Long-Term Leasing

[berniefiedler]

I'm in the process of moving up from a 20' Lund runabout to a 25 to 30' cuddy cabin. Why aren't there opportunities to lease in the boating area. With the amount of merchandise available and the current market, you would think someone would be taking advantage of this. Or, am I just ignorant about the opportunities out there, if one wants to lease?

[TaoJones]

I don't know that there aren't any leasing companies that would be interested in this opportunity, but I would doubt it. Any such vessel that gets used extensively may, or may not, be well-maintained - but the constant use will diminish its value. Any such leased vessel that gets little use will probably be neglected - lack of maintenance will diminish its value.

Either way, the owner of the vessel would have to protect himself by charging such high lease rates, it would probably not pencil out for either the lessor or the lessee.

Just my quick back-of-the-envelope analysis.

TaoJones

[berniefiedler]

Yep, I understand the concerns, but they are really no different than those with autos, planes, etc. And, those markets have a vibrant lease culture.

[hellosailor]

Bernie, leasing is the most expensive way to have a car. Every financial advisor will tell you that, and every dealer's sales training program teaches the salesman that leasing is the most profitable way for them to 'sell' a car.

If you want to operate a boat in the most expenswive way possible, by all means, lease it. Leasing companies will lease you anything you want, including a boat, if you are willing to pay the price. That price factors in devaluation, risks of theft, abuse, and fraud, creditworthiness, and a lot of other things.

Airplaces are a very different item, with million dollar price tags in the LOW end of the market. And aircraft leases are usually business leases, where tying up your capital and taking tax deductions change the financial return on leasing.

But if you think the market is under-served, that's a real opportunity for you. Set up a boat leasing company! It could be the conventional thinking and accounting is wrong, and there's lots of money to be made. Of course, you can finance a jetski or runabout real cheap and easy already, it is just those hard-to-resell sailboats that aren't so easy to "make the payments" on.

[berniefiedler]

All good points! I'm an investment advisor for over 30 years so I understand what you're saying and it's correct. Except that many boat buyers don't know if they're going to be as enthusiastic about boating two years into ownership. Suppose you had a $38,000 cruiser that doesn't seem to be able to be sold. A wannabe boater pays $3,000 down and $400 a month for two years. The wannabe also pays for a survey at the beginning and end of the lease period with the requirement to repair anything other than normal wear and tear. The owner doesn't pay insurance or storage at about $2,500 a year or more and receives $12,000 over the two year period. On the other hand, the wannabe gets to try boating for two years and gets out for just a little over $12,000 if he decides it's not for him. That's far better than being stuck with a $38,000 boat you can't sell.
Anyway, it's just surprising it isn't more common in today's market.

[hellosailor]

Bernie?
"Suppose you had a $38,000 cruiser that doesn't seem to be able to be sold.... On the other hand, the wannabe gets to try boating for two years and gets out for just a little over $12,000 if he decides it's not for him.
Oh, so you're saying the leasing company is magically going to sell that boat that can't be sold?
SOMEONE is going to get stuck taking a bath on the boat, and that's why the leasing company doesn't want to get involved with it. There's no magic in leasing, is only adds one more layer of management and one more layer of profits (and therefore expenses and costs) that have to increase the ownership cost for someone.

[S/V Illusion]

There is one school of thought which argues leasing is generally the most expensive option but that ignore a number of considerations, some of which do not apply to boats of the size you are considering.

The most fundamental rule is that one should never buy as depreciating asset and especially so if the purchase is financed. Not only do you lose the value from depreciation but you also lose any interest paid on the loan.

Leasing ensures you only pay for the depreciation and as long as you do not intend to use this as a means of later purchase, leasing can be the best option particularly if the money you intend to pay can be invested in anything which either appreciates or makes money for you such as your business. Most business practices these days advocate leasing over financing or straight capital investment. There are also liability considerations for which leasing is a valuable tool but not worth going into here. Suffice it to say that leasing can have advantages over some purchases - the real answer is "it depends".

You can definitely lease boats, however, you will find the lease option is typically limited to large vessels with correspondingly large price tags and crew to maintain her. This is a common practice with boats "owned" by corporations and the so-called megayachts but there is no market for leasing small purchase price boats.

[hellosailor]

"Leasing ensures you only pay for the depreciation"
Nope. That's the illusion is it sold under. No pun intended.

When you lease, you pay for the depreciation, you pay for the cost of financing, and you pay for the lease holder's profits on all of that.

If you ONLY paid for depreciation, the leasing company would be taking a loss on all the rest. They don't, they're usually highly profitable and typically factor in a "money factor" (new buzzword for "effective interest rate on your lease") that is double what you'd pay if you simply financed it directly.

