or it's like buying a new boat now for what you would pay for a used one in 5 years, but getting to enjoy it a few weeks per year in the meantime. (except you have to have the money now instead of in 5 years)

Is there a guaranteed sales price at the end? If there is I assume you could calculate exactly what your actual use of the boat cost. How does that compare with what it would have cost if you just chartered someone else's boat? Is it really cheaper? If there is no guaranteed sales price then you don't know what the "chartering" cost to you were until its sold. Isn't that right?

[nautical62]

Originally Posted by Doodles

Is there a guaranteed sales price at the end? If there is I assume you could calculate exactly what your actual use of the boat cost.

In my case, I have a guaranteed trade in price, but no guaranteed sales price, so yes,

Originally Posted by Doodles

How does that compare with what it would have cost if you just chartered someone else's boat? Is it really cheaper? If there is no guaranteed sales price then you don't know what the "chartering" cost to you were until its sold. Isn't that right?

It's hard to ever know exacts, because one always has to make assumptions about the alternative one did not pursue. If for example, you buy a charter boat instead of a private boat, you will never know for sure what maintenance you would have spent on a private boat. Still it's easy to make some fairly good estimates. Even if I'm off by 20-30% on the selling price of my boat it doesn't drastically change the benefits.

I don't mind sharing the actual numbers in my case:

boat cost: $119.000 (New 32.5, including upgrades and outfitting)
Guaranteed revenue: 960/month equals about 52K over about 4.5 year contract.
dockage: zero
insurance: zero
maintenance: zero

Aprox. net I've paid = $67,000 (again with free dockage, insurance and maintenance)

So, if I could net 67K for the boat, the cost per year of ownership would be zero. The annual cost of sailing would be the owner's fee of about 2K which includes fuel, linens, cooking stuff, dinghy rental, etc.) plus transportation to the boat which exists with any boat I own.

If I net 58K, the cost would be about $2,000/year
(4K with owner's fee)

If I net 49,000 the cost would be about $4,000/year
(6K with owner's fee)

If I net only 40K, the price would be about 6,0000/year.
(8K with owner's fee.)

Comparing any of the above to chartering at 3.5K/week (or more) for 5 weeks shows what a good deal it is. Even if I gave the boat away, it wouldn't cost much more than chartering 5 weeks per year for the past 5 years.

From what I've seen similar boats coming out of charter are selling in the mid 60s, so by spending about that amount 5 years ago, I ended up with a boat in the same condition as if I'd purchased a used one now, but I had the use of it for the past 4.5 years. For me it ended up being an especially good decision because the stock market tanked right after I bought it. Had I kept the money invested, I'd have much less purchasing power, but obviously, the opposite can be true as well.

To me it's clear that owning a charter boat and sailing it 5-7 weeks per year is cheaper than either purchasing a similar boat and sailing it for an equivalent time or chartering a similar boat for the same amount of time. As I said in my original post however, the question is: Is that what you would otherwise do and does that style of sailing, time frame, and location fit your needs?

That's exactly why I probably won't stick with the program. I'd love to have a boat in the Abacos. Their entry level boat there now is a 200K 38-footer I still think that's much cheaper than chartering or purchasing a similar boat. If sailing and/or owning a newer 38-footer was an important goal to me, I'd do it in a second. However, for me the alternative will likely be sailing a Hunter 30, I bought for 26K which gets me around the Abacos adequately for almost 1/8 the price, or keeping the 32.5 now worth mid 60s. I think the 38 is an economic way to own/sail the 38, but I don't value what the more expensive 38 provides over less expensive boat options. If I could trade into another 32.5 I'd also do that again in a heart beat.

I should add, that charter management agreements are always changing, and that my circumstance may not reflect what others are currently looking for. If you are interested, I suggest you get the latest actual numbers by contacting TUI marine (owner's of Moorings, Sunsail and Footloose) In my experience they are not very pushy and straight forward about the program details.

[David_Old_Jersey]

Also worth bearing in mind that the value of your money is likely going to be worth a lot less in 5 years time due to inflation and intentional devaluation, certainly likely that the era of low inflation is over - and for those who have not lived through inflationary times previously could be quite an eye opener.......so, doing a deal on a boat price now and fixing holiday costs for the next 5 years no bad thing - if it fits into your life.