Older Boat Financing Rant

[offline]

I am so frigging grumpy right now!!

So a seller calls me up a few months ago wanting to know if we would be interested in his larger more expensive boat in exchange for our smaller vessel and cash. So we looked at the deal and although it is a bit more expensive than we wanted to consider right now it may make sense for us as we move up to the large Lagoon that my Admiral wants.

Heck the boat in question would have been great even if it was our last boat for us to putter around on.

Unfortunately however the boat is a mid 1980's hull and many lenders just are not going older than 20 years, and those that are are placing hull values are so low that it can't work out the deal economically.

I mean it's unbelievable.. there are thousands of great solid boats out there in the $75K plus range that are languishing.

oh and yes I know I could have paid cash but I've got 25+ years of prime earning ahead of me and neither my kids, nor my Admiral are going to let me spend that large a chunk of the nest egg or college funds without murder, mutiny or divorce on their minds.

[GordMay]

Originally Posted by offline

... my Admiral are going to let me spend that large a chunk of the nest egg or college funds without murder, mutiny or divorce on their minds.

But a lending institution should ...?

[offline]

Maybe. That is the core competency of said institution. If I wanted a new boat I could get $300k.

I am just frustrated.

[sailorboy1]

whether you spend the cash on the boat and finance the kids, or spend the cash on the kids and finance the boat...........it comes out the same

Have you applied to the normal lenders for the boat loan or just assuming they wouldn't go for it? What about your local bank or credit union for a personal loan if they don't do boats?

[ADMPRTR]

If you have the cash then you could use that as collatoral. It may seem an odd way to go about it but the idea has it's advantages:

1. You would reduce the interest rate on the fully secured loan (consisting of cash plus boat).
2. You would also make some return on the cash in the form of interest or investments.
3. If you pay off the loan, you still have the cash that was used as collateral.
4. If your circumstances change you would be able to resolve the loan without resorting to drastic measures (such as bankruptsy).

However, in the end you will end up paying more for the loan than you would if you bought it outright.

The problem with old boats is that they are only has good as the market will accept. It is not uncommon to see old boats beging given way for free or almost free.

[hellosailor]

Back when there were S&L's versus banks, the S&L's would do a "passbook loan". Credit unions should still be doing the same thing. If you have cash in a savings account, they'll give you a loan against the cash, no other collateral needed.

Yes, banks are picky. But credit unions and "marine" financers should cut you a bit more slack, especially if you already have assets. Of course if your savings are earning maybe 4% these days and the boat loan is six...it might be time to discuss mathematics with the admiral too.

There's no shortage of lenders, IF you are willing to pay their price. Or, maybe you could put together a bond offering with zero-verified mortgages on 40 year old boats, you know, like that popular home mortgage market did? Borrow big time, let someone else pay the bill. (sigh)

[Target9000]

When we bought our boat we had the same eye opening experience. We could NOT get a loan for the small amount we had to pay for ours on account of age. It is very frustrating, but it is what it is. We still took a loan out but it was a private secured loan at a higher interest rate and paid it down within a few months.

I blame statistics.

There are lies.
Then there are damn lies.
Then there are statistics.
And guess what banks typically rely on.

[osirissail]

Originally Posted by hellosailor

Back when there were S&L's versus banks, the S&L's would do a "passbook loan". Credit unions should still be doing the same thing. If you have cash in a savings account, they'll give you a loan against the cash, no other collateral needed.. . .

Credit Unions usually have "signature loans." These are low rate loans up to the value of the shares you have in the credit union. You still earn interest on your shares while paying a low interest rate on the loan. So the cost of the loan is even lower.

[Sam Plan B]

Borrow against your mutual funds accounts (IRA, SEP & taxable). Then pay off the loan in two years and you are home free. I did just that.

[MikeinLA]

From time to time I think about trading my 1991 Cat 36 for a different boat. A broker I was speaking to lately used this very point about 20+ year old boats to get me to do it NOW, while my boat can still be financed. Nice to know he wasn't BSing me. Not that that's helping my decision, however. Have you SEEN the price of new boats? YIKES!

