Partners buying into a charter yacht program?

[JMat]

I've read alot of threads asking whats more economical...chartering or buying into a charter program. Most of the time it comes down to the number of weeks being used...less than 3 or 4 just charter. If there were a couple folks who sailed 3 or 4 weeks, wouldn't that be a great opportunity for a partnership? Split the weeks, the cost and best of all the depreciation. As long as there was a contract with very specific terms regarding the phase out, I feel it could be a win/win for both parties. Much different than a private boat partnership which I imagine could be riskier. What do you folks think?(I asked this in a different thread but didn't want to hijack that thread)

[David Hughes]

I think that could be a very viable option. My only caution would be possible issues at the end of deal, when the boat comes out of service after 5 years. You'd both have paid the down payment, and the charter contract covers costs during the 5 years. But, at the end there is no assurance you will be able to sell for the amount of remaining debt. While usually it's possible, world circumstances could change that could greatly affect resale possibilities. Then if you were stuck with the boat for a while, you'd both have to cover those costs, and the risk is that your "partner" might leave you high and dry, be broke for some reason, etc. I don't see much risk other than that. Should be easy to find a way to split up your 12 weeks without too much strife. Let me know what boat you're thinking of doing.

[DeepCut]

The concept makes since but partnerships are potentially troublesome for the reasons stated above. The most important aspects of forming a partnership is how to dissolve the partnership. Can one partner sell his/her interest without consent of other? Who determines the sell price. ? Generally would want a buy/sell agreement between the partners so one takes full interest.
Also rules for "owner use"(I am in TMM fleet so Owners have unlimited use), although any owner use has potential impact of charter income. If owner books out far in advance, the likely charter loss is greater, especially in high season. If on the other hand, owner books time on relatively short notice, the loss of potential income is minimal... for instance, I booked Christmas week for personal use 10 months out. Definitely lost charter income. However February 14-21 is still not chartered... If I had decided to go (could go) for this week, there would likely be no charter income loss.

Developing rules for partnership is the key!

I bought a Lagoon 42 last year and is in charter and I would be happy with the right partner, but did not have one.

But I would not enter a partnership of this kind if I did not have the financial ability to go it alone.

Great partnerships are great. Bad partnerships can be H3LL.

[GTom]

At first it sounds sweet to have "your own boat" for the period you need it, but do you really get it when and where you need it? Partnership means you are most likely anchored to a region for a couple of years.

Economy: true, if you sail 3 weeks a year, upkeep of a 1/1 owned 40' boat - especially in pricey regions - is a financial disaster...

[JMat]

I was really just looking at the Moorings/DreamYacht guaranteed income programs and trying to get the cost down for the number of weeks I anticipated using. What would really simplify things is if each partner paid their 50% up front(home equity,cash...whatever) so the boat is paid for. Payments from charter company and proceeds from sale of yacht would be split. Moorings pays back 45% and let's say resale value was 40%...that leaves 15% split between partners as final cost for up to 6 weeks sailing each. That doesn't include borrowing costs if loan is needed or turnaround fees. I think as long as the exit strategy is settled up front there could be a couple happy sailors.

[David Hughes]

I agree that's the right way to handle it. Removes the risk. You'd have to look at the actual contract with Moorings to see if the partnership would work as far as sharing weeks goes.

I would actually do this with someone. But I'd only use time out of Miami and Marsh Harbour. I doubt I'd even go to Tortola. The good news is it doesn't matter. I think you can use owner time on any equal or lesser boat, in any location.

So if the full boat cost is $800K, each party comes up with $400, they split 45% back over time, as well as the cash that comes from a sale at the end. Using your example of 40% at sale, we are both left out $60K, or $12K per year for the five years, for up to 6 weeks each usage. That would be a huge win presuming you retain an interest in boating over all 5 years.

I remain intrigued. Question remains does Moorings even allow partnerships to have ownership?

[David Hughes]

Of course it's important to note that giving up the earnings power of $400K for 5 years could at 6% is about $150K, or $30K more each year on top of the actual $12K. $42K per year for 6 weeks seems more like a break even to the choice of chartering.

As with most things, the actuaries have it all figured out so it's basically all the same whichever you do.

[Mithril Bham]

If you only sail 4 weeks a year; charter. One thing not addressed is the aggravation involved with dealing with partners and the charter company itself. Lots of variables. Simplify your life.