Or, their rate is competitive--but the "cap cost" is inflated, the residual cost is unreal, there are security and closing costs and surrender fees...Leasing always has a gotcha, and theleasing companies are in business to make a higher profit than your local grocer or barber. Or your credit union. (I'd say "S&L" but those were abolished.)

[osirissail]

Originally Posted by berniefiedler

. . .Why aren't there opportunities to lease in the boating area. With the amount of merchandise available and the current market, you would think someone would be taking advantage of this. . . .

Actually, there are boat leasing companies - they are called bareboat charter companies like The Moorings, etc., etc. You lease the boat for a week, month or whatever term you can negotiate with them. You actually sign a lease agreement with all kinds of conditions and restrictions. And as you can imagine, the rates are not cheap when you consider the investment in the boat and its rather high probability of loss or damage.
- - Then there is the "bank" boat lease - you buy the boat with the bank's money and pay them for 'x' years and keep the boat maintained, insured and inspected periodically. At the end of the bank loan/"lease" you sell the boat.
- - Remember "lease" is just another word for long term "rental." What you are really asking for is a "long term rental" agreement on a boat. Considering what others above had said about the need to recover the cost, depreciation, wear and tear, and loss of market-ability of a used boat you can understand the high rates involved. With a motor vehicle it is somewhat hard to take it out of the country, but with a boat that is generally the whole idea.

[S/V Illusion]

Originally Posted by hellosailor

"Leasing ensures you only pay for the depreciation"
Nope. That's the illusion is it sold under. No pun intended.

When you lease, you pay for the depreciation, you pay for the cost of financing, and you pay for the lease holder's profits on all of that.

If you ONLY paid for depreciation, the leasing company would be taking a loss on all the rest. They don't, they're usually highly profitable and typically factor in a "money factor" (new buzzword for "effective interest rate on your lease") that is double what you'd pay if you simply financed it directly.

Or, their rate is competitive--but the "cap cost" is inflated, the residual cost is unreal, there are security and closing costs and surrender fees...Leasing always has a gotcha, and theleasing companies are in business to make a higher profit than your local grocer or barber. Or your credit union. (I'd say "S&L" but those were abolished.)

All true if you don't know what you are doing. In every case, purchase, finance or lease, someone makes a profit so that point is moot. With leasing, if done properly, you know what the profit is. Same with financing be it a lease or straight finance. What one has to determine is what the cost of money is in their specific circumstance and only then can one determine whether leasing is a viable option - just like corporations do, it is a business decision, not a perception that leasing is bad.

[rourkeh]

Boat leasing already exists, a couple of companies started leasing on large yachts about 10 years ago. I don't believe it trickled down to smaller vessels but is still around for yachts in the mid seven figure and up range. Alot of misunderstanding surrounds the concept of leasing, but it is actually very simple. Leasing is designed for people who wish to pay for what they are actually using in a given period of time, then walk away. Usually the short term. Purchases are a method of aquiring an item and paying for it entirely, usually over a longer period with total ownership as the goal at the end, after the final payment. The real difference is for the prospective purchaser to decide how long they need the item for and then to pay as little as possible for that use. Auto or other leases are depreciation front end loaded meaning all cars depreciate faster in the first few years but they do the same in a purchase and if you compare the two leasing is smarter, and cheaper for most people who keep a vehicle for 2 to 3 years. Good luck moving up to a new boat.

[berniefiedler]

As usual, I didn't make my intent very clear:-) I was simply looking at leasing as another option for a boat owner that can't sell their boat because of current market conditions. It appears to me that leasing would at least give them some cash flow and reduce expenses on a depreciating asset that they can't sell. If they still can't sell the boat at the end of the lease term, I believe they would still be financially better off than just sitting on the boat for two years.

[Therapy]

I don't know.

If they treat it like a "rental" it could be bad for the "bag holder".

[David_Old_Jersey]

Originally Posted by Therapy

If they treat it like a "rental" it could be bad for the "bag holder".

If they treat it like some owners do then could be even worse..............


IMO best move would be to tidy her up and sell at whatever price - and just swallow the loss, at least you have certainty and can move on. otherwise trusting that no big bills arrive in the 2 years............

[Therapy]

Originally Posted by David_Old_Jersey

If they treat it like some owners do then could be even worse..............


IMO best move would be to tidy her up and sell at whatever price - and just swallow the loss, at least you have certainty and can move on. otherwise trusting that no big bills arrive in the 2 years............

Gulp..........