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Old 19-03-2017, 15:55   #16
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Re: Merits of Buying a Boat to put in Charter Fleet

So...does this mean it's better to buy a new boat outright, and then put it into one of the other charter companies, at risk, in order to obtain the substantial benefit from tax advantages associated with the depreciation? Or perhaps buy a used boat, put it into charter, reduce the asset risk, and eat less depreciation?
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Old 19-03-2017, 16:44   #17
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Re: Merits of Buying a Boat to put in Charter Fleet

This is my experience. There are so many aspects to this issue it would be very difficult to address them here. Each of these points need to be expanded on for full appreciation

Three of us bought a sailing cat in bareboat charter. Projected returns were spectacular. Real returns were eroded by:
  • expensive maintenance, contractors charging premium and doing unnecessary work knowing the owners were at arms length
  • charter utilization being less than predicted
  • charter operator making work when his people were not fully occupied and poor workmanship needing to be redone
  • being charged for the operators marina berths when they were not otherwise occupied
  • hidden damage by charterers
Of the $60k+ of income over 9ths we saw very little of it after expenses.

Good points were that we had a lovely boat that was prepared for us each time we used it located in a beautiful tourist spot.

I would not do this again.
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Old 19-03-2017, 16:58   #18
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Re: Merits of Buying a Boat to put in Charter Fleet

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Originally Posted by PHRF57 View Post
So...does this mean it's better to buy a new boat outright, and then put it into one of the other charter companies, at risk, in order to obtain the substantial benefit from tax advantages associated with the depreciation? Or perhaps buy a used boat, put it into charter, reduce the asset risk, and eat less depreciation?
Well...its financially better not to buy a boat at all.

But given the lesser of two evils then yes I think a boat you can depreciate is less bad. Caveat: depends a lot on your tax situation/venue(s)...dont try this without a tax pro...declaring depreciation you could not in fact take could be a VERY expensive mistake.

IHMO:

The only time a boat makes functional, not financial, sense is if you plan to live aboard, cruise, or some other near full time long term use.

If you are just going to use a boat a few times a year then put your money in a potentially appreciating investment and just charter a boat when you want. The money spent on boating is about the same and, in the end, instead of being stuck with a depreciated asset that now needs a major refit you potentially have a nicely appreciated asset (or two).

For example, putting that same $600K into a small multifamily rental property or 2 is likely to work out way better financially.
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Old 19-03-2017, 17:44   #19
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Re: Merits of Buying a Boat to put in Charter Fleet

Re buying a used boat and putting into charter:

Ive done that. Be wary though, many of the smaller players who will accept such a boat dont do such a good job of managing their rag tag fleet of aging boats and maintenence may be poor. There are of course exceptions...you just have to find them...and be aware that good can easily drift into bad.

Best case scenario is to be actively involved so you know whats going on...and when things change (usually for the worse). You can do this easier with a small company than you can with a larger one like Moorings/Sunsail.

In my case, I bought a used boat already in a charter fleet where I worked part time as a captain/instructor. I was there very often so could keep an eye on the boat and the state of the buisiness. I also ran most of the charters/classes on my boat...which means I got paid to run my own boat and got owner's share of the charter revenue. I also did a lot of my own maintenance and was able to buy supplies thru their Port Supply account since the boat was in their fleet. It was also a fun social environment. It all worked out great for a long time...until the business headed down hill...but since I was around I knew that, collected monies owed me (some of it thru barter because their cash position was close to $0) and exited the fleet...other more absentee owners were not so lucky.

Ive repeated essentially same above scenario 3 times, with 3 different small charter companies, in two different countries. Its worked out better financially than standard charter ownership and Ive had a lot of fun too. Ideal scenario I think, if you can make it happen.

