financing

[Belezar]

To echo the sentiments of some others - the OP didn’t ask about their decision process just some recommendations. I could wade into that discussion but wasn’t asked. The main point is risk tolerance, and there is no right answer.

As to finance companies - First, your broker should have a list. The are some good outfits out there. Try Sterling or JustBoatLoans.com. Good luck!

[Fnews]

Hi. I would not count on investments. From my own experience, I can say that any investment always has risks. Therefore, there may be situations when the percentage of your investment will drop significantly. But the withdrawal of investments is also not a simple or quick process. Therefore, I agree with the statements above that it is better to either accumulate the required amount or buy a cheaper boat. There are many options to find a cheaper boat. A few months ago I managed to buy a used boat in excellent condition at a good price.

[scarlet]

I just thought of something else... Since our boat will be a vacation home for us... we get to deduct interest from our taxes... I believe we can deduct up to $10,000 in interest on our taxes.

[Lost Horizons]

Unfortunately, you can deduct the interest from your taxable income, not from the taxes. The good news is, there is no longer the $10k limit on itemized deductions.

[redneckrob]

I just used cash to buy the boat, then took out a loan at my leisure. You said you have the funds, you just want to keep them working for you. If they're in stocks, then you can margin them no questions asked or temporarily sell them, get the boat, and then the whole chicken and egg thing with insurance and slips goes away. Get the loan, then take the proceeds and put them back in your investments. If you're not willing to do this because you're afraid of a margin call, for example, you aren't as certain of your returns as you think you are.
I also found the lowest rate boat loans came from a strange variety of sources. I ended up going with Transportation Federal Credit Union, super obscure but they classified boats with RVs and gave me a 2.5% rate, which at the time was literally below the rate for Treasuries of the same tenor. On the other hand Pentagon Federal Credit Union which has given me crazy low car loan rates over the years had horrible boat rates. You really just need to do a Google Maps search for credit unions and go to the websites of all those near you to find the sweet spot of the one that offers super low rates.

[ers61]

Originally Posted by scarlet

My husband and I are interested in a particular boat, and are discussing cost, financing, etc. So I have a few questions.

We have the cash to pay for the boat, however, our ROI in our investments is much higher than interest rates right now, so it makes sense for us to take out a loan, and if the markets slow down, or drop, we will take cash out and pay off the boat. That being said, we are looking for a good lender. I've contacted Essex, and frankly, have not been impressed at all. They want a complete application including secured slip, and insurance before they will even let us know if we qualify for the amount we are lookin for. We haven't even made an offer.. and we don't want to make an offer until we feel comfortable with our plan. So, I'm a bit frustrated with them. So, If you have worked with a great lender... please let me know.

Second, Any advice on what to offer? I've done a comparison of other boats in the market, and it is reasonably priced. I know that if the inspectors find an issue, I can lower the offer a bit to compensate. But I know often times these boats sell for under their asking price... When you all bought your boats... how far below asking price did you start off at? is there any place to find asking price vs. purchase price?

Thanks in advance.

so how did it go ? happy with the decision at the end?

[scarlet]

Originally Posted by ers61

so how did it go ? happy with the decision at the end?

It went great! We bought our boat, at what we feel was a fair price. We got a great rate... Found out from our tax accountant that we can deduct the interest since it meets the qualifications of a second property. Kept our money in our investments, (Our percentage gains are almost twice what our interest rate is on our loan) and as the Dow is at another record high, we are way ahead. Financially it was brilliant according to both our tax accountant and finance broker. If and when this situation is no longer to our advantage, we will take the cash and pay it off.. but right now we are way ahead.

This is one of those things they should teach in school... how to make your money work for you... To me, this argument is similar to those arguments about whether it is better to buy, or rent a house... There are those people who believe it is ALWAYS better to buy. it is not. We are currently renting. We sold our home that we owned for 20 years... put the money in our investments. Since we knew we were only going to be in our current location for a few years, renting was a HUGE financial advantage to buying. Had we bought a house, we would never get our money out of it in the 2-3 years we are here.

Anyway... I'm sure this will just reignite an argument.. but my whole point is that it is not ALWAYS better to pay cash for a boat...

Thanks for checking in with me...

[ers61]

Originally Posted by scarlet

It went great! We bought our boat, at what we feel was a fair price. We got a great rate... Found out from our tax accountant that we can deduct the interest since it meets the qualifications of a second property. Kept our money in our investments, (Our percentage gains are almost twice what our interest rate is on our loan) and as the Dow is at another record high, we are way ahead. Financially it was brilliant according to both our tax accountant and finance broker. If and when this situation is no longer to our advantage, we will take the cash and pay it off.. but right now we are way ahead.

