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Old 21-04-2009, 06:26   #1
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Resale Value / Depreciation

What is the rule for computing the depreciation in value of a yacht?

We were told that real estate appreciates (that turned out be largely a bubble).

Boats may not be like a car where after a few years it's at half its original value. Also with all asset prices dropping these days... how does one really asses / compute the value of a 10yr old boat? A 20 yr old one? etc.?
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Old 21-04-2009, 07:21   #2
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I'm a real estate appraiser. Boats are a bit more difficult. Much of the depreciation is like a car. Once you drive a new boat off the lot (out of the marina), you are going to be hit pretty hard. Also remember that you take a 10% hit right away, for the broker's commission (even if you sold if for what you paid for it, you lose 10%).

Beyond that, much of depreciation is dramatically affected by the boat market in general. For a while, boats just plain weren't selling (and neither were cars or real estate), no matter what the price was. We know folks who just bought a Morgan OI 41 in decent condition for $40K.

Then there's condition. Lack of maintenance is a boat killer.
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Old 21-04-2009, 10:16   #3
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I think there are many ways to go about answering this:

I know many people who purchase new yachts and get an income from them (such as charter management) use an 18-year table. I know my tax lawyer went with a shorter one as we felt it would more accurately reflect the worth at the end of five years.

Obviously, older boats tend to depreciate at a slower rate. Few increase in value as real estate is more likey to do.

One could argue a boat is worth whatever a buyer and seller agree to. One could also argue, it's worth whatever your insurance company agrees to pay in the event of a total loss. To you it may be worth what ever it actually costs you to get a replacment or what you'd sell it for. There are many ways to measure worth.

I recently posted a few things I've seen with boats I've purchased on an older thread. One old boat I purchased sold 8 years later for about 80% of the purchase price. Another I sold 2 years after purchase for about 110%, but given upgrades it was probably more like 80%. A new boat I have in charter will probably sell for about 55-60% of it's purchase price at the end of 5 years.

The NADA and BUC guides are another way to get a general feel for how various models of boats change in value over time.
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Old 21-04-2009, 11:36   #4
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NADA and BUC guides, beloved of so many banks are completely meaningless in the over-$100K market. In fact they are not based on actual transactions but on a WAG (wild ass* guess) at depreciation from some elusive msrp. There are too few of any model sold, and no chance whatsoever than any two are in the same condition and equally equipped. "Average equipped" is a euphemism for "I couldn't come any closer than a couple dozen grand!"

Yacht Brokers study the reported selling price of vaguely similar boats at Yachtworld.com's trade only, subscription site before coming up with a suggested price, but the owners have the last word and least inclination to be reasonable, so big buck boats stay on the market for a long time, perhaps years. A Broker may occasionally say that a boat is "seriously" for sale, but, again, his lips were moving, a dead giveaway that he's "interpreting" the truth.

How does a seller or buyer find that data? It comes from a service for Brokers, who want actual selling prices to be unobtainable. It's their business. But you may find an Adjuster or Surveyor who has a subscription and would take a look for you. But even then you won't know what a particular boat will sell for, until a buyer makes an offer that the seller accepts, a decision based on any number of factors at that moment in time. And then its gone.


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Old 21-04-2009, 11:45   #5
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Originally Posted by defjef View Post
how does one really asses / compute the value of a 10yr old boat? A 20 yr old one? etc.?
I was mulling this over to post a response - but now my brain hurts

As a broad view I would say Boats depreciate to around 1/2 to 1/3rd of the new equivalent (or perceived equivalent) and then maintain that value in line with inflation (so keep the right boat long enuf and you will be back at purchase price eventually - as long as one keeps on top of maintanence and with some updates - so obviously in real money you still lose in simple £££ / $$$ terms)........and that the model does not turn out to be a well known dog (with exploding Osmosis, built of veneered MDF or summit )......IMO what helps keep the price above scrap value (like a car) is a) still being an in demand viable alternative to new b) that a lot of the competition will have deterioated over a number of owners.......so maybe time to lay up somewhere safe and secure that future "vintage" Beneteau

Obviously exceptions apply. errrr, probably to most boats
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Old 21-04-2009, 12:19   #6
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So let's get real. Say a sloop is 20 yrs old, reasonably maintained and cost $80 new. What would the range of valuation today?

