Documenting the life of a charter bare boat

[hellosailor]

Nils-
I think you are doing the math wrong. Consider:
$665,000.0 Purchase price, that's what you are in for. That can be invested to generate 10% ROI annually, so let's call that $66,500 per year in lost revenue, tied up in the boat. $66,500 times five and a half years, that's over $365,000 in lost growth on your investment. Ignoring additional compounding.
So now the numbers are:
$665,000 purchase price
$365,000 lost ROI

That's a fast million dollars you'll have spent on the boat.
With a final value of $420,000.

So the five years of chartering will actually have cost you some $600,000.

If the charter company didn't use those numbers to show you the real costs--they're not being honest about it.

(And this is just a rough picture, any accountant or MBA would be able to show you a more precise figure and a greater cost.)

Unless there's a way that you can write off most of that $600,000 expense against taxes or something...this is why charter companies raise money from individuals, and cannot get it from bank loans.

[Nils Gruttner]

Originally Posted by hellosailor

Nils-
I think you are doing the math wrong. Consider:
$665,000.0 Purchase price, that's what you are in for. That can be invested to generate 10% ROI annually, so let's call that $66,500 per year in lost revenue, tied up in the boat. $66,500 times five and a half years, that's over $365,000 in lost growth on your investment. Ignoring additional compounding.
So now the numbers are:
$665,000 purchase price
$365,000 lost ROI

That's a fast million dollars you'll have spent on the boat.
With a final value of $420,000.

So the five years of chartering will actually have cost you some $600,000.

If the charter company didn't use those numbers to show you the real costs--they're not being honest about it.

(And this is just a rough picture, any accountant or MBA would be able to show you a more precise figure and a greater cost.)

Unless there's a way that you can write off most of that $600,000 expense against taxes or something...this is why charter companies raise money from individuals, and cannot get it from bank loans.

Hellosailor,

Not sure I follow you...
1) I am only paying 399k, not 665k. Why do you use that as a starting point.
2) 10% return NET? Nice if you can get it safely year after year.

[Village Idiot]

Hellosailor, I am afraid it is you who has the maths wrong. He is not paying 665k, he is paying 399k in total, and of that he is paying 233k now, so its only the 233k that could be put to alternate use now and should be used to calc opportunity cost.

While it is absolutely correct to account for financing and/or opportunity cost in any analysis , the assumed rate will vary according to individual circumstances, but even if the 233k is sitting in cash just waiting for a home, 10% after taxes is a pretty optimistic figure to use. A more conservative rate for most would be more like 5%, which is what Nils uses in his model.

At that rate and applied to the correct figure, the opportunity cost is more like 64k, a long way from 665k.

[Tillsbury]

A 665k boat that is worth 420k after five and a half years in charter, without a refit cost? Amazing...

[hellosailor]

Nils-
You did say the purchase price is $665k, although you are paying less money at this time. In the US when someone is not paying the full "purchase price" up front, the balance is usually still due as a "balloon note" or other payment made at a future date. So perhaps you are going to be required to pay the difference when the 5.5 years ends. Perhaps that amount will be subject to interest charges if not prepaid. I don't know, because you've left that unsaid.
Still, if you say the purchase price is $665k, that means that is what you are paying--one way or another, now or later.

I chose 10% because for the past five years, it has been readily attainable in the US stock market. More typically higher. (And some lucky folks have seen 70-80% on some stocks in just one year. Lucky folks.) You can also make that much by investing in real estate, which is considered fairly safe. And, again from the US market, there's a general rule of thumb that if you invest in ANY business, or you run any business, and you don't make at least 10% on your investment annually, you shouldn't be in the business.

It is not an uncommon return to be made when more or less a half million dollars is being invested.

The numbers aren't important, really. The point is, any sound financial analysis of the investment will go over all of these things, including your investment alternatives and your personal tax situation.

So, did the charter company say what the value of your money being tied up is? Where the difference between your purchase price and your payment now is going to be? Have you gone over tax ramifications?

Those are the critical questions. And again, fi the charter company didn't tell you "Go over this with your accountant" then they're not really telling you all the costs.

[Nils Gruttner]

Originally Posted by hellosailor

Nils-
You did say the purchase price is $665k, although you are paying less money at this time. In the US when someone is not paying the full "purchase price" up front, the balance is usually still due as a "balloon note" or other payment made at a future date. So perhaps you are going to be required to pay the difference when the 5.5 years ends. Perhaps that amount will be subject to interest charges if not prepaid. I don't know, because you've left that unsaid.
Still, if you say the purchase price is $665k, that means that is what you are paying--one way or another, now or later.