This is one of those things they should teach in school... how to make your money work for you... To me, this argument is similar to those arguments about whether it is better to buy, or rent a house... There are those people who believe it is ALWAYS better to buy. it is not. We are currently renting. We sold our home that we owned for 20 years... put the money in our investments. Since we knew we were only going to be in our current location for a few years, renting was a HUGE financial advantage to buying. Had we bought a house, we would never get our money out of it in the 2-3 years we are here.

Anyway... I'm sure this will just reignite an argument.. but my whole point is that it is not ALWAYS better to pay cash for a boat...

Thanks for checking in with me...

thanks for the update, just registered with this forum. this is a great place for not only sailing but also other topics such as this, reading these posts from the past , thinking to buy a boat right now, many people here have amazing intelligent conversations and knowledge share, thanks for being part of this

[cherylchecheryl]

Originally Posted by scarlet

It went great! We bought our boat, at what we feel was a fair price. We got a great rate... Found out from our tax accountant that we can deduct the interest since it meets the qualifications of a second property. Kept our money in our investments, (Our percentage gains are almost twice what our interest rate is on our loan) and as the Dow is at another record high, we are way ahead. Financially it was brilliant according to both our tax accountant and finance broker. If and when this situation is no longer to our advantage, we will take the cash and pay it off.. but right now we are way ahead.

This is one of those things they should teach in school... how to make your money work for you... To me, this argument is similar to those arguments about whether it is better to buy, or rent a house... There are those people who believe it is ALWAYS better to buy. it is not. We are currently renting. We sold our home that we owned for 20 years... put the money in our investments. Since we knew we were only going to be in our current location for a few years, renting was a HUGE financial advantage to buying. Had we bought a house, we would never get our money out of it in the 2-3 years we are here.

Anyway... I'm sure this will just reignite an argument.. but my whole point is that it is not ALWAYS better to pay cash for a boat...

Thanks for checking in with me...

1. Whether or not you end up deducting your interest on your boat loan will depend on whether you itemize your deductions or if you just take the standard deduction.

2. Although someone above suggested that you purchase the boat and then take out a loan later, to be able to deduct the interest, the loan has to be secured by your boat.

3. If your financial planner/broker is compensated by a formula that is based on the percentage of your assets that are under management, you may wish to be a bit more skeptical of the broker's approval of your decisions to take out a loan instead of liquidating your investments.

4. I'm glad for you that the market has been working in your favor and has worked out well for you relative to your boat purchase. But, I caution you about your investment buy/sell decisions.

It sounds like you are investing in equities rather than bonds. I assume that you are talking about total return when you talk about your investment gains. If your loan interest rate is 5% and your total return on your investments is 10% (you don't specify your time period), then under your strategy, you continue the loan. If your total return drops to say -10%, under your strategy, you sell the investments and pay off the loan.

But your strategy is an after-the-fact approach. If your investment return dropped to -100%, that would also trigger your sell strategy, but there would be nothing in the account to sell in such an extreme scenario.

[a64pilot]

The issue with playing the I make more money with my investments than I pay in interest on a loan works, until the day you wake up and your investments tubed overnight, but your loan didn’t.
To pay off that loan, if you still have enough left in your investments really puts a hurt on them, because you can’t let them sit until things recover, you have to sell at the bottom.
If your working and still have a job great, you can recover, just can’t Retire as soon as you wanted, but if your Retired it can get ugly.

But you don’t have to go back very far in history to see how it works out sometimes, many, many people who were playing that game “lost” their houses in 08.

So many in fact it seems that the rental market is doing great, those that lost houses can’t I guess qualify for loans, but make good money, so they rent until they can again qualify for a loan.
Such is the fate of people who live off of credit.
It works great, allows you to live better than those that pay cash, until it doesn’t.

[a64pilot]

This so much reminds me of me trying to tell my friends to not borrow so much on houses with nothing or almost nothing down, they were convinced they couldn’t lose, and would point out how great things were now, why John just down the road sold his house and made lots of money.
The nice ones would just smile and think me stupid, the not so nice ones would call me a fool. So I quit saying anything, and when so many lost their behinds, I didn’t say anything then either.
It’s interesting to see how many divorces happen when finances go the Hell, after that they are really wiped out.

I Retired well before I was 60, they are still working, and still have huge loans, and even today will tell you your foolish to not borrow money when it’s so cheap to do so.

[scarlet]

Originally Posted by a64pilot

This so much reminds me of me trying to tell my friends to not borrow so much on houses with nothing or almost nothing down, they were convinced they couldn’t lose, and would point out how great things were now, why John just down the road sold his house and made lots of money.
The nice ones would just smile and think me stupid, the not so nice ones would call me a fool. So I quit saying anything, and when so many lost their behinds, I didn’t say anything then either.
It’s interesting to see how many divorces happen when finances go the Hell, after that they are really wiped out.

I Retired well before I was 60, they are still working, and still have huge loans, and even today will tell you your foolish to not borrow money when it’s so cheap to do so.

I knew you would show up. You pretty much seem to be the negative voice on just about every post you comment on..