$30 - 40K

$40 - 50K

$50 - 60K

I'm not selling, just curious.
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Old 21-04-2009, 12:30   #7
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Originally Posted by David_Old_Jersey View Post
. . . keep the right boat long enuf and you will be back at purchase price eventually - as long as one keeps on top of maintanence and with some updates - so obviously in real money you still lose in simple £££ / $$$ terms) . . .
This, I think, is the salient point - just because you sell something for the "same amount" you purchased it for after many years of ownership, you don't "break even." All of your sunk costs (maintenance and upgrades, slip/mooring, possibly winter storage, insurance, interest payments, etc.) are irretrievable. And even if you buy a vessel for $100,000 and sell it for $100,000, if a broker is involved your check will be for 10% less than the full selling price. Then, factor in the corrosive effects of inflation.

Never underestimate the power of inflation to decimate the purchasing power of a currency. Inflation is the "stealth" tax we all pay even as the politicians crow about how they lowered taxes and how the economy "grew" under their administration. This is so transparent, I can't believe any thinking voter would fall for it, yet it always seems to work with some people.

Inflation is the cancer of fiat currencies in otherwise healthy economies, and given enough time, every currency eventually succumbs to it. Often, violent rebellion is the last desperate act of people trapped in a dying economy, fatally weakened by an inflated fiat currency.

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Old 21-04-2009, 13:05   #8
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Tao.

I look at all the costs like this:

Suppose I rented a summer home what would it cost? The maintenance and upgrades, equipment and insurance are like the rental fee for the summer home. Unlike the rental summer home you have nothing of value after 20 yrs.

The question posed is... what will it fetch after 20 years... inflation considered.
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Old 21-04-2009, 13:28   #9
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I think it's also important to keep in mind all boats do not hold, loose or gain value equally. I've read many Catalac Catamarans sell for as much used now as they did nominally 20 or more years ago. However, as Tao suggested, this does not reflect real terms. This of course can get very complex. One can also talk in terms of opportunity costs - What would have happened to your money had you not purchased a boat with it? From this perspective my current boat has appreciated in comparison to what money left in the stock market would have done.

One could argue the nuances of accessing devaluation forever, but I don't think that's what this question is really about. My take is that it is about gaining some basic understanding of devaluation and how boat prices generally change over the years. The only way you will know absolutely how much your boat has devalued is to sell it. However, there are many ways one can get some ideas on this. Tax depreciation tables, blue book values, insurance depreciation values, the sales of similar boats may not exactly represent what any specific boat may sell for, but they are not simply wild ass guesses. They all represent in some way what boat values tend to do over time.
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Old 21-04-2009, 13:37   #10
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Tao is, of course, correct. There is no way anyone should look at a boat as an 'investment'. That being said, if you gotta have one, you gotta have one - and most of us here, truth be told, fall into that category.

In the same vein, boats should never be viewed in the same way as real estate; rather, they are more akin to automobiles, or appliances. The question is really one of comparing the cost per mile (or year) of ownership, and there can be huge variances depending upon the brand and type (some boats due to reputation and current popularity will maintain a higher proportion of their initial purchase price), whether one buys new or used, if used the condition of the vessel, whether someone is capable of doing (or even enjoys doing ) anything more than routine maintenance, etc., etc.

In the past I was able to sell a couple of boats for more than my intial purchase price; however, as has been pointed out, they did not really 'appreciate' due to the capital expenditures (improvements), current expenditures (maintenance etc.) and the reduced buying power at the time of resale due to inflation.

Predicting resale values today in terms of real dollars (or buying power) will be extremely tricky. The best suggestion is to move towards a larger rather than smaller boat (40 feet and up, as that has been the direction of the market for decades), one that requires little in the way of capital expenditures (structural repairs, engines, sails, rigging etc. are all very expensive) and a design that is becoming more, rather than less popular (ie, catamarans, either power or sail, deck saloon monohulls, trawlers etc.). Even then, of course, the question is not 'if' you are going to lose money, but how much in relation to the use and enjoyment that will be derived from ownership.