Mike

[KEG]

I always remember that I can't finance my retirement so I won’t use savings or retirement accounts as collateral. It sucks but if I can’t pay cash for or finance something easily, I look at other options. A newer boat would be one of my options as would a lower priced older boat that I can pay cash for.

[Wavewacker]

ADMPR.. has a good point but the bank will be limited as to the type of accounts they can use as collateral, you can't pledge a tax qualified retirement plan and stock is difficult for the bank as they can't really hold stock, what they would like to seewould be CDs, and the cut on the loan rate probably won't justify the pledge of a CD at current rates

You could also pledge other assets. If you have equity in a home that will be your cheapest loan.

As mentioned, marine lenders will be your best bet on an older boat as they will be familiar with the collateral as opposed to Mr. Jones Loan Officer at the bank. Credit Unions are more flexible, but probably not until they get to "know you".

There might be an investor who will purchase the boat and you purchase it from them on an installment contract. Check with a mortgage broker as they usually have investors that make small home loans and the amount you're talking about might hit home with a private party.

Then the question becomes, are you a good enough risk that you will repay the loan? If you are, why aren't you loaning the money to yourself?

And, older boats are hard to sell, put a chunk down and make the seller carry the note! If you put enough down to make the seller feel warm and fuzzy and pay all his costs of the sale, offer the seller that interest rate, it will be more than he will likely get in any other investment and he knows the collateral! That's where I'd go next, to the seller. And just because you have a pocket full to put down doesn't mean you have to use it, make sure you have that maintenance/repair account as you'll probably need it for an older rig. Good luck

[TassieBloke]

Originally Posted by Wavewacker

And, older boats are hard to sell, put a chunk down and make the seller carry the note! If you put enough down to make the seller feel warm and fuzzy and pay all his costs of the sale, offer the seller that interest rate, it will be more than he will likely get in any other investment and he knows the collateral! That's where I'd go next, to the seller. And just because you have a pocket full to put down doesn't mean you have to use it, make sure you have that maintenance/repair account as you'll probably need it for an older rig. Good luck

This is a valid alternative AS LONG as you are up front with the Owner at the beginning of serious discussions. (at least once you get serious about it). I have found that the Brokers are very hesitant to communicate this sort of info to the Owner, as they see their commission payment being delayed somewhat. I managed to convince the Broker to let me contact the Owner personally, then at least you can present your situation then guage the response. If the boat has been on the market for a long time, I believe that Owners are very much open to such a deal than a few years ago. They see what it happening, are aware of the financinng situation, and don't want to keep paying the marina fees. My philosophy was, if you don't ask, no chance of it happening.

As to financing, the market in Aus for older boats is very very quiet. I was looking at a '85 GRP yacht, and as soon as the Marine Lender (CGMer?) heard the age, he said that they would be looking at minimum 50% downpayment, and even then he would have trouble getting that through. Anything under 10yrs is reasonable; new, no problems to finance 90%. It is all in the statistics as someone mentioned above.

Hope this helps.

Bloke

[David_Old_Jersey]

Originally Posted by offline

oh and yes I know I could have paid cash but I've got 25+ years of prime earning ahead of me and neither my kids, nor my Admiral are going to let me spend that large a chunk of the nest egg or college funds without murder, mutiny or divorce on their minds.

errrrr, borrowing is doing exactly the same - except adding interest to the final cost. and placing the family in debt for what is essentially a toy. and a depreciating one at that......

Perhaps should reconsider taking financial advice from your kids?

[sneuman]

Fiberglass is fiberglass and it will be around forever. Further, many newer boats don't hold their value as well as the classics. But I would guess many of the people doing the lending rely on actuary tables that assume the opposite. After all, their real experience is with car loans which would militate that newer is almost always better.

I once had an insurer (in Hong Kong) insist that my premium must be higher because my vessel was more likely to hit another boat because of its age.