Buying into a Yacht Ownership Program with a Charter Company?

[home builder]

Hello.

My wife and I are looking into purchasing a sailing yatch through a charter company ownership programe. We are in the early stages of our fact finding study if you will and at this point we have more questions than answers. Is buying a boat to put it in a charter companies fleet a wise thing to do ? What are the + and - ? Is there a break even point with the financing costs and the income paid to us by the charter company ? What do you do with the boat after the 5 yr contract is over ? ........etc.

Any feed back will be appreciated.

[Rubikoop]

You are asking the right questions. Why do you wish to buy a boat in a charter program? Knowing what your intentions are first helps to determine whether the charter ownership option is wise for you.

[home builder]

Originally Posted by Rubikoop

You are asking the right questions. Why do you wish to buy a boat in a charter program? Knowing what your intentions are first helps to determine whether the charter ownership option is wise for you.

The primary reason to enter into a brokerage program would be to offset the cost of ownership against personal usage of the boat. Realistically we would use the boat 4 to 5 weeks a year in the Caribbean. The charter company I talked to said they pay 9% of the purchase price of the boat x 55 months. So this is a measurable equation the only unknown is the financing cost but this can be sorted out. The charter company mentioned that after the 55 months in the fleet that they might want the boat to be chartered in their second tier fleet with an un- guaranteed income this isn't measurable. Is my logic in line with other

[David_Old_Jersey]

Quite a few similar threads (so actually worth a search, not just a lazy fob off!) - not done myself, but IIRC it basically comes down to whether you will actually be using all your weekends for all the years and also that you value the fact that someone else will be taking care of the boat, not just in the cost of the bills but in the cost to you in saving the aggro of taking care of a boat abroad (often enough a PITA - especially when relying on others).

Therefore if you were going to take X number of weeks a year on holiday on your boat in the sun for 5 years then you would be a touch ahead (would be paying for your travel anyway!) - but not if the comparison was against own boat at the bottom of your garden and holidays taken locally. and (of course!) certainly not designed as an investment, even if you may come out ok.

[Vasco]

For Canadians it's not such a good deal since the tax people changed the rules many years ago. No CCA, and you can only write off the "soft" costs. Check with your accountant first.

[nautical62]

I purchased a boat that was in charter with the Mooring and is now in Footloose. It is by far the affordable and easy to way to own a boat I've experienced. I have no regrets.

The big thing is to objectively crunch the numbers of charter management vs. other options. If you enjoy chartering more than 3 weeks/year I think buying a charter management boat is a no-brainer.

If you are comparing that to owning your own boat outright, it gets trickier to compare. If you would buy a similar boat and only use it a few weeks, charter management again makes sense. However compare a new charter boat to a used, smaller boat costing only 1/4 the price (that you might be just as happy with), and the comparison gets trickier. If ideally you'd like to sail just a little more than they allow, that's also makes it hard to compare.

When you compare numbers, don't forget to include owner's time fees as well as any tax consequences. For me, the the tax on declared income and depreciation about cancel each other out. - Can't speak to your tax situation.

I'll also say that while my charter boat has clearly received some hard use, it has been maintained well and is in much better shape than many privately owned boats I've been on.

Certainly ex-charter boats may have a slightly lower resale value, but getting 40+% back in guaranteed income and having no insurance, no dockage and maintenance costs for 5 years or more, makes up for that difference many times over.

This winter, I spent a week just working on a Hunter I also own - never had the time to take it out. I then flew to the Bahamas for some charter exchange time and that night we were out anchored, enjoying the islands, with no time needed for maintenance and no unexpected headaches. We just showed up, provisioned and left. It may be hard to put a dollar value on that, but to me that worry-free convenience has a great value indeed.

[maytrix]

Like Nautical64, I also have a boat in charter. It's currently in the Moorings program.

As long as you go into things with the right expectations and goals, charter ownership can be great. If your goal is just to use time and get rid of the boat at the end, that can work well - as long as you use lots of time and go into expecting to come out even at the end. So is the downpayment you would need to make (assuming a guaranteed revenue program) worth all the time you'll use int he 55 months? (adding in the owners fees as well)

If it is, then do it. Also keep in mind that if your goal is to sell at the end, don't get a bigger boat than you need. In Moorings, you can upgrade on short notice time to other larger boats and get more value from that, thus making it even more worthwhile.

The other option is keeping the boat at the end of the program - that also makes it very worthwhile and is what we are going to do. This way we get a decent portion of the boat paid off under the program and also get to use the boat during that time with no costs other than the down payment out of pocket.

We're at the start of our 3rd year now and love it - its worked out great for us.

