Documenting the life of a charter bare boat

[Nils Gruttner]

Originally Posted by Village Idiot

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

I know right? Struggling with my selections for next year as well. But Croatia to be the first one on "my" yacht will have to be on the list. Best done during 'yachtweek' so the Muppets can't get her

[Nils Gruttner]

Originally Posted by 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.

We are looking at a more involved monitoring system. Not necessarily to check on the usage (we don't get any revenue, so it doesnt matter) but to get a record of how these boats really get treaded. This is for my readers and my own studies.

[Nils Gruttner]

Originally Posted by 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!

Hi rabbi;

We can twist this anyway we want. Positive or negative. This deal can be viewed as a good one, as some people have realised, or as a bad one, for those who can't or don't want to commit to 8 weeks charters.

And that's all good. There is no right or wrong, it's a case of personal preference.

Just a quick clarification: the yacht needs to undergo a phase out schedule / maintance and as an owner, you get to bring an independent surveyor to ensure all is okay. The schedule is quite detailed and black in white. So you don't really buy a yacht "unseen" or take over a worn out wreak. As a matter of fact, you probably know more about this yacht than any other second hand one you might be looking at.

The reason I decided to document 'the journey of my catamaran in charter' is to demystify what really happens behind the scenes and what the final outcome will be.

So let's see... and again, the more people with actual yachts in charter post here, the better view we will get.

[Nils Gruttner]

Originally Posted by fivecapes

Nils

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

I get back to you on that one. The way I read the contract, I am protected.... But I am looking deeper into that as we speak because it came up multiple times. The waters get a little murky there with multiple durestrictions in a court of law. Standby on this...

[rabbi]

Agreed, you can make this a good deal. But it really depends on the owners weeks. You committed to 6 charter weeks over the next five years. If you don't use them you loose the corresponding money equivalent.

If you use them its all good. If the boat holds up well.

Originally Posted by Nils Gruttner

Just a quick clarification: the yacht needs to undergo a phase out schedule / maintance and as an owner, you get to bring an independent surveyor to ensure all is okay. The schedule is quite detailed and black in white. So you don't really buy a yacht "unseen" or take over a worn out wreak. As a matter of fact, you probably know more about this yacht than any other second hand one you might be looking at.

You know the yacht and its history, but you can't back out. You can't decide if you want to buy based on actual condition, as you are already commited from the moment of ntering the contract.

It can all work out favourably, and most likely it will. But you have the risk of buying a trashed boat.


Food for thought:
Someone already paid a 35% deposit, and is committed to pay 25% more for patched up Dreamyacht cats in the BVI (each cat that was not a writeoff).


EDIT: Don't get me wrong. I applaud your effort of documenting what you are doing. There is very little information publicly available about the financials of charterboats. Its all a bit black financial magic.

[Village Idiot]

Originally Posted by Nils Gruttner

I know right? Struggling with my selections for next year as well. But Croatia to be the first one on "my" yacht will have to be on the list. Best done during 'yachtweek' so the Muppets can't get her

That's a nice looking yacht you got there. Yes if I was you I would want to get down and have a go on it early on. And you can do it using Low Season weeks ! It's a no brainer.

Note to disapprovers; Low season does not mean you have to go sailing in March (in the Med); Nils can book his, or any other boat in the Med for that matter, for the first two weeks of June and it still counts as 'Low Season'. So does the last 2 weeks of September ie now. Or the first two weeks in May in Thailand. Or June/July in the Seychelles.

[Nils Gruttner]

Originally Posted by rabbi

Agreed, you can make this a good deal. But it really depends on the owners weeks. You committed to 6 charter weeks over the next five years. If you don't use them you loose the corresponding money equivalent.

If you use them its all good. If the boat holds up well.



You know the yacht and its history, but you can't back out. You can't decide if you want to buy based on actual condition, as you are already commited from the moment of ntering the contract.

It can all work out favourably, and most likely it will. But you have the risk of buying a trashed boat.


Food for thought:
Someone already paid a 35% deposit, and is committed to pay 25% more for patched up Dreamyacht cats in the BVI (each cat that was not a writeoff).


EDIT: Don't get me wrong. I applaud your effort of documenting what you are doing. There is very little information publicly available about the financials of charterboats. Its all a bit black financial magic.

Valid point in the patched up boats thought...

Thank Rabbi for the side note. Appreciated

[Village Idiot]

Originally Posted by 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?

yes, if you paid me enough money to warrant taking on the risk. Bit like selling an option - there will always be some price at which its worthwhile

Originally Posted by rabbi

: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.

