Want To Buy: Owner Financed Catamaran? - And some advice

[Cadence]

If you find somebody with more money than sense to owner finance 86% of a boat for someone heading off. Please forward the contact info..

[Bulawayo]

I cant help with US financing arrangement but we started out on an Island Spirit 35 (the first in the water) and our four kids were born and aboard and educated on board as well. Happy to share experiences.
Hello,
My wife and I have decided to take our kids out of school and home school. With everything that's going on we think it is the best decision. We are planning on buying a live-aboard catamaran in the next few months to travel with them. Saving up for a boat wasn't on our radar until recently and do not want to tap into our 401k. We have a combined income of over $250k and both work remotely.

The boat we are looking for is between 38-53 ft and under $300k. We have not approached a bank yet about financing because much of our income is written off by my business. We are starting to save and have about $50k to put down.

I'd love to hear some feedback from anyone regarding our plans. I am 40 and my wife is 36. Our kids are 7 and 10.

Thanks In Advance,
Troy[/QUOTE]

[TrentePieds]

bergmd:

That sounds like the sort of “Stop the world, I wanna get off!” cri de couer that was fashionable in the late '60s! Running away ain't gonna fix the problems, is it :-)?

I'm sure you know about the ”Four Cs of Lending”: Capital, Capacity, Collateral, Character.

If I were sitting on a catamaran worth 300K (which, thank the Lord, I'm not, Sir!) and you came to me with your proposal, you would be given a quick, polite but perfunctory tour through the vessel, and a nice cupacoffee, and be told that regretably you don't qualify. For these reasons:

Capital: By your own exposition of your financial position, you either don't have it, or don't want to liberate it from your 401. The tick mark goes in the “fail” column.

Capacity: 1) A quick amortization calculation will tell you that to pay out a 5-year Agreement for Sale for 300K at 8% p.a interest (8% p.a. being the ROI on real estate) requires payments of $79K per annum. Add thereto 30K per annum for vessel maintenance and repairs, plus the premium on a $300K bond (see below), and you are no longer within the “guideline” that total occupancy expense – the boat now being your “home” - should be no morre than 30% of gross income. 2) Employment, by your own statement, is “remote”, i.e. dependent on the internet in some manner. It must therefore be judged “precarious”, as whoever your contract employer may be will surely find lots of reasons to terminate the contract once you are out of the US. Again, the tick mark goes in the “fail” column.

Collateral: 1) None is offered. Again, the tick mark goes in the “fail” column. 2) Title to the vessel under an AforS would remain with the vendor. Further comment below.

Character: Applicant appears to have little appreciation of what boat ownership and skippering ocean going vessels entail, and has no documentary proof of competence or of accumulated sea time. By his own admission he is not familiar with courses offered by yachting associations and he appears vague on the concepts of Marine Insurance. Again the tick mark goes in the “fail” column.

Note regarding insurance. On an AforS, with the title to the vessel remaining with the vendor, the vendor must insist on full comprehensive insurance at REPLACEMENT cost. Given the matters raised under “Character” above, it is doubtful that any underwriter would issue such a policy.

Note regarding bonding: Given an AforS, and given that the buyer intends to remove the vessel from USA jurisdiction, the vendor must exist on the buyer furnishing a bond to the full replacement value of the vessel before access to the vessel is granted. Cost of the Bond, will, of course, be borne by the buyer.

A little harsh, perhaps. But those are some of the realities of what you are proposing. Bearing those things in mind as you develop your plans could save you a lot of disappointment and grief.

All the best

TP

[bergmd]

@TrentePieds I question your response for a number of reasons but will bite my lip. I came on here to learn and be naive about the situation.. to learn from others.

I've come across many boats that are near, or around, $100k. Sometimes people need to get rid of property quickly and do not want to take a big hit. I would like to be able to help those people and reach a mutually beneficial agreement. Yes, $300k would be a reach to owner finance but I have other properties as collateral.

[LLizzard]

While, generally, you can buy a mono for less $ for a given length, the facts are there is more room in a cat, even a somewhat shorter one, due to the difference in beam. The previous suggestion of 38 lagoon owners version would probably fit the bill from an room, handling, and financial standpoint.
Given your stated income (you make a lot of $ vs the majority of households), gives you a lot of options. Perhaps partially paying the price and financing the rest, get a conventional boat loan, saving up for entire price, or some other creative financing vehicle. I used one to buy my boat.

Does anyone know if you can still borrow against your 401k? If so, you could do that while you continue to contribute toward it. You have to pay those $ back to yourself, with interest, but the interest you pay goes back into your 401k, so you are paying yourself. Might be something to look into.

[fxykty]

Originally Posted by bergmd

Yes, the same things will be going on but it really depends on how the kids are socially and psychologically. I'd hate for college to be their first class room environment. If we can still afford college.