Brad
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Old 21-04-2009, 13:47   #11
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I think realistically, you just need to look at what the market actually did. Did the $89000 boat sell? Are most the boats like yours listed at + or - the same amount? FIgure 20-30% less than that for a sale. generally, used boats dont seem to depreciate much as far as the "asking price". Probably because of the higher cost of building new boats. So we arent theorizing here...Examples: (look on line) Hans Christian 38's are still listed at $120K to $160K, the common price for 10 years has been about $135k. I figure no depreciation in the asking price. Another example is the waquiez 43 Amphitrite. In 1989 when I tried to buy one the price was $135k, I havent looked today, but last I looked they were only slightly less than that. However, the above is asking price. Then you have to factor in how popular the boat is, the current market conditions and perceived condition of the boat. Hans Christians tend to sell for a lot less than the asking price because of all the teak and aged design. etc.
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Old 21-04-2009, 17:35   #12
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Defjef’s question has been asked before, which doesn’t make it less important to him, but it’s all a bit academic isn’t it, especially in this volatile marketplace?
One can find a vast difference in asking price between the same make and year of any model, reflecting different conditions and specifications. So if you look after your boat and even improve it, there is a fair chance you will sell it for more than the fellow who doesn’t. ‘Resale value’ is simply what any buyer is prepared to pay. There is no way depreciation on a given model can be ‘computed’, against all these variables. You just have to decide what your want to pay, or what you are prepared to sell for, and get on with it.
If anyone tries to compute into the equation what it’s going to be worth in ten years, then bases their decision on that, I think they shouldn’t be buying a boat.
What about usage and enjoyment? Shouldn’t they also be included in the equation? My first boat was a forty foot Endurance in ferro cement, which everyone said would rapidly go down in value, because everyone was suspicious of ferro at that time. I bought it because it was the best specification and condition for my needs. We lived on it six years, had fabulous adventures, and sold it for as much as we paid for it, which I considered to be a real ‘appreciation.’
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Old 22-04-2009, 09:21   #13
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yea, once you start crunching numbers like an accountant boats wont make sense.. on paper you loose the income from the money you paid for the boat instead of having it invested. On the other hand, intoday's world... if you bought a boat for 100k 3 years ago , it's probably still worth that and if you had that 100k in mutual funds it would be worth about 60k now!
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Old 23-04-2009, 14:05   #14
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My father in law sold his 20 year old sloop for what he bought it for new. He was the original owner and of course kept the boat in good condition. They sailed the Great Lakes for 9 years and the Caribbean for 11.

I think if you have a quality boat and maintain it depreciation is not really a factor. Remember the price of new boat continues to escalate. That new 40 footer today selling for $400k may have been purchased 20 years ago for $130k and today that same 20 year old 40 footer still sells for $130k.

We'll see when we go to sell out boat but were very happy to see a sister ship go on the market for a price that is well above our purchse price.
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Old 23-04-2009, 14:58   #15
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I guess we need to clarify terms. Take homes for instance, typically they appreciate at a value equal to inflation (and are now coming down to their historic norms). So in constant dollars (inflation adjusted), a house price stays the same. Boats however do typically a rapid depreciation in the first few years (if you could afford new, how much of a discount would you need to look at a used boat, typically it's around 20%). After that fast depreciation they then tend to stay the same price in absolute dollars (not constant or inflation adjusted dollars). So take a PDQ 36 which new would have sold in 1998 around 186,000. I'd expect that boat to be sold now, you guess it, $166,000 - 186,000. That's again non inflation adjusted dollars. I've looked at 30 and 40 year old boats and see about the same thing, that its selling for now the same asking price it did back then. Of course, the buying power of that dollar is now far less. So what does that all mean? Probably an immediate devaluation of 20% and then around 5% a year.

The two biggest mistakes you can make financially with a boat is to pay too much up front, and then to not keep it up.
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