If you call up to say 200k worth of charter time decoration , fair enough, but the free use is the whole point of the deal - obv no one would sign a forward sale contract without some incentive to do it. Its the equivalent of the payoff or premium i suggested in your car example. Yes, it's enough.

You don't need to use the whole 6 weeks each year to get enough value out of it either - personally I will get enough value if I only use my high season weeks from now on, although I certainly intend to use more than that, but thats for fun, not so i can justify the figures.

Originally Posted by rabbi

: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.

As mentioned in another post, it's not necessarily in March, with planning you can use low season weeks just outside of high season, for example in Greece first 2 weeks of June are 'Low Season'. The are plenty of people willing to pay for a charter in June, or last 2 weeks of September. They are actually pretty good times to go as everything is less crowded.

Originally Posted by rabbi

:Family may want to go to Las Vegas or Paris instead. Job commitments keep you busyone year or another.

They might keep you busy but not everyone's circumstances are the same. Family is a bit of a problem for next 3 years though, mainly the necessity to keep to school holidays does restrict the freedom to use the short notice weeks

Originally Posted by rabbi

: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.

Cost of all of the turnaround fees is 295 euros per charter for my boat. Except the VAT - no requirement to pay VAT on the owner weeks. Red herring.

Originally Posted by rabbi

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

This one is true. Especially if you live in Perth!

Originally Posted by rabbi

: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).

Nils' deposit invested is 223k USD. at 5% thats 11k USD per year. His boat is listed at 12550 Euros (about 14.5k USD) per week in High season. So the 'invest and use the proceeds to buy charter time' strategy buys less than one HS weeks charter. And he gets up to 5 weeks more than that (although admittedly of less value and trickier to use)

Originally Posted by rabbi

: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.

That's all very well but what would you have been sailing in the meantime?

Originally Posted by rabbi

:The charter company pays maybe 70-80% of list price to the builder.

I am sure the make some sort of clip on the purchase price but I very much doubt its 20 or 30%. Maybe more like 10%

Originally Posted by rabbi

:They get 35% of list price (or around half of their cost) financed for free by the "boat owner".

Value of the free finance in Nils' case at say 4% over 5.5 years is about 49k. For the 49k value of the free finance, he can use probably 150k or even 200k worth of charter time if he's committed. Almost all of his high season use will be displacing a real punter and therefore costing them real money - way more than 49k over 6 seasons. They are not in this model just to save financing costs.

Originally Posted by rabbi

: 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!

One way or another they have to finance the rest, and they cop the guaranteed depreciation - 40% from the list price (less any clip they take on the purchase price), plus they pay all running costs. Hardly nothing.

But yes, its a good business model for them. Doesnt mean it cant be a good deal for the owner as well.

[gbillman]

Bought a new Leopard 40 in 2006 and had it in charter in BVI for 8 years, then brought her home to Florida with about 2/3 of the loan paid off, but some extensive maintenance required.

The first charter company made money by rapidly turning the boats to the next charter, and failing to do anything but superficial maintenance. After 5 years, the boat was a mess.

I then put her into a secondary charter outfit who had a very good reputation with owners. After my boat had been with them for 3 months, it looked like it had as a 1 year old boat with the former charter company. Of course, the maintenance done by the second company was a direct charge, not "part of the deal" as it was promised by the first company.

All of that said, we now have a boat we will be cruising on in retirement that we otherwise could not have afforded. She is completely refitted with all new systems from bow to stern that we have taken time doing since we brought her home...allowing the money tree to regrow between projects.

My input: go for it, but keep a weather eye on company's maintenance by visiting your boat as often as possible. Talk with the maintenance manager every trip and ask to see work orders and logs. If they balk, beware.

Have fun

[rabbi]

As said, if an owner (I'd rather call him financee) uses most of his owner weeks it can be a deal.

Of course only if he would have chartered the same weeks & boat size anyway, which i doubt for many onwers. Given freedom of choice I guess that many owners would have chartered smaller, and less frequently over the 5 years contract period so they could slot in some different vacation as well.

But anyway, lets lope for Nils that he uses his weeks, and that his boat holds up well.

Originally Posted by Village Idiot

I am sure the make some sort of clip on the purchase price but I very much doubt its 20 or 30%. Maybe more like 10%

In a lawsuit that was made publicly available (sinking of Nipper) Lagoon disclosed their standard dealer discount a couple of years ago and it was 17%.

I bet that a huge customer like Dreamyachtcharter gets at least 20%.
Leopard for example seems to depend on TUI Marine for over 90% of their revenue, so most likely the list price has not much relation to what TUI marine pays.
So I bet its a good deal for DreamYachtCharter.

[Nils Gruttner]

Originally Posted by rabbi

As said, if an owner (I'd rather call him financee) uses most of his owner weeks it can be a deal.