I wouldn’t worry at all about whether your kids will go to college or not as several years before that you’ll need to decide (with your kids of course) was whether your kids would be better off in a social high school environment rather than cruising. College isn’t anything like high school and suits home schoolers/own schoolers better than kids out of high school as the former are much more mature and self-directed. Besides which, there is no reason to assume that your kids will want or need to go to college immediately after high school. For eg, YT, Insta and other social media are very reasonable ways to make a living that have nothing to do with college.

[fxykty]

Check out Sailing Zatara for a family doing what you’re thinking off. And they’re switching from a 50 foot Bene to some catamaran for more comfort and room.

[Cadence]

Originally Posted by bergmd

@TrentePieds I question your response for a number of reasons but will bite my lip. I came on here to learn and be naive about the situation.. to learn from others.

I've come across many boats that are near, or around, $100k. Sometimes people need to get rid of property quickly and do not want to take a big hit. I would like to be able to help those people and reach a mutually beneficial agreement. Yes, $300k would be a reach to owner finance but I have other properties as collateral.

TrentePieds said it was going to sound harsh. You said you came here to learn. The harsh truth sometimes hurts but he was not saying it with malice. If you have other assets it sounds as though you want someone else to bear the risks.
Have you considered the insurance required for such an agreement. I don't think you would really be doing anyone else a favor? That is dream land.
I wish you well.

[valhalla360]

Originally Posted by LLizzard

While, generally, you can buy a mono for less $ for a given length, the facts are there is more room in a cat, even a somewhat shorter one, due to the difference in beam. The previous suggestion of 38 lagoon owners version would probably fit the bill from an room, handling, and financial standpoint.
Given your stated income (you make a lot of $ vs the majority of households), gives you a lot of options. Perhaps partially paying the price and financing the rest, get a conventional boat loan, saving up for entire price, or some other creative financing vehicle. I used one to buy my boat.

Does anyone know if you can still borrow against your 401k? If so, you could do that while you continue to contribute toward it. You have to pay those $ back to yourself, with interest, but the interest you pay goes back into your 401k, so you are paying yourself. Might be something to look into.

It depends on the specifics of the company plan. Some have different rules. With my old job, it was capped at $50k and while you paid yourself interest it was like 9%, so it's an expensive loan.

But it's IRS rules that if you leave the company, it's all due back in a short time period (I think 30 days) or it's considered a disbursement and taxes/penalty are due.

[valhalla360]

Originally Posted by bergmd

@TrentePieds I question your response for a number of reasons but will bite my lip. I came on here to learn and be naive about the situation.. to learn from others.

I've come across many boats that are near, or around, $100k. Sometimes people need to get rid of property quickly and do not want to take a big hit. I would like to be able to help those people and reach a mutually beneficial agreement. Yes, $300k would be a reach to owner finance but I have other properties as collateral.

It may not be the advice you wanted to hear but it really was solid advice.

Do you want advice or a cheering squad?

[Four Coconuts]

Troy,
Good for you for making the leap. I think there have been some excellent comments provided here, particularly from fxyty. Consider the comments from TrentePieds but don’t treat them as absolute- while the comments he makes are thought out and carefully written to an extent, he/she misses that financial creativity can make your dreams happen (I was a Financial Advisor for 18 years and there are more things to be known about your financial situation before saying it’s unrealistic). I won’t comment on the finances any more except to say that it is probably doable, particularly if you have a well thought out exit plan.

Given your kids ages you can leave November/December of this year or November/December of next- your kids will be a great age for it either year. I know: in the Spring of 2014 we made the leap with our 7 & 9 year old, cruised East Coast USA, Bahamas, Eastern Caribbean, summered 1st year in Grenada, back up the Eastern Caribbean, west through Greater Antilles, Central America, second summer in Bocas del Toro, San Blas then Columbia prior to returning home via the Bahamas in spring of 2016. It’s an ideal route for a 2+ year sabbatical that doesn’t include weeks at sea that you would have to experience if going out to the South Pacific. Again, I won’t comment on the finances publically, but if you want to discuss any of this via PM I would be happy to.

I strongly disagree with the recommendations to gain experience via chartering and by wasting time cruising up and down the East Coast. You are a working professional- there is not time for this. You already said you had a large boat in your past. I would suggest you can fast track things like we did- we took the ASA courses, then did one 7 day charter. At that point we knew that the lifestyle was for us. We purchased the boat and then hired a captain to sail with us for as long as we felt necessary. After 3 weeks we found ourselves in the Freeport, Grand Bahama and were comfortable enough to continue without him. This was huge, because not only did we learn what we needed to, but we learned it on OUR OWN BOAT. Bahamian cruising is easy, and you will gain experience over the several months on your way down to Georgetown. It’s the jump from Georgetown to the Eastern Caribbean that is the next technical bit. If you don’t feel ready to make that jump yourselves at that point, hire a captain again to get you to the EC. I think you’ll find, as we did, that once we left our hired Captain behind in Freeport, we never looked back.