With a used boat you will have less of an intial total capital outlay, but it will likely need to be all cash, and you will likely take much less of an actual market value loss (most boats tend to reach a valuation plateau and stay there for a very long time). Less depreciation to claim too (not the same as market value loss). In my case I sold the original boat about 10 years later for about $10K more than I paid for it (excluding the much more substantial amount I spent on upgrades and maintenance over the years...water under the bridge...you will lose these $s whether you buy new or used...fun tax).
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Old 19-03-2017, 17:54   #20
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Re: Merits of Buying a Boat to put in Charter Fleet

Quote:
Originally Posted by jacktheflyer View Post
This is my experience. There are so many aspects to this issue it would be very difficult to address them here. Each of these points need to be expanded on for full appreciation

Three of us bought a sailing cat in bareboat charter. Projected returns were spectacular. Real returns were eroded by:
  • expensive maintenance, contractors charging premium and doing unnecessary work knowing the owners were at arms length
  • charter utilization being less than predicted
  • charter operator making work when his people were not fully occupied and poor workmanship needing to be redone
  • being charged for the operators marina berths when they were not otherwise occupied
  • hidden damage by charterers
Of the $60k+ of income over 9ths we saw very little of it after expenses.

Good points were that we had a lovely boat that was prepared for us each time we used it located in a beautiful tourist spot.

I would not do this again.
Pretty typical charter boat owner experience.
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Old 20-03-2017, 03:27   #21
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Re: Merits of Buying a Boat to put in Charter Fleet

We bought our cat when it was 7 years old and kept it in charter in Croatia. For the first few years it made a fairly healthy profit which we plowed back into new engines, sails etc. We were working and so we could only use the boat for 5-6 weeks a year. The last 3 years once we retired, costs exceeded income by about 5000 euro/yr, principally because we were now using the boat around 10 weeks/yr, but even so far less than the cost of mooring, annual maintenance and repairs we now have experience of first hand. I think 5kEuro is not bad for 10 weeks sailing, and finding the boat ready to go when you arrive.
Now we have taken the boat out of charter and are using it far more, the costs to us have increased markedly even though our marina berth is now 50% of that while in charter and the cost of annual lift out is far less.
All in all, buying a used boat in charter worked out well for us at a time when we did not have time to maintain a boat ourselves and could maximise our time on the water. The main advantage is that someone else has borne the significant depreciation from new, so much so that I feel confident we could sell the boat for an amount close to what we paid 7 years ago.
We did consider buying a new Helia in charter, but because our circumstances have changed, being limited to a few weeks a year use does not work for us and along with depreciation and the fact that charter companies now want all the toys like AC, generator etc which is not a way we want to go.
We feel that charter ownership worked for us because of our (time poor) circumstances at the time and because the boat was used and hence cheaper to buy with low depreciation. It could probably work for a new boat if you choose carefully and it matches your circumstances. But, however you do it you need to choose your charter operator carefully based on how well they look after the boats. We have observed many in action at times when charterers do not see them and there is a lot of difference between a hand picked team of experienced boat tradesmen looking after the boats all year and a bunch of young and cheap kids who appear just before the season starts and take short cuts getting the boats ready and fixing things.
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Old 20-03-2017, 06:20   #22
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Re: Merits of Buying a Boat to put in Charter Fleet

Really bad idea.
You are going to pay TOO MUCH to purchase the boat from Moorings
They are going to destroy boat over time
You are going to receive constant bills that were not planned on
The people that charter your boat will treat it like a cheap hotel, they break everything
You will use this boat far less than you originally plan
The people doing the maintenance and repairs do crap work
The charter company will steal parts off your boat to fix others in the fleet
At the end of this you will be given a boat that has the equivalent of 20 years worth of usage and told to get lost.
What part of this is appealing?
Oh, and the Moorings is loosing money year in and year out with this fabulous business model. They required a bailout from their parent company.
Good luck.
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Old 20-03-2017, 07:39   #23
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Re: Merits of Buying a Boat to put in Charter Fleet

So you are going to pay $150k at the beginning and $250k at the end of the contract totaling $400k for a boat valued at $300k when you get your hands on it.

You get 16 weeks of free holidays and some tax advantages. Still doesn't look good to me though.

What sort of return could you get on stocks and shares with 150k over 4 year? okay its a gamble but then so it a charter boat. You might buy into one bad share asset, your customer might hit one rock outcrop.

Pete
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Old 20-03-2017, 09:25   #24
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Re: Merits of Buying a Boat to put in Charter Fleet

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Originally Posted by Pete7 View Post
So you are going to pay $150k at the beginning and $250k at the end of the contract totaling $400k for a boat valued at $300k when you get your hands on it.