Of course only if he would have chartered the same weeks & boat size anyway, which i doubt for many onwers. Given freedom of choice I guess that many owners would have chartered smaller, and less frequently over the 5 years contract period so they could slot in some different vacation as well.

But anyway, lets lope for Nils that he uses his weeks, and that his boat holds up well.



In a lawsuit that was made publicly available (sinking of Nipper) Lagoon disclosed their standard dealer discount a couple of years ago and it was 17%.

I bet that a huge customer like Dreamyachtcharter gets at least 20%.
Leopard for example seems to depend on TUI Marine for over 90% of their revenue, so most likely the list price has not much relation to what TUI marine pays.
So I bet its a good deal for DreamYachtCharter.

DYC is now majority owned by Foutaine Pajot ... So there is your answer how this works.

[rabbi]

Originally Posted by Nils Gruttner

DYC is now majority owned by Foutaine Pajot ... So there is your answer how this works.

Aha... With ties between charter companies and builder being so close the list price is just a meaningless figure.

With over 90% of all Leopards going to one single customer, the list price is just for the last 10%.

[rabbi]

Originally Posted by rabbi

Aha... With ties between charter companies and builder being so close the list price is just a meaningless figure.

With over 90% of all Leopards going to one single customer, the list price is just for the last 10%.

R&C seems to follow this thread! At least they updated their website within the last two days so my above statement is to be corrected.

I just checked the Internet Archive and their website used to say

The founders have a proud 35-year history of boat building with more than 1300 boats launched.

And

In the 20-year relationship the South African yard has enjoyed with Tui Marine - which encompasses the two largest yacht charter companies in the world, The Moorings and Sunsail - it has supplied more than 1300 catamarans.

Which lead me to mention that almost every Leopard has gone to TUI marine first.



Now it says:

The founders have a proud 36-year history of boat building with more than 1781 boats launched.

and

In the 20-year relationship the South African yard has enjoyed with Tui Marine - which encompasses the two largest yacht charter companies in the world, The Moorings and Sunsail - it has supplied more than 1194 catamarans.

So just over 67% of their boats have been delivered to TUI Marine. Since this includes the early years when they were not preferred supplier of TUI its more like 75% of all boats in recent years, and certainly even more in terms of revenue.
Add a few other smaller charter companies and just around 10-15% are private buyers.

[Nils Gruttner]

Chris Carstens, owner of the Helia 44 "Heliades" currently in charter with Dream Yacht Charters in Grenada, was kind enough to share the following date for all those who might be interested:

Hi all, I know many looking at the BAB (Boat as a Business) questioning the projected charter revenue weeks. I will offer up my data.

1. 2018 to date actual plus projected bookings to the end of the year = 160 days of charter revenue.
2. I am in DYC Performance Plan and therefore with the help of my BAB boat LLC CPA took the 50% carry forward depreciation on my taxes for 2017. Boat went into service Dec 28th, 2017.
3. Charter days are higher than I expected (and probably desired) but so far so good...My TurboTax liked the deduction!

1) My boat is in great shape. Probably the same wear and tear as if I sailed the boat for 160 days.
2) I know the base maintenance and cleaning crew by first name and have provided gratuity to them for their service.
3) Probably a little luck as my boat went into business after Irma in a hurricane safe(r) area in the Caribbean.
4) Most of my customers are European. Seems like they are maybe more skilled at sailing and boat management.
5) My boat was mostly bareboat chartered. A few hire captain and cook – surprising to me.
6) I have a guest book and a few customers have contacted me directly with their comments and enjoyment.
7) There have been occasional/the usual problems with fuses blowing, pumps going out a light here or there, but the base has done a good job. My base manager tells me that the new Helia's are the more reliable boats he has in the fleet.
8) I might be considered a pain in the ass owner as I am probably more engaged with tinkering and upgrading on the boat then most owners, I am told But the base manager puts up with me and we get along fine. Just bought him lunch the other day and got a lot of good customer and boat feedback.
9) I avoid taking my free owners time and prefer to pay or have my guests pay retail and take the revenue back through my charter agreement. Looks cleaner to the IRS.
a. When I am on the boat working on maintenance and projects I time track my work for my books.
10) I am a very pleased that I ended up choosing the Windward Islands as my sailing playground. It is a sailors sailing area. Haven't seen a day under 10 knots wind speed yet.
😎