[jmschmidt]

You need a well drafted "buy/sell" agreement. This agreement (all agreements) should have arbitration clauses and "dates certain." Failure to perform any condition including violation of dates certain should have penalties and interest applied. The buy/sell price should be based on one or more current market value surveys or some other agreed on price. If the buy/sell allows either partner to offer to buy out the other these conditions should be made clear. If one partner has agreed in advance to buy out the other fine get it in writing with a date certain. Any expenses after that date are the cost of the buying partner.

[Sailshabby]

And remember the final condition of a "so what, it's a rental" attitude of folks chartering your boat.

[GTom]

Originally Posted by Sailshabby

And remember the final condition of a "so what, it's a rental" attitude of folks chartering your boat.

Yeah, remember Cheeki Rafiki...

I am browsing ads, however ~4weeks a year I currently got hardly jusifies a purchase. I am looking in the "small" 33' (<10m) category. Here 4 weeks charter in the eastern Mediterranean (not during peak season) comes around 5k€. One year berth in the cheapest place costs around half of that, add devaluation (1k€/year?), smaller repairs, taxes, insurance, etc then you arrived to the charter cost. Being a novice, there may be costs I haven't even counted. Besides my yearly 4 weeks can drop to 2 in the region where the boat is, putting maybe 2-3k€ on the "charter side".

Buying in a partnership could of course steer the balance favorable to a "purchase", but partnerships have other pitfalls, a single careless member of the party could wreck the enterprise.

[jacktheflyer]

This is my experience. There are so many aspects to this issue it would be very difficult to address them here. Each of these points need to be expanded on for full appreciation

Three of us bought a sailing cat in bareboat charter. Projected returns were spectacular. Real returns were eroded by:

• expensive maintenance, contractors charging premium and doing unnecessary work knowing the owners were at arms length
• charter utilization being less than predicted
• charter operator making work when his people were not fully occupied and poor workmanship needing to be redone
• being charged for the operators marina berths when they were not otherwise occupied
• hidden damage by charterers

Of the $60k+ of income over 9ths we saw very little of it after expenses.

Good points were that we had a lovely boat that was prepared for us each time we used it located in a beautiful tourist spot.

When we withdrew the boat from charter we reverted to virtually a 3 person syndicate which is now a 2 person syndicate. The other half of my syndicate has no practical hands on ability at all so all maintenance and management of the boat falls to me. (This does cause me some stress) However he does continue to pay half of all expenses.

Good point is that I virtually have my own boat at half the price.

It is very easy to get carried away with the romance of a new boat and being human we tend to trivialize the risks. So my advice would be:

• If you have no practical skills that will support a private syndicate have a look at a boat share arrangement where each member will pay a manager to look after the running of the boat.

• If you go into a charter syndicate see if you can find other people that have experienced this and pick their brains. The focus of the vendor is to sell or buy a boat using easy finance (yours) with limited downside risk to themselves. Otherwise they would be seeking funding through more conventional channels.

• If you are not in a position living near the boat and be actively involved in the management and close review of what is happening to the boat then i would not recommend any form of community arrangement other than a time share. And this I have no experience of.

For any contractual arrangement

• Be very very clear on your exit strategy
• Be very clear on usage entitlements
• Be very clear on who will pay if something breaks. (If something breaks on our boat and I know I am responsible, I will pay for it. this is really a personal commitment.)
• Have an understanding of the approval process if you want to upgrade or add improvements. (This is more complex that it seems)

Remember that if it looks too good to be true it is.






Scrubby

[EmeraldCoastSailor]

I have been doing the math in my head for years on this topic and I think I share your thoughts. My chartering 3 times a year doesn't justify buying into a program. 4 times appears to make the numbers work but maybe is asking for trouble (unless you like to deal with boat problems). 5 or 6 charter weeks a year easily gets into the realm of justification but is likely too much time away from the real world for most. If a partner comes into the situation you can get back to using the boat 2 - 3 weeks a year for each partner and the numbers would definitely work. Obviously consider your partner carefully and also realize that you are likely to share weeks with the partner. But I think I will be doing this at some point in my life as it makes sense. And as others mention, partnership dissolution is the most important concept to get right in case things go sideways. The only way I see it working is to make it painful for a partner who wants out.