You get 16 weeks of free holidays and some tax advantages. Still doesn't look good to me though.

What sort of return could you get on stocks and shares with 150k over 4 year? okay its a gamble but then so it a charter boat. You might buy into one bad share asset, your customer might hit one rock outcrop.

Pete
The difference is that a charter boat is neither an investment nor a gamble...you will almost certainly lose money.

An "investment", or even a "gamble", has the potential to make money. Well chosen historically proven investments, like real estate, have high odds of making a profit...a charter boat near zero.
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Old 20-03-2017, 16:01   #25
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Re: Merits of Buying a Boat to put in Charter Fleet

We have had our catamaran in charter for almost 7 years (QLD, Australia) and I agree, the business model is never as positive as forecast. My experience:
1. Choose the best charter company who will treat her "like their own"
2. Put "optimistic/likely/pessimistic" scenarios on the $$$ side
3. Factor in major costs like "engine replacement". I know of a charter boat who has replaced 2 volvos on a FP cat
4. Participate during the charter period. Check maintenance is done, rigging inspections etc.

At the end of the day, our motivation was to have a 7yo catamaran that was suitable for us to skipper charter independently or live-aboard. It worked for us but I have not liked how some charter companies look after the boats. This is the key. Talk to other charter owners if you can in your area.
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Old 20-03-2017, 16:40   #26
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Re: Merits of Buying a Boat to put in Charter Fleet

Quote:
Originally Posted by belizesailor View Post
Well...its financially better not to buy a boat at all.

But given the lesser of two evils then yes I think a boat you can depreciate is less bad. Caveat: depends a lot on your tax situation/venue(s)...dont try this without a tax pro...declaring depreciation you could not in fact take could be a VERY expensive mistake.

IHMO:

The only time a boat makes functional, not financial, sense is if you plan to live aboard, cruise, or some other near full time long term use.

If you are just going to use a boat a few times a year then put your money in a potentially appreciating investment and just charter a boat when you want. The money spent on boating is about the same and, in the end, instead of being stuck with a depreciated asset that now needs a major refit you potentially have a nicely appreciated asset (or two).

For example, putting that same $600K into a small multifamily rental property or 2 is likely to work out way better financially.


Yes! From someone who currently owns a boat in bareboat charter...
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Old 21-03-2017, 05:07   #27
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Re: Merits of Buying a Boat to put in Charter Fleet

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Originally Posted by PHRF57 View Post
At the end of 4 years, the boat should be worth about 300K...
That is nothing but a wild guess, and I certainly wouldn't count on it being anywhere near accurate. No one can know what the market for 5-year-old boats will be five years from now. It might be worth $300k, it might be worth $400k, or it might not even be worth $200k.

If this projected boat worth is a key element in your decision making process, then I would approach with EXTREME CAUTION!

Good luck.
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Old 21-03-2017, 05:22   #28
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Re: Merits of Buying a Boat to put in Charter Fleet

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Originally Posted by canyonbat View Post
...it pretty much comes down to is how likely are you to take 4 boat trips a year over the next 4 years?
From the many postings that I have read, this is where a lot of people run into problems. They have been chartering for one or two weeks per year up until now. They convince themselves that, with their own boat in charter, they will very easily double that. Sure, the first year they do. Maybe even the second year. But pretty soon they're back to their pattern of chartering for one or two weeks per year.

I think that if you don't spend 4-5 weeks per year chartering now, then you need to be brutally honest with yourself about how likely you really are to start doing that when you have bought a boat to put into charter.
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Old 21-03-2017, 05:38   #29
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Re: Merits of Buying a Boat to put in Charter Fleet

If it was such a great deal, they would own their own boats.

This isn't a new idea, so it's not an issue of financing being a problem. If they could demonstrate it as a reliable way to make money, they would have no problem getting loans...or many of these companies have been around for 20+ years, so they could have saved up enough to buy boats cash by now.

Complicated tax schemes usually turn out to be spending $100 to save $20.
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Old 21-03-2017, 06:08   #30
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Re: Merits of Buying a Boat to put in Charter Fleet

Quote:
Originally Posted by belizesailor;2350615[B
]...if ownership were profitable then the charter companies would own the boats[/B]...they typically don't..........
That's the truth, the whole truth and nothing but the truth.
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