Some background information:
My boat is based in Grenada. A great sailing venue as I mentioned. Good N-S, mostly on the beam sailing, island to island day hops with 20-30 knots on the inter island sections. #1 or #2 reef common but rarely motor sailing unless really pressing a bit upwind or leeward of an island. If you haven't sailed Grenada, The Grenadines and St Lucia give me a shout and I will cut a deal . I do plan to move up to St Lucia for a change of scenery and maybe give Heliades a little rest next year. Maintenance has only been mainly lubes and filters changes at this point. One service charge to fix a Raymarine problem that should have been covered under warranty. Dockage and utilities costs were as expected. I use QuickBooks for accounting with the TSheets plug-in and App for time tracking. I also use MS OneNote synced on OneDrive with my iPhone, Ipad, Desktop and wife's phone to keep notes, boat inventory, work project pictures, tools, To-Do lists etc. I also passed boat not yet obtained my CG 100 Masters License (all time documented) which I hope to use for some purpose or customers in the future.

[Nils Gruttner]

AND THE JOURNEY CONTINUES ... now she floats

"Nils, good news: the wait is over and things just got real. Your boat is in the water."

That little message, including a photo of the actual hull number #259 certainly got my attention. I was expecting the launch to happen around mid April. However, as getting time off to actually be there on the day wasn't going to happen, it kind of slipped my mind. Plus the fact that Dream Yacht Charter was going to take delivery of her for charter in Croatia for the next 5 years somewhat muffled my enthusiasm as a "new boat owner". Or did it .....?

Nope! As soon as I found out she was floating, I wanted to go. I wanted to touch it, smell it and generally bask in that brief, glorious moment of joy of having a new toy.

Meanwhile though, I was stuck in Hong Kong on "Reserve" - meaning I was waiting, at home, to take the place of a colleague, in case of sickness. What are the chances of me getting a call to go flying? And even if that were to happen, it could be to one of over 50 destinations my company services world wide. I needed to head in the general direction of La Rochelle - France, not Canada or India.

Luck was on my side and I got the call to fly to Brussels. That will do. Train next and there she is....

It was an eventful trip to say the least. I still believe I got scammed with the taxi in Paris, I got to see so many yachts getting ready for hand over, saw the FP and Multihull Team in action and most sadly, I saw the roof of France's most iconic 'Notre Dame' burn down as I drove past the area on the way back.

I had no idea or expectations as to the state of "my" yacht during this stage of what could be classified as 'pre-delivery'.

It amazed me to see how many little defects there were marked on No Shoes that required attention and how much additional work was required to get the boat ready. I suppose its a way for FP to get the yachts out of their yard where there is limited real estate and finish them off to hand-over stage elsewhere. It also enables them to fix up any damage on the spot that might occur during mast stepping and installation of other ancillary systems.

What the above highlights though is the unpredictability of timing. There seem to be so many variables in getting a yacht ready: There is the delivery of the actual yacht by road. There are multiple ancillary systems which can't be installed prior to the road delivery. And most importantly ... weather. Much of the work to be carried out is done on the exterior, so if it rain, hails or snows, much of the work stops, which will have a follow on effect on the next yacht and so on.

After having read many blogs about hand-over and warranty nightmares, I have to say I am kind of glad that Dream Yacht Charters are the ones who have to deal with all of that.

On a side note: One wonders though, now that FP owns a fair share of DYC, to what length will FP go to deliver top quality boats to DYC and how much DYC will push FP for perfection versus an acceptable, mutually beneficial, commercial compromise. Having said that, common sense suggests that DYC still requires well finished, well working yachts to make a good business model. Other manufacturers, i.e. Moorings / Leopard, are no exception. Time will tell.

Small fish in a very big pond:

Everyone thinks their yacht is special, I can see that. I guess I am no different. We are spending upwards of 1/2 million Euros, we deserve to be feeling special. But when you walk or motor around the marina in La Rochelle, you realize, by the shear amount a brand new yachts, that your 'special' yacht is only a number. Its one of hundreds of exactly the same one as yours … all made from a few tonnes of resin and rolls of fiber glass. There is of course always the option of 'custom built' by niche manufacturers or boat yards. Its nice to have choices. However, as I am focusing on mainstream, bare-boat yacht charter management contracts, this wasn't an option.

So to that extend, I had an interesting conversation with Mr x, who now assists private clients of Multihull Solution with their hand-over and commissioning. Previously with SunSail, he managed hundreds of yacht in various types of charter contracts. His summery of achieving a successful outcome to any charter contract was: "Treat this yacht as a business transaction and remove all emotional attachment from it". Basically, its like a rental home. If you want to move in after renting it out for a few years, you will need to renovate to make it "yours".


All aside, it was great to see my yacht in real life. After waiting for over 10 months, things became real and now the journey has begun. I will be client number 2 or 3 at the end of June when I have booked my next week of owners use, so she should still be brand new with few scratches ….. oops, no emotional attachment!