Pros & Cons of financing??

[Ditch Leroi]

Pros & Cons of financing

I was wondering if anyone could give some input on financing apposed to paying outright. I plan on purchasing a boat in the $40-50 grand range.
Ditch

[bstreep]

Similar to buying a house. Financing keeps one more liquid. HOWEVER, boat rates are still near 7%. Not sure it's much of a good deal. If you have home equity, refinancing your home might be a better deal.

[Pblais]

Sometimes it really is all about the money. In these times if someone wants to loan you the money then they will want something more than just a signature. There may also be restrictions on if you can leave the country and the issue of insurance also comes assumed. Financing a used boat is not easy. If you can afford it I would avoid it. If you can't afford it without financing then you have a problem. In most cases after you buy it you need to have maybe another $10K to fix it up and about $6k per year to keep it up with expenses. The purchase price is the easy part with used boats because you know the cost.

[Ditch Leroi]

Thanks All
Your words hit the spot. My next question is what are the pros & cons of insurance and the prices. Again the boat would be in the $40-50 grand range and would be sailed for a year or so in New England (USA) and then on long term cruises.
Ditch

[Pblais]

I think you can search and find a lot on insurance already here. You can separate the issues into parts. First, in country insurance costs less than coverage for everyplace you go. Second, liability is separate from value coverage. Liability needs to cover the cost of salvaging your wreck and the potential pollution control measures required. Value coverage can be agreed upon value so if it sinks you know how much you get or it can be depreciated value where you argue over what you get. You may also get some medical coverage to others as well as contents coverage as well.

Should your boat sink the fuel spill containment costs alone can be far more costly than the boat was ever worth. Liability means they can come after you even if you have no insurance, but they generally accept all they can collect.

You really don't need any insurance unless you actually do. It's easy to say you can't afford it. Many marinas will require proof of coverage. Some do but won't ask. If you ask they will tell you yes they require it. If you don't ask it may or may not come up until something bad happens.

I think you need liability coverage at minimum. It can get sticky if something happens and you don't have it. Having some value coverage at least gets you back home if you lose it all. It can easily cross over into a legal issue as well with liability coverage. A decent insurance agent can explain a lot of the details of coverage and you need to know all the limits with any policy. The differences in price will be wide but terms and conditions will also be different.

[S/V Illusion]

Your last two questions prompts me to also say that the capital cost and insurance is not the only issue about which you should be concerned. Maintenance, operating costs and certainly outfitting/upgrading an older boat are significant financial considerations often overlooked by a new boater.

In terms of purchase, financing never is a good option - after all, a boat is a toy and it doesn't make any sense to finance a toy. As the saying goes, if you have to finance it, you shouldn't...

Regarding annual costs, this can vary widely but it is not uncommon in New England for winter storage to cost $2000, slip fees can cost $5000 (obviously depends on the marina and boat length), upgrading electronics can be expensive, general upgrades, maintenance, etc.. can dwarf your expectations.

[Tempest245]

I suppose it depends on your situation. If $50k is your entire reserve cash, you might not want to tie it all up in a boat. Like Bstreep has stated interest rates are running 7% or more. So, the cost of borrowing for boats is not cheap. A home equity loan may be a lower cost alternative. in either case, the interest paid is deductable from your federal tax as a second home if you have a head, galley and berth.

Insurance for Cruising new england waters should be under $1,000 per year. Once you head elsewhere like Florida or the caribbean you can expect to double that.
I also carry unlimited towing insurance which has proven to be a great investment. The tow would have cost me $800, with insurance it cost me a tip to the skipper.

[rtbates]

For me it's a no brainer. I pay cash, I OWN IT, not the bank. With that, no insurance company can tell when and where I can sail. FREEDOM, it's what it's all about...I also refuse to own a boat that I can't replace out of pocket. I like to own the boat not visa versa.

[Captain Bill]

From the standpoint of financing keep in mind that at the moment at least in the US if your boat has a head, shower, cooking facilities and a sleeping area your loan interest is tax deductable which may or may not be important to you. You may have restrictions on where you can go. RTbates is correct that no insurance company can tell you when and where you can sail, but they can tell you when and where they will insure you. The other issue is that without insurance there are a lot of places that simply won't let you in. Where I live you have to have insurance to get a boat slip and I suspect that is the case in most marinas. The marina or port certainly doesn't want to be the target of a lawsuit because you don't have insurance.

