Merits of Buying a Boat to put in Charter Fleet

[PHRF57]

Greetings all,

I'm starting to seriously consider buying a catamaran to put into the Moorings/Sunsail Fleet. The mathematics seem to come down to this:

1.) The boat is $600,000. Down payment is 150K. The boat stays in the charter fleet for 52 months, during which all expenses are covered by M/S, and owner receives monthly payments that cover loan payments. At the end of 4 years, the boat should be worth about 300K, and the loan balance will be about 250K. So...looks like the net outflow is about 100K, with modest tax advantages as a small added benefit.

2.) I get 16 "free" charters over the roughly 4 year period, with the added benefit that I can charter anywhere in the world where M/S has a base, not just my own boat.

3.) I also potentially benefit from getting a pretty beaten up, but structurally sound, charter boat at the end at a sub-market price if I choose to keep her.

So...I would greatly appreciate comments about the relative merits of moving forward. What are the unseen pitfalls? I would especially love to hear from someone who has gone through this process.

[David Hughes]

I bought a Moorings boat coming out of charter, and have studied the issue of buying new for a couple years. And I mean, STUDIED.

I think your analysis is sound, other than the part about getting $50K back at the end. You're correct in theory, but there will be two factors that could cost you most or all of that money, or even more...

Namely, the time it takes to sell, and issues found after you take it out but prior to sale, and also the vagaries of the resell market five years down the road.

Then, in addition to the 150k for the boat, is the travel and provisioning for the trips you will take. When added up, and doing 2 or 3 trips a year, you're out another 40-50K over the 5 years. So my math came out to $200k for 5 years, or $40k a year. Almost exactly the same as just chartering with The Moorings. By the way, I think that's exactly the way the math is supposed to turn out. The actuaries have it all figured out in that Moorings desires to neither pay you too much, nor too little to get their Cap Ex paid for. It's not a bad business model for them.

[belizesailor]

Been in the charter industry for decades and owned boats in charter. While there are some advantages to charter ownership....Ive never seen an owner come out ahead...if ownership were profitable then the charter companies would own the boats...they typically dont.

Also, the tax advantages can be substantial. If you take depreciation on a $600K boat that can be a substantial benefit (at least under USA tax law). Best to discuss that aspect with your accountant, specific to your tax situation.

As posted,its a great business model for them and they make money on every phase of the transaction...owners dont.

[PHRF57]

Thanks so much for the interesting replies. Yes, if I could depreciate the boat, either through a schedule 179 rapid deduction, or even through a longer term standard deduction, then the choice would be a no-brainer. Unfortunately, M/S's most recent tax advice is that neither tax option is available. So the only tax advantage is in being able to write off the expenses of two trips per year, plus the interest deduction.
Having said that, is it possible that buying a used boat, and putting it into charter, would potentially be beneficial? That choice would yield a far more flexible schedule, with more weeks to charter. But I'm not sure how much revenue would be produced. I'd love to hear from someone who has knowledge about this.

[rmesfo]

Why is the 179 or standard deduction not an option? I belong to a club that members do exactly that and as you say, it is a no brainer if you can realize the tax advantages. I have done that on airplanes and it worked out great. The kicker is that you rent your boat or whatever and pay the going rate. You get that back minus the fee's every month. I would ask them why and look for another club that you can place it and reap the tax benefits.

[Mrfish]

In my opinion,

Get over the desire to own a boat.

Charter when and where you want. You will still be $ ahead in the long run.

[David Hughes]

I was also able to do the full section 179 deduction because I am an "active" participant on the charter of my boat and have no guaranteed plan. That's what excludes much of the opportunity through the Moorings. I would be happy to PM with anyone who wants to hear more of what I went through in researching how to buy my boat and get the full year one tax deduction.

[PHRF57]

It's my understanding that the 179 only applies in US waters. If the Charter port is outside of the US, and there's guaranteed revenue, then the "business" doesn't qualify for the schedule 179, or any other depreciation, for that matter.

And yes, the desire to own a boat is part of the driver for my motivation here. I also think that during the next several years I may be able to take a little more time sailing, and having a boat will facilitate that. But that only works if I own one outright...not in the M/S scenario...

[Beagle123]

I bought a used Bavaria 37 Cruiser from Horizon (Nanny Cay BVIs) and have been extremely pleased ....The boat boat outlay was $7.5 K last year as it was almost 100% chartered ...Horizon takes 20% of Charters ...(but charges for mooring and $500 turn around fee) and I can use it as often as I want...also they have reciprocal arrangements in the Grenadines, and other Islands as well.
You can depreciate 10% of purchase price per year (if boat in country other than US) and 2 trips per year. Maintenance bills are meticulous and also part deductible. A once a year haul out during Hurricane season gets the boat looking like new ..all woodwork etc was pristine..so all in all i have been very happy and plan after 2 years to sail down to Grenada and back up to Chesapeake .

