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Old 27-12-2008, 17:46   #1
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Unhappy Owner Financing - A Bad Idea to Ask ?

In today's day and age of charging your dreams... we have realized that we'll need some more cash to get the boat of our dreams.

This means we have to finance the boat. Financing has been tricky these days to find and we're still searching....

If we are unable to find financing, is it bad form if you have over 50% down to ask the owner to finance the rest? I know some of you are brokers (or were). Could you tell me from your experience if this proposition worked?
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Old 27-12-2008, 17:56   #2
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Owner financing can work as long as everything is put in writing. Most owners are going to want a bit higher interest than the banks might offer. They will also want to limit the time period or require a balloon payment at a certain point in time.
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Old 27-12-2008, 20:55   #3
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It never would hurt to ask but I would never agree to owner financing of my boat.

I'd have less of a chance at recovery than a bank would and that is close to zero...
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Old 27-12-2008, 21:29   #4
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It never would hurt to ask but I would never agree to owner financing of my boat.

I'd have less of a chance at recovery than a bank would and that is close to zero...

Chance at recovery? How do you mean?

What about this agreement freaks you out? Just curious...
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Old 27-12-2008, 21:32   #5
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Well I presume we are selling a very mobile assett (world capable cruising boat) - Once the boat is over the horizon and in another country, what jurisdiction do I have at recovering the boat if I stop receiving the monthly check?
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Old 27-12-2008, 21:54   #6
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Our boat is for sale. I would listen to the offer but it would very unlikely that I would go for it. It seems like a very risky thing to do.
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Old 27-12-2008, 22:22   #7
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With boats not selling and the state of the economy and issues with lending institutions you will in the not too distant future be able to find creative financing from more owners. Ex-Calif and IS and perhaps some others won't do it but there will be folks out there willing. We had a few owner finance deals when I had my brokerage and it was the owners that gave us the OK to seek out buyers for them under those conditions.
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Old 28-12-2008, 01:30   #8
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I just sold a boat. The buyer offered 50% down, and I carry the difference. We have an agreement. My boat, that I do not have time to keep, and costs me money in slip fees every month, is now sold, and the buyer, who would have been unlikey to find financing for a project boat, now has the ability to own the boat he wants. I have done this before, and always been paid. I may be the exception, but people always pay me.
So, offer. If the seller says no, then you have your answer. If the seller says yes, you both win.
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Old 28-12-2008, 08:31   #9
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Seller Financing? Think about it!

There may be some merit to the idea of a Seller carrying back a purchase money mortgage on their yacht but, before doing so, one needs consider the pitfalls of such an arrangement.

In the making, a Seller would need to conduct the same “due diligence” review of the prospective buyer’s credit as would a bank or any other lender. To do so one would have to run the buyer’s credit report, for which one would need a buyer’s written authorization. The credit report is important from the perspective of both knowing what a prospective buyer’s previous performance has been and as to what his/or her on-going obligations are as that effects the priority of his obligation to the yacht Seller. A prospective buyer with relatively high debt service obligations—e.g. house, auto and credit cards et al—may have only marginal disposable income in light of other unstated but on-going expenses including taxes, insurance premiums, utility bills, food and rent payments, if any, etc., all of which will be of a greater priority—to him or her—than maintenance of his/her indebtedness to a Seller. One would also need to review a current balance sheet and income statement, preferably certified by the buyer’s CPA, as well as verifications of the buyer’s bank deposits and securities accounts (as they appear on the balance sheet)—again requiring the buyer’s authorizations; and, verifications of the buyers employment or other sources of income that will be necessary to allow him to make payments. If wages are the Buyer’s source of funds for repayment, one would need to evaluate the employer as well, particularly as to the prospective buyer’s continued employment; and, the viability of the employer itself. In the US, if someone were to tell me they were a $150,000/year VP of whatever at Circuit City, for example, I wouldn’t rest assured that they would continue to be employed for long.

A seller must also keep in mind that a buyer’s payment obligations will not be his/her only financial obligation with respect to the yacht. There will also be the ongoing maintenance costs (which a Seller will certainly know) as well as berthing costs, and insurance costs. For example, one might sell a nicely maintained older 36 foot yacht for say $50,000 with a buyer making an initial payment of $25,000 and the Seller accepting a note for the remaining $25,000. Let’s assume that they agree to a 5 year Note at 8% interest with monthly payments of principal and interest. With this, the Buyer’s monthly payments on the note would be about $507. However, the buyer will also have monthly berthing fees that, in Florida, would easily average $15.00 (USD) per foot per month, (another $540), insurance costs of at least $1,200 per year (on $50,000); and, monthly maintenance and up-keep that could easily average another $300-$500. All up, the Buyer’s “nut” would be around $1,511 per month, not just the $507 on the Note. Some might say “Oh, but the interest rate is too great!”. Okay—but reducing it to 6%, a 25% reduction, only reduces the Buyer’s monthly Nut by $24!