I chose 10% because for the past five years, it has been readily attainable in the US stock market. More typically higher. (And some lucky folks have seen 70-80% on some stocks in just one year. Lucky folks.) You can also make that much by investing in real estate, which is considered fairly safe. And, again from the US market, there's a general rule of thumb that if you invest in ANY business, or you run any business, and you don't make at least 10% on your investment annually, you shouldn't be in the business.

It is not an uncommon return to be made when more or less a half million dollars is being invested.

The numbers aren't important, really. The point is, any sound financial analysis of the investment will go over all of these things, including your investment alternatives and your personal tax situation.

So, did the charter company say what the value of your money being tied up is? Where the difference between your purchase price and your payment now is going to be? Have you gone over tax ramifications?

Those are the critical questions. And again, fi the charter company didn't tell you "Go over this with your accountant" then they're not really telling you all the costs.

Hellosailor,

I thought I had this article written
in a way that everything was clear. [emoji1] ... I should have known better.

As far as tax implications are concerned, yes, accounts advice was suggested.

The 665k is the list price. You would pay that if you were to purchase this yacht outright. But with the Dreameasy program you only pay 60% of the yacht. 35% at the start and 25% at the end. PERIOD. But it generates no income and has no expenses to me. All I get in return are the 8 weeks free sailing and the yacht at the end.

The point of contention for most here is: what will the yacht look like at end of the contract. And that's exactly what I am trying to document with 'No Shoes'. The charter company has a very long list of checks and the owners bring an independent surveyor ... after that, all must be fixed to good working order apart from 'fair wear'. "All" being what the charter company says needs fixing AND what the surveyor finds.

Clearly this is where issues of different "perception" will arise, but until I am at the phase out stage, I can only go by yachts I have seen ex charter BUT NOT THE ONES SOLD DIRECTLY by the charter company, BU THOSE SOLD BY OWNERS ! Sure, there will always be stuff one wants to fix, and I am realist enough to know that I will have to spend some $$$ to get her up to my standards.

[hellosailor]

Nils-
"The 665k is the list price. You would pay that if you were to purchase this yacht outright. But with the Dreameasy program you only pay 60% of the yacht"
Ah, translation error. You'd said the purchase price was $665k, but the discounted purchase price is going to be 60% of that, and the $665K is apparently what we in the US call the "MSRP", the Manufacturer's Suggested Retail Price, aka the "list price".
That's an incredibly huge difference, I didn't think there was that much of a markup on any boat. Wow.

Is Dreameasy willing to put you in contact with any previous or current owners? To ask them what their experience has been? If they cite privacy, just give them a dozen aerogrammes and tell them to address them to owners and drop them in the mail, they don't have to disclose anyone's information to you, for you to send out notes asking for contact back. (You know, in case they don't do email.(G)

[Village Idiot]

Nils, I was thinking about grabbing a late notice charter out of Phuket next week, to use one of my bonus short notice weeks , but the weather reports for September/October, even on charter company's websites, are pretty off putting. Now thinking of doing Thailand next May/June/July , so i am curious what the rainy season is really like.

I notice on your blog you did a charter in Thailand in July, and it mentions "rain= cold" and "current bad weather". So what was it really like?

I know it says typically just afternoon showers (other than Sept/oct) but the rest of the time does it tend to be overcast all day or sunny in the morning before the clouds build up in the afternoon ? would you do it again that time of year ?

Thanks

[Nils Gruttner]

VI, regarding best time to charter in Thailand:
We had a lot of rain, but we also had some dry spells in-between. Not the best time of the year and if I had the option, I would have preferred May or Jun.
But it was the same for us - last minute and easy access from HkG, so we went anyway. And yes, I would do it again. Just got to adjust what you do... I just want to be on a boat and get an occasional good sail in .

[Tornadosailing]

Originally Posted by hellosailor

Nils-
"The 665k is the list price. You would pay that if you were to purchase this yacht outright. But with the Dreameasy program you only pay 60% of the yacht"
Ah, translation error. You'd said the purchase price was $665k, but the discounted purchase price is going to be 60% of that, and the $665K is apparently what we in the US call the "MSRP", the Manufacturer's Suggested Retail Price, aka the "list price".
That's an incredibly huge difference, I didn't think there was that much of a markup on any boat. Wow.