[old frog]

Originally Posted by belizesailor

Been in the charter industry for decades and owned boats in charter. While there are some advantages to charter ownership....Ive never seen an owner come out ahead...if ownership were profitable then the charter companies would own the boats...they typically dont.

Also, the tax advantages can be substantial. If you take depreciation on a $600K boat that can be a substantial benefit (at least under USA tax law). Best to discuss that aspect with your accountant, specific to your tax situation.

As posted,its a great business model for them and they make money on every phase of the transaction...owners dont.

Wisdom worth repeating.

[Scot McPherson]

take a look at the sailloot.com podcast. Episodes 41 and 42 with Wiley Sharpe. He does charter management in the virgin islands, and he discusses all those ins and outs including flagging, St Thomas based vs. tortolla based, the costs and the various options to charter owners. It's worth listening to...

[Mithril Bham]

Worked in the industry. Put your money in real estate and charter when & where you would like. You will be far ahead financially.
The only reason I stay in the charter biz is out of my love of boats.
Yesterday my nephew asked how my boat restoration was going. I replied "slowly but surely but better that sitting in a bar". He said:" sitting in a bar would be much cheaper". Very true.

[canyonbat]

Originally Posted by PHRF57

Greetings all,

I'm starting to seriously consider buying a catamaran to put into the Moorings/Sunsail Fleet. The mathematics seem to come down to this:

1.) The boat is $600,000. Down payment is 150K. The boat stays in the charter fleet for 52 months, during which all expenses are covered by M/S, and owner receives monthly payments that cover loan payments. At the end of 4 years, the boat should be worth about 300K, and the loan balance will be about 250K. So...looks like the net outflow is about 100K, with modest tax advantages as a small added benefit.

2.) I get 16 "free" charters over the roughly 4 year period, with the added benefit that I can charter anywhere in the world where M/S has a base, not just my own boat.

3.) I also potentially benefit from getting a pretty beaten up, but structurally sound, charter boat at the end at a sub-market price if I choose to keep her.

So...I would greatly appreciate comments about the relative merits of moving forward. What are the unseen pitfalls? I would especially love to hear from someone who has gone through this process.

From a retired CFO perspective, I just did a down and dirty cashflow analysis and it pretty much comes down to is how likely are you to take 4 boat trips a year over the next 4 years? If it is highly likely and your stipulated facts bear fruit you are ahead. If you don't take advantage of the free charters you are just giving money to the charter company. I also wouldn't underestimate the expenses and hassle on the back end if there isn't an immediate buyer for the boat. As a long distance owner of a boat, I can tell you it is a big deal, and my boat is in the US and not in a hurricane path. Also, don't forget to include the lost earnings on your down payment in your net outlay.

Now, the down and dirty part. In this relationship, you are a business and the charter company is your only customer. Always a red flag when evaluating a business. Not to say the charter company is on shaky grounds financially but lots can happen in 4 years. And don't forget, they get to define the terms of the deal. It will be written to protect them.

Not to say this can't be a good deal but the risks seem big and the rewards seem few. For us, it really came down to the fact that we plan on spending 5 months a year on the boat. No charter company is going to go for that.

[Mithril Bham]

Originally Posted by Beagle123

I bought a used Bavaria 37 Cruiser from Horizon (Nanny Cay BVIs) and have been extremely pleased ....The boat boat outlay was $7.5 K last year as it was almost 100% chartered ...Horizon takes 20% of Charters ...(but charges for mooring and $500 turn around fee) and I can use it as often as I want...also they have reciprocal arrangements in the Grenadines, and other Islands as well.
You can depreciate 10% of purchase price per year (if boat in country other than US) and 2 trips per year. Maintenance bills are meticulous and also part deductible. A once a year haul out during Hurricane season gets the boat looking like new ..all woodwork etc was pristine..so all in all i have been very happy and plan after 2 years to sail down to Grenada and back up to Chesapeake .

I have done biz with most charter companies and have found Horizon 5*. Never disappointed yet.

[jacktheflyer]

Originally Posted by belizesailor

Been in the charter industry for decades and owned boats in charter. While there are some advantages to charter ownership....Ive never seen an owner come out ahead...if ownership were profitable then the charter companies would own the boats...they typically dont.

Also, the tax advantages can be substantial. If you take depreciation on a $600K boat that can be a substantial benefit (at least under USA tax law). Best to discuss that aspect with your accountant, specific to your tax situation.

As posted,its a great business model for them and they make money on every phase of the transaction...owners dont.

This is also my experience