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Old 11-03-2017, 17:16   #1
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Financing a 2017 Lagoon 42

Hey Everyone,

I am in the early states of pulling the trigger on a Lagoon 42. (yes, i know the waiting list if over 1 year at the moment)

Currently comparing paying all cash or financing.

Its often stated that financing a depreciating asset is a bad move, but the opportunity cost of sinking 600k into one, may be even worse

If you have purchased a Lagoon 42, any bit of information would be awesome!
It may be asking too much, but disclosing your down payment and monthly finance costs would be very enlightening to me and others that are looking at this boat.

Thanks
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Old 11-03-2017, 21:29   #2
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Re: Financing a 2017 Lagoon 42

Quote:
Originally Posted by LouieP View Post
Hey Everyone,

I am in the early states of pulling the trigger on a Lagoon 42. (yes, i know the waiting list if over 1 year at the moment)

Currently comparing paying all cash or financing.

Its often stated that financing a depreciating asset is a bad move, but the opportunity cost of sinking 600k into one, may be even worse

If you have purchased a Lagoon 42, any bit of information would be awesome!
It may be asking too much, but disclosing your down payment and monthly finance costs would be very enlightening to me and others that are looking at this boat.

Thanks
if you are expert in investing or insider, borrow money for boat, else just pay cash.
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Old 12-03-2017, 09:37   #3
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Re: Financing a 2017 Lagoon 42

I have been having the same thoughts about boat buying, both the Lagoon 42 and financing options. (although I'm also looking at FP 44).

In a former life I was a financial advisor and have some training in the area, but my information is a bit old. Good financial advice is very hard to come by or recognize.

I am thinking of both risk and opportunity costs. When buying Real Estate, especially new construction, I prefer to have a large Bank on my side when watching out for the build. It is harder for a bad contractor to cheat the bank, easy to cheat a cash costumer. I don't know if that matters for boat builders and problems. What non cash advantage/disadvantage does the bank bring to boat buying? I don't know. Do they have requirements that you would not otherwise consider? (insurance, locations)

Largely it involves risks and market calls. If you see inflation in the future, than the relative "cheap" money of the loan makes sense, (pay off the loan with cheaper dollars) The relative risk/reward ratio of what you do with the cash is complicated. (another market call) If buying a bond type fixed return asset than the you can time the duration of the bond to the boat, or arbitrage the shorter rates against a longer rates. If you need to keep the money available (opportunity) then this is the way to go?

Mostly how will you feel if your market call goes against you? If you invest the money in, say, stocks will the volitility make you uncomfortable? Real Estate will the up keep and renters drive you crazy? Do you like to keep things simple or feel comfortable managing complexity? can you afford the worst case?

To state it in more simple terms, define your goals, risks and risk tolerance and act accordingly. Do not forget transaction fees. Boat Brokers, Bankers and Advisors all carry costs, many hidden. Know what you own, why you own it and what it costs.

Kent
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Old 14-03-2017, 03:16   #4
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Re: Financing a 2017 Lagoon 42

Quote:
Originally Posted by LouieP View Post
Hey Everyone,

I am in the early states of pulling the trigger on a Lagoon 42. (yes, i know the waiting list if over 1 year at the moment)

Currently comparing paying all cash or financing.

Its often stated that financing a depreciating asset is a bad move, but the opportunity cost of sinking 600k into one, may be even worse

If you have purchased a Lagoon 42, any bit of information would be awesome!
It may be asking too much, but disclosing your down payment and monthly finance costs would be very enlightening to me and others that are looking at this boat.

Thanks
An asset is something that holds its value and over time will appreciate, a boat is neither, it will have on going annual costs, and will depreciate whilst you are washing it.
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Old 14-03-2017, 05:34   #5
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Re: Financing a 2017 Lagoon 42

Hi LouieP,
Well since you asked I'll throw out my little tidbit of advice and that is to reverse the question:

If you had a paid for boat, would you go borrow $600k at 4% interest to go invest money in the stock market? The answer is most people "hell no", so at the end of the day what's the difference? Trying to chase a few %? We don't know your complete story or financial background which would impact some of these decisions. If it is putting it into a know investment that you personally control the outcome of like a small business that is your expertise and you've got great sustainable cash flow for a luxury like the L42, then I could see going the finance route. If not just make your life simple and enjoy the hell out of it because none of us know how long we have to do this type of stuff! The reality is the boat in 5 years will have lost 1/3 or more of its value and you'll owe more than its worth if you finance it...if that just so happens to coincide with a bump in the market, that's how people get into trouble overnight, and then we are supposed to feel sorry for them. Maybe this does not apply to you because $600k is small percentage of your overall net worth.

Good luck in your purchasing process, the L42 is an awesome platform to enjoy the water!
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Old 14-03-2017, 06:51   #6
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Re: Financing a 2017 Lagoon 42

Depreciation is a major problem when financing a new boat.
You are going to purchase a new boat from a dealer, and retail is about 25% above dealer cost. This is why banks require 20% down on most boat loans.
Then you have the cost of commissioning, electronics, watermaker, etc, etc, add another $40k at least. Even if you get a discount on the purchase you are going to be upside down from the start. Then the real depreciation starts, figure on loosing 50% of the value of the boat in about 7 years.
If you finance $480,000 for 25 years at 4% you will be paying about $2,600 a month. So that is the real math you need to think about.
A boat is a serious non necessity item, and has a tendency to be a constant drain on your income way above and beyond the monthly payment, think upkeep, repairs, dockage, fuel, insurance, etc that can easily almost double your monthly bank payment. If you are going to finance you need to look at the real numbers of cost of ownership, and compare that to paying cash and the loss of the income from that.
I am not a fan of financing a toy that depreciates this fast. I have only ever financed one boat and I bought that one year old in a distress sale for 900k which was 40% below market value, I kept it and used it for 18 months and sold it for a profit and paid off the loan. Unless you have some hope of making money pay cash and take the loss in stride.
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Old 14-03-2017, 07:23   #7
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Re: Financing a 2017 Lagoon 42

Would it make sense to finance the boat, invest the cash, and defer the cost of the interest of the loan with the interest of the investment? Provided the investments were lower risk, with lower returns?
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Old 14-03-2017, 08:02   #8
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Re: Financing a 2017 Lagoon 42

Quote:
Originally Posted by LouieP View Post

(...)

Its often stated that financing a depreciating asset is a bad move, but the opportunity cost of sinking 600k into one, may be even worse

(...)
If you can actually invest at a better rate than you can borrow, then you have already answered your own query.

Otherwise buying cash is the cheapest option.

Except it implies one has cash, not 'credit ability'.

Rather than me showing my down-payments and investment policy to you, why don't you let us know yours up first? After all you come here asking for something.

So ;-) cards on the table: what is your investment portfolio and its return, and what financing options were offered to you for your boat?

Regards,
b.
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Old 15-03-2017, 07:40   #9
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Re: Financing a 2017 Lagoon 42

Also depends upon how much your net worth is. If you have 650k, you might want to finance it, as buying it outright leaves you no money left (clearly just an example, if you only had 650k, buying a 600k boat is not smart).

If you have 600M, then buying it outright is better assuming you can't do better than the cost of your loan. You are the bank, and you can lend yourself money less expensively than a real bank. OTH, if you can use the banks money to make more than what it costs, it is better to make money with someone else's.
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