[Ditch Leroi]

Thanks again. Next I would like to hear your opinions on this scenario. Say I buy a 15 year old 33-36ft mono hull that’s been blue water sailed for around $35grand I keep $10 thousand in reserve for upgrades, repairs and insurance (liability, ?comprehensive?) and moor it in Northern New England (Belfast Maine) and sail New England for a year preparing the boat and myself for a long term cruise; after the year is up, set out. What is your advice about this scenario in regard to insurance and other factors you see fit to bring out?

[Pblais]

Your $35K plus $10K are of course optimistic but really not that much a factor for insurance. S/V Illusion from above has about as good a set of numbers as might be had based on the limited specifics. You'll get a full marine survey as part of the purchase agreement and that will tell you all the insurance company will require. If you change insurance later you may require a new insurance survey that will cost less than a purchase survey.

You do need to add maintenance money. Using a boat for a year costs money for maintenance , hauling, and storage. You bottom paint approach for Maine for the season is different than for a long cruise in warmer waters for an extended period of time. You'll require colder weather gear for Maine and lighter weight gear for warmer climates. These are not inexpensive items. Safety, docking, and anchoring gear may not be suited for a longer trip when you get the boat. If your canvas is not in nearly new condition it would be est to replace it. All these items are commonly found lacking in a bot in your price range. The $10K may not be enough.

The idea of a shakedown season will cost you more but the experience and preparation time will allow you to complete as much of the upgrades as possible. One has to prepare to be successful.

[Ditch Leroi]

What is your advice about acquiring equipment for long term cruising such as: water maker, solar, wind generator etc. Try to find it on a used boat, buy it new, find it used?

[jcmcdowell]

Personally, we have done well by the old adage, "Invest in investments- pay for your toys with cash!" Frankly, it's the only thing that saved us when the economy took a nose dive. We liquidated all the toys for cash and kept the sailboat- which we now live on.

Boats are a HORRIBLE investment.

Don't finance a boat unless it's for a REALLY SHORT TERM (like months). Not to scare you, but there's so many things that can go wrong on a boat. Pay Cash, then get a liability policy with uninsured boater. Next, experience is your best insurance (along with a big anchor)!

Unless you got big bucks and lot's of it coming in- A boat that's paid for is the best boat of all.

I've done real well finding good used equipment. Monitor windvane, KISS wind generator, salon tables and the like. It's not worth it for electronics for the most part unless they are 2nd generation. They get outdated SO quickly and the salt air wears them out much faster.


It takes awhile, but the savings can be great! Especially when you don't have alot of cash.

[Rhosyn Mor]

Originally Posted by Ditch Leroi

What is your advice about acquiring equipment for long term cruising such as: water maker, solar, wind generator etc. Try to find it on a used boat, buy it new, find it used?

IMHO its best to buy "stuff" as you need it. If you are not using it usually it deteriorates, and then you end up having to fix it or buy it again. There are many coastal boats fully equpped for long offshore passages they will never make. It just adds to the complexity, and cost of sailing your boat.

[nautical62]

I have to agree with jcmcdowell above. A boat is a luxury item and most assuredly will depreciate, compared to a home and property, that over time, generally appreciate in value and most would consider a necessity.

In the 1990s when the stock market was regularly returning 20% or more annually, it made sense to finance things and keep cash invested earning a much higher rate than a loan's interest rate. I think most will agree that's not likely at this point in time. My current boat is a great example:

I purchased "Aurora", 33-Beneteau which is in charter with the Moorings 3 years ago and went through the same thought process. I came to the conclusion that I just wasn't going to risk keeping money I needed for the boat invested in the stock market which could tank, so I paid for the boat outright minus the guaranteed income even through it depleted all my non-retirement savings. What a good decision that turned out to be. There are a lot of reasonable cruising boats that can be purchased out right with the budget you mentioned.

You of course, need to consider, reliability of future income, other financial obligations, your risk tolerance and other finances specific to you in making such a decision.