So funny... We bought our houses with no money down.. (VA loan)… We used that wonderful tool to help us to get to our financial goals and using that as one of our financial strategies, I was able to retire in 2016 at age 49. And we are middle class... and we are set for life, unless something catastrophic happens in the world, like, say, a zombie apocalypse. We were just smart about our money, and learned when it was to our advantage to borrow, and when it was advantageous to pay cash... Millionaires borrow money all the time, and yet they are... hmmm.. millionaires. In the right situation, borrowing can be a very smart thing to do. You did your thing, and got to your goal... We did our thing.. and got to our goal.. People ask about financing here all the time... and people borrow money to buy their boats.. all the time. I felt I would share my experience, so that others know that this can be a great option.

Also, if anyone is interested, I'm happy to share with you the bank I went through.. they had fantastic rates, and terms...

[cherylchecheryl]

Originally Posted by scarlet

I knew you would show up. You pretty much seem to be the negative voice on just about every post you comment on..

So funny... We bought our houses with no money down.. (VA loan)… We used that wonderful tool to help us to get to our financial goals and using that as one of our financial strategies, I was able to retire in 2016 at age 49. And we are middle class... and we are set for life, unless something catastrophic happens in the world, like, say, a zombie apocalypse. We were just smart about our money, and learned when it was to our advantage to borrow, and when it was advantageous to pay cash... Millionaires borrow money all the time, and yet they are... hmmm.. millionaires. In the right situation, borrowing can be a very smart thing to do. You did your thing, and got to your goal... We did our thing.. and got to our goal.. People ask about financing here all the time... and people borrow money to buy their boats.. all the time. I felt I would share my experience, so that others know that this can be a great option.

Also, if anyone is interested, I'm happy to share with you the bank I went through.. they had fantastic rates, and terms...

a64pilot has a lot of very good points. They may not all apply to your situation. However, IMHO, your very strong support of financing is not an appropriate approach for many, and that's why I am back here commenting. I've done bankruptcy work as an attorney. People don't need any more encouragement to take on debt.

From the little I know, your financial situation sounds to be one where you are financing what will be your full-time home, and both you and your husband continue to have an income stream from working and social security. You also have some funds and investments. If you replace the word "boat" with the word "home", I don't think many would object to financing rather than paying cash in your situation, depending on unknown specifics of the situation, such as the amounts and rates (fixed/variable) involved. Having funds in reserve for emergencies and not all tied up in your house can be a good thing.

Where I disagree is your rationale: that you can earn more in the stock market. And your comments about 'this is something that they should teach in school.' They do teach this in school. I am a business major with a finance degree. I am also a chartered financial analyst, been in the investments business much of my career, and worked as a security analyst for a number of years. I'm not saying this to brag, but to try to communicate that I have some experience in this area.

The stock market goes up and down, and some times those 'downs' are fast and hard. As a previous poster noted, past performance is no guarantee of future results. That means there are no guarantees that you will continue to receive a total return on your stock portfolio that exceeds your financing costs. Remember, the investment return on stocks will vary, your loan expense will not (unless you have a variable rate loan). Only you know how aggressively your portfolio is invested, how exposed it is to market swings, whether you have the ability to weather those ups and downs, and whether you need those investments for current expenses. But keep in mind, trees don't grow to the sky, and every gambler in Vegas thinks they have a system.

Also, don't compare pre-tax returns to after-tax expenses. Whether you end up deducting the loan interest will depend if you itemize or not.

[S/V Illusion]

Why these ‘better to finance’ stories always omits the fact boats depreciate is telling and always ignored when factoring in the bottom line.

Generalities are usually wrong but in this case, Buffett is correct that one should never finance a depreciating asset.

[JordanH]

Originally Posted by S/V Illusion

Why these ‘better to finance’ stories always omits the fact boats depreciate is telling and always ignored when factoring in the bottom line.

It's omitted because it's irrelevant to the math.

There are two scenarios when people borrow money.
A. The buyer HAS the capital, but is using more effectively elsewhere. In this case, it all comes down to whether your Return on Capital Employed (ROCE) is higher than the Cost of Capital. (Don't forget to include your risk or 'chance of achieving the assumed ROCE in your calcs)

B. The buyer doesn't have the capital but they have earning potential. And they are borrowing so that they can have future benefits today - by borrowing future money and then paying it off over time.

The OP is Scenario A and it is wise to do so.
(Scenario B isn't generally wise)

Just as a comment to the nay-sayers; If you go back and look at the stock market, it has averaged 6-10% over a very long time. Some years more, some years less, but at any given point it generally goes up 6-10% per year. It is theoretically possible that the US economy collapses so hard that the USA is wiped out and will never rise again.. but I think resiliency of 'murica will prop up the stock market and that they will recover from any recession in short or worst-case medium turn. *shrug* I think that these days you can probably borrow money in the 3-4% range and it makes a great deal of sense if you expect to earn 6-10% on average.