There's not that much markup. Read his comments again. Dream Yacht Charter is not going to give him any revenue, nor will they pass on any maintenance costs. DYC is counting on renting the boat enough to cover 40% of the boat cost, less whatever their actual markup is. The revenue generated by the boat also needs to cover maintenance, dockage, and refit at the end of contract.

[Village Idiot]

Originally Posted by Nils Gruttner

VI, regarding best time to charter in Thailand:
We had a lot of rain, but we also had some dry spells in-between. Not the best time of the year and if I had the option, I would have preferred May or Jun.
But it was the same for us - last minute and easy access from HkG, so we went anyway. And yes, I would do it again. Just got to adjust what you do... I just want to be on a boat and get an occasional good sail in .

Ok , thanks, that sounds about what i thought. Thailand looks pretty awesome in the right season so thats def on the menu one year, but i have already booked my high season weeks for next year, so i think i will target going either next May or possibly April if theres any short notice availability then. Kind of a fun problem to have

[fivecapes]

Nils

Interested to know what happens if DYC goes belly up tomorow or anytime before 65 months. Are you in the hole $233k?

[rabbi]

@hellosailor:

You can read this contract as:
Nils has signed a contract to buy a used boat from Dreamyacht, which will be delivered in five years. He has to pay $399,000.00 or 60% of list price in total, 35% or $232,750.00 are due now and another 25% or $166,250.00 in 5 years.

Basically he has committed to buying a used boat of unknown condition in five years for 60% of current list price, and has already paid a 35% non-refundable deposit to secure that deal.


This is by itself a deal that many people would not enter. Would you commit to buy a used rental car in five years, and already pay a deposit on it?? Be committed to buy even if it has five accidents in the first week?


So the charter companies decorate the deal with owners weeks.
IF (and its a big IF) the owner knows he wants to charter 6 weeks per year over the next five years according to the charter companies terms this can be a deal.
However low season is in low demand for a reason: it may be cold and windy or wet and humid. Sailing Greece in March is OK once, but gets old pretty soon.
Family may want to go to Las Vegas or Paris instead. Job commitments keep you busyone year or another.


Finally these owner weeks aren't exactly free in most charter companies: handover fees, agent fees, blanket fee, cleaning fee, insurance, in Europe many folks have to pay VAT on the value of each charter week they use.

And to squeeze these weeks into their schedules many people need to fly halfway around the world to have decent weather, especially during offseason.


Now imagine we weren't talking about boats but just some boring investment scheme. Say the same deal in a boring rental car. Would you sign a deal to buy a used Toyota of unknown condition in five years and give a substantial deposit?



I'd rather keep the 35% deposit invested and use the ~5% return (plus the cost hidden cost of owners weeks) for some nice holidays each year (charter or not doesn't matter).
Then in 5 years I'd be looking to buy a charter boat in decent condition for 60% of the old list price. That way I can assess the boat before committing to it.



And now lok at it from the other side:
The charter company pays maybe 70-80% of list price to the builder. They get 35% of list price (or around half of their cost) financed for free by the "boat owner". They can use the boat for 5 years and just pay upkeep. After 5 years they can offload it to the owner for the remaining 25%.
Almost no risk for them at all. Even if they don't charter the boat it will cost them next to nothing.
Great business model - for the charter company!

[rabbi]

@Nils
I would certainly want to know where the boat is. Some GPS tracker that you can access.
Not necessarily for monitoring what happens to the boat (you can't much about it anyway) but more to see if the days & weeks out match what is reported as charter revenue.


I know folks living within driving distance of Croatia who just call a few base managers they know on a short notice. If a boat is available they drive to Crotia and sail for a few days and they always pay cash.

I am not sure this also shows up in the charter calendar or in your revenue report.
I am in no way indicating Dreamyacht does this. just saying I would want to nkow where my boat is.

[Nils Gruttner]

Originally Posted by Tornadosailing

There's not that much markup. Read his comments again. Dream Yacht Charter is not going to give him any revenue, nor will they pass on any maintenance costs. DYC is counting on renting the boat enough to cover 40% of the boat cost, less whatever their actual markup is. The revenue generated by the boat also needs to cover maintenance, dockage, and refit at the end of contract.

That's it. You got it