Lots of good info is available at Sailonline.com - I suggest reading through the materials there too.

[nautical62]

Regarding break even vs. chartering:

So at 6 years, (including 1 year in Footloose), I've received back about 1/2 the cost of the boat in guaranteed income and paid no insurance, no dockage, and no maintenance. If I were to give the boat away right now, the average cost of ownership would have been 10K/year or at 5 weeks of use, $2,000 per week. Add the owner's fee and I'm still under 2.5/k per week of use. Compared to chartering, that's still a bargain, and that's assuming I write off the boat, which clearly I won't. If I get 1/4 of what I paid for the boat after brokerage and other costs, the average per week cost would be a little over 1K. Compared to chartering a similar boat myself for 4 weeks or more, there's no doubt in my mind that owning a charter boat is a great deal.

Compared to owning, things get more difficult, especially since the economy has changed since I purchased by boat 7 years ago. Now, new boats in the program cost much more, but the cost of purchasing a used boat privately has gone down.

Where it gets especially difficult is if you might otherwise be happy with a used boat that costs notably less than a new charter management boat. A new 200K Charter Management boat may depreciate by 100K over the next 6 years. A 10-year old 75K boat may only depreciate by 25K over that same time. So now, you are looking at a 75K difference. The savings in dockage insurance, and maintenance may not cover that. That of course does not factor in either the headaches or freedoms that come with personal ownership compared to charter management.

The other thing I did not address in comparing charter ownership to chartering is the economics of friends sharing costs vs. just family. If I go chartering with 6 friends for a week, we'll likely split the costs 6 ways. I won't be paying it all myself as I would as an owner. Comparing paying for an entire charter vs. ownership and comparing 1/6 of a charter changes everything.

[denverd0n]

Originally Posted by maytrix

So is the downpayment you would need to make (assuming a guaranteed revenue program) worth all the time you'll use int he 55 months? (adding in the owners fees as well)

But it's more than that. If you want to make a realistic financial comparison you have to consider the opportunity cost of the down payment. That is, what else could you have done with that money? How much could you have earned if you had invested it in something else, instead?

On the other hand, if you're making this decision based ONLY on the financial considerations, then maybe you're missing at least part of the point of being a boat owner.

[maytrix]

Originally Posted by denverd0n

But it's more than that. If you want to make a realistic financial comparison you have to consider the opportunity cost of the down payment. That is, what else could you have done with that money? How much could you have earned if you had invested it in something else, instead?

On the other hand, if you're making this decision based ONLY on the financial considerations, then maybe you're missing at least part of the point of being a boat owner.

True, although there's no guarantees with investing. In our first year and a half, we used time equivalent to our down payment. So we've been able to get tremendous value from ownership.

as far as your last statement, if someone is buying in charter with the intention of selling the boat at the end of the program, I think it should be looked at just from a financial standpoint.

[home builder]

Well I'm really gr8full for everybody's opinions and advise. We will now boil it all down and see if buying into a charter program is best for us at this point in our lives.

Thank you again.

[tracy1956]

HomeBuilder, I'm just wondering what your decision was. Did you decide to buy the boat through the charter company? If so, are you happy with your decision? We're thinking of doing the same thing...

[hellosailor]

Tracy-
That was their last post and they haven't come back since, five years ago. Don't hold your breath.

Ask your accountant if the programs make sense to you. If you don't already have an accountant...they probably won't pay off. Unless you have particular tax gains to be made by this type of investment, you're just lending the charter company money to buy boats. And if that was always, and simply, profitable? They could get the banks to line up and hand them bags of money all day, without the need for "owners".

Still not sure? Hire an accountant.

[nautical62]

Tracy, I owned a boat in charter management and looking back, I feel it was a good choice. There are also reasons I chose not to again. Feel free to send me a message if you have any specific questions.

I think charter management can be a great deal or not so great. I think the big thing is to objectively evaluate the options and costs that actually apply to you rather than generic, over simplified arguments.

[leboyd]

Originally Posted by denverd0n

But it's more than that. If you want to make a realistic financial comparison you have to consider the opportunity cost of the down payment. That is, what else could you have done with that money? How much could you have earned if you had invested it in something else, instead?

On the other hand, if you're making this decision based ONLY on the financial considerations, then maybe you're missing at least part of the point of being a boat owner.

Actually, if you're comparing buying outright versus buying with a charter company, the opportunity cost is basically the same. If you're buying used (10 year old boat versus new boat), the lost opportunity cost is the difference in the down payment. Using the example above ($200k new/$100k used) and 20% down, the lost opportunity cost is based on the $20k down payment difference.