Beyond the foregoing, one also has to consider the Collateral given as security for the repayment of the Note. If the yacht is to be the only Security, one has to have a means of perfecting one’s security interest in the yacht—which requires documentation—and then has to include other matters in the terms and conditions of the Note including maintenance and up-keep standards, insurance requirements including listing the Seller as a co-insured; and, permissible use venues (with the advent of electronic tracking devices this actually becomes an enforceable provision). Ideally, because of the mobility of the yacht and the attendant difficulty of recovery, one might want to consider something other than the yacht as collateral, such as a 2nd Mortgage or Deed of Trust on the Buyer’s home, which is far less difficult to enforce and presents far less difficulty in the event.

Providing purchase money financing for a prospective buyer is one way to sell a yacht in a troubled economic environment but it is not without its own set of pitfalls that are easily over looked by a layman (until they are in the pit!). To effectuate such an arrangement one needs knowledgeable legal counsel as well as the assistance of one’s own broker and/or a licensed lender/servicer that is legally able to obtain the various credit information described above.

And, from a Buyer’s perspective, is one prepared to endure the scrutiny, and cost, such an arrangement will necessarily entail?

FWIW...

s/v HyLyte
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Old 28-12-2008, 08:45   #10
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I can see where seller financing can have its place. It can help to get the most value from a hard to finance boat. I would do if for a lessor value boat than Amanda Faye but it is to much risk for me to take by myself for Amanda faye.
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Old 28-12-2008, 08:45   #11
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SweetSurrender,

As I look at today's financial times: all the businesses and people who are in a world of hurt because they over extended themselves on loans, it makes me even more warry of the financial commitments I make. If you can not get financing, perhaps the "boat of your dreams" is not a purchase you should be making. Have you considered keeping the dream, but compromising on what boat you need to fulfill that dream?
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Old 28-12-2008, 08:59   #12
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Quote:
Originally Posted by svHyLyte View Post
There may be some merit to the idea of a Seller carrying back a purchase money mortgage on their yacht but, before doing so, one needs consider the pitfalls of such an arrangement.
...
That's a very good assessment for the seller to think about. But for a buyer (as the OP is), it doesn't hurt to try. As we have seen from other posts, there ARE some who would entertain the possibility.

What the buyer should learn from your post is that the seller may be thinking as in-depth as you have. So they should not be surprised if the seller wants to do a credit check, etc. And the seller may not be willing to negotiate the price as much and charge a higher interest. Of course, many (most?) sellers will not want to do owner financing at all. But it doesn't hurt to ask.

So: Owner Financing - A bad idea to ask? No. Just don't get your hopes up. It may take a while and you may not get the exact boat you want...

-dan
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Old 28-12-2008, 10:12   #13
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I asked.

When I found my boat, the guy had been considering putting her on the market. In fact he had done so once before a year ago putting her on Craig's List. I spent some time with the boat and decided I wanted it, but did not have the asking price. No bank I asked would touch a 30+ year old boat.

I asked if he was willing to carry paper with a 10% down. He wanted 20% down and I agreed. He wrote up the contract with an interest rate I think is at 5.5% or 6%. That was about 20 months ago. I have not missed a payment nor have I sailed away to Mexico or other foreign ports. We even re-negotiated a lower final price after the termite / V berth fiasco emerged about 5 months after signing the contract.

I never EVER thought he would agree to carrying the paper -- I know I would not have. It never even occurred to me to ask for help (AKA Owner Financing) until a friend suggested that I ask. Even then, it took me about a month to work up the guts to ask. But the fact was, I had absolutely nothing to loose: I really, really wanted the boat and the _only_ way I was going to get it was to ask.

It does not hurt to ask. Put together your best offer and ask.

Michael
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Old 28-12-2008, 11:32   #14
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Not usual in this part of the world - but it is something I would consider as a Vendor.....but with a lot of caution as outlined already.

I suspect in this Financial Climate plenty of folk who would consider what they otherwise would not - to get away from the expenses of a boat, plus a chunk of cash in hand and probably a "fuller" selling price overall. But these things are never without risk.

If I was wanting to buy using this approach I would prepare as much as possible in advance by working out what the Vendor would want to be happy and how you can satisfy his concerns, being able to present some hard facts / options for a Vendor to think through rather than just a vague idea can only be a good thing - for me, apart from sailing off into the sunset that would be also about a new owner poorly maintaining or "Improving" the vessel so if I ever needed to repo she was worth a lot less.......
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Old 28-12-2008, 11:46   #15
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Quote:
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for me, apart from sailing off into the sunset that would be also about a new owner poorly maintaining or "Improving" the vessel so if I ever needed to repo she was worth a lot less.......
LOL! Well, in this case, the owner has nothing to worry about. I have done nothing but rebuild, refit, redo, and re-sand and re and about everything in sight! In this financial climate, I dont know if my boat would sell, but I really would like to think that what I have done so far is genuine added value!

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