Look, this is doable. I’ve done it. Best years of my life so far. My wife and I have agreed that we will be back out to do it again once we get the kids through school.

Truth told by Sterling Hayden:
"I've always wanted to sail to the south seas, but I can't afford it." What these men can't afford is not to go. They are enmeshed in the cancerous discipline of "security." And in the worship of security we fling our lives beneath the wheels of routine - and before we know it our lives are gone.

What does a man need - really need? A few pounds of food each day, heat and shelter, six feet to lie down in - and some form of working activity that will yield a sense of accomplishment. That's all - in the material sense, and we know it. But we are brainwashed by our economic system until we end up in a tomb beneath a pyramid of time payments, mortgages, preposterous gadgetry, playthings that divert our attention for the sheer idiocy of the charade.

The years thunder by, the dreams of youth grow dim where they lie caked in dust on the shelves of patience. Before we know it, the tomb is sealed.

Where, then, lies the answer? In choice. Which shall it be: bankruptcy of purse or bankruptcy of life? ”

[geoleo]

Originally Posted by TrentePieds

bergmd:

That sounds like the sort of “Stop the world, I wanna get off!” cri de couer that was fashionable in the late '60s! Running away ain't gonna fix the problems, is it :-)?

I'm sure you know about the ”Four Cs of Lending”: Capital, Capacity, Collateral, Character.

If I were sitting on a catamaran worth 300K (which, thank the Lord, I'm not, Sir!) and you came to me with your proposal, you would be given a quick, polite but perfunctory tour through the vessel, and a nice cupacoffee, and be told that regretably you don't qualify. For these reasons:

Capital: By your own exposition of your financial position, you either don't have it, or don't want to liberate it from your 401. The tick mark goes in the “fail” column.

Capacity: 1) A quick amortization calculation will tell you that to pay out a 5-year Agreement for Sale for 300K at 8% p.a interest (8% p.a. being the ROI on real estate) requires payments of $79K per annum. Add thereto 30K per annum for vessel maintenance and repairs, plus the premium on a $300K bond (see below), and you are no longer within the “guideline” that total occupancy expense – the boat now being your “home” - should be no morre than 30% of gross income. 2) Employment, by your own statement, is “remote”, i.e. dependent on the internet in some manner. It must therefore be judged “precarious”, as whoever your contract employer may be will surely find lots of reasons to terminate the contract once you are out of the US. Again, the tick mark goes in the “fail” column.

Collateral: 1) None is offered. Again, the tick mark goes in the “fail” column. 2) Title to the vessel under an AforS would remain with the vendor. Further comment below.

Character: Applicant appears to have little appreciation of what boat ownership and skippering ocean going vessels entail, and has no documentary proof of competence or of accumulated sea time. By his own admission he is not familiar with courses offered by yachting associations and he appears vague on the concepts of Marine Insurance. Again the tick mark goes in the “fail” column.

Note regarding insurance. On an AforS, with the title to the vessel remaining with the vendor, the vendor must insist on full comprehensive insurance at REPLACEMENT cost. Given the matters raised under “Character” above, it is doubtful that any underwriter would issue such a policy.

Note regarding bonding: Given an AforS, and given that the buyer intends to remove the vessel from USA jurisdiction, the vendor must exist on the buyer furnishing a bond to the full replacement value of the vessel before access to the vessel is granted. Cost of the Bond, will, of course, be borne by the buyer.

A little harsh, perhaps. But those are some of the realities of what you are proposing. Bearing those things in mind as you develop your plans could save you a lot of disappointment and grief.

All the best

TP

The above is why I said "DREAMER"

[Simi 60]

Always amazes me that people earning that sort of coin don't have several hundred thou sloshing around waiting to pounce on opportunities as they arise.

[Bulawayo]

Four Coconuts; so eloquently written and consider it so correct. We went for one year and it turned into a life style. It is frustrating when people say start with chartering. I believe that some people simply do not have the courage or real life sailing experience to even make such a statement but feel they have to contribute and so fall back on this ‘excuse’. Everyone single person that I have met that espouses this ‘start by chartering’ has been a bar-room sailor. They prop the bar up at the local yacht club and regale anyone that will listen with tales of how to sail.
The reality is to buy what you can realistically afford to sustain for your intended purpose..... and that in itself is a whole separate thread.

[bergmd]

Thank you everyone for the advice! I've lived on a boat before but the real question is how the wife and kids will adapt. I want to make sure it's everyone dream, not just mine. I've tried to be very candid with them about the day to day life (as little as I know).