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Old 18-10-2016, 08:31   #1
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5 year Charter Company Contracts good deal or not ?

Hello all....I am a new member here. *I posted this under another topic before I figured I could create a new one*Thanks ahead for help on this.



BLUF:

MY question to you is...do any of you have experience with making a charter agreement for a 5-6 year period? Is the boat worthless or in need of major upgrades/refit in order to make it a seaworthy live aboard?





My wife and I recently returned from our first visit to the boat show with renewed dreams of living aboard. *

The dream / plan, is to buy a cat (we like the new Lagoon 42), and live simpler by moving our family aboard and making our way slowly around the world.

We have a flexible 5 to 6 year plan laid out to take me to retirement while saving for our cat.



This was also our first encounter with charter companies. *

After discussing our 5-6 plan with all of them they all said “why don’t you buy a boat and put it into charter”



The deal they briefed ranged from 20% down with guaranteed 9% income for 5 years to the one we are interested in, 35% down with a balloon 25% payment at the end of 5 years, no income. *



I basically buy the boat for 60% of the initial cost. The charter company buys the rest (40%).



For this they get to charter my boat out, but are also paying for ALL expenses. I get to use the boat, 8 weeks a year.



After the agreed period...normally 5-6 years. The boat is mine to keep, for no extra costs.



MY question to you is...does any of you have experience with making a charter agreement for a 5-6 year period? Is the boat worthless or in need of major upgrades/refit in order to make it a seaworthy live aboard?



As you probably figured out, my plan is not to sell the boat afterwards. But use it as much as possible, which will hopefully be full time for a ~5 year period.



This Charter solution seems perfect for me right now. I get a boat for 60% ~ $300k +/-, I get to use it 8 weeks a year and the agreement I enter with the given charter company will end when I am ready to jump on the boat fulltime.



Is this a bad deal? Anyone out there with experience here.....?

To talk numbers I have a quote from a company at 570k for a charter ready lagoon 42 2017.

At the show I think they said I could get a cruise ready cat for around 460K so I have to look at the delta there a bit more. *Anyway the 60% of $570k (342k) or of the $460k (276k) bracket my budget for buying a cruising cat. *

I have not seen a 5 year old cruising cat for sale for less than 342k, so it seems like the charter program is a good deal.

Am I looking at this incorrectly, should I just save my 35% down and see what I can afford in 5 years?

What I have seen is for 342k I will not be able to find a 5 year old 42' lagoon cat!



Thanks again for any help.
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Old 18-10-2016, 09:22   #2
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Re: 5 year Charter Company Contracts good deal or not ?

Sort of a complicated question with a few different angles, but as a person a few years ahead of you in the process I'll chime in:

1) Strictly financially speaking. No. If it were financially a better deal the charter companies would buy the boats themselves. They are smart though and they are leveraging your capital investment.
2) It may make sense (admittedly I haven't done a deep dive into the math) if you and your family are truly going to sail 8 weeks a year. Even if you take 4 (2 week vacations) a year its expensive to get a family there and back that often and you have to throw those costs in. If your job and your family commitments allow for this much travel then its a nice way to spent a bunch of time with them and know your boat bow to stern when you do finally set off. Actually being able to use 40 weeks for a family not yet retired I imagine would be challenging.
3) You absolutely will be able to buy a Lagoon 42 that is coming out of 5 years of constant charter for less than the figure you quoted. Right now I'm able to find Lagoons that cost $100k + more initially for less than what your buyout would be. People will argue, and yes there are exceptions, but this is what I have found to be the case.
4) The really appealing part about the putting the boat into charter deal for me is being able to use those 8 weeks in different locations around the world. If your agreement is in a single location...no way that would be of interest to me and I'm sure your family would grow old of going to the same spot every year regardless of how amazing it is.
5) You have years to go before retiring and once committed to the boating lifestyle it is a hell of a lot more difficult to do the other fun vacations that might be on your bucket list. I'd suggest chartering a few weeks out of the year in different locations to hone your skills and keep everybody excited about it along with sprinkling in other fun vacation destinations not necessarily sailing.
6) I guarantee the boats coming out on the market will be spectacular and with features that will seem like must haves further depressing the used market. I'd still suggest getting used : )
7) In 5 years a hell of a lot in your life can change, actually count on wanting to do something different (of your wife or kids might not have the same idea). If in 5 years you still want to take the family sailing and they want to go too, it means you really are passionate about it and spending a little extra on something you love once you've reached financial independence is not a terrible thing if it fits the budget.
8) The only opinion that matters is yours and you only live once, but strictly by the numbers without getting too complicated the answer is no it will with a high degree of certainty not be a fiscally prudent move.

Good luck, go charter a bunch!
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Old 18-10-2016, 11:32   #3
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Re: 5 year Charter Company Contracts good deal or not ?

Having a modest financial background, whenever I think of putting anything into a charter fleet, whether boat or plane it boils down to one thing.

If it was a great deal, the companies would buy the boat/plane themselves and have it all.

Really, it is a great deal for the company doing the chartering, not the owners.

I have seen how people take care of items that they do not own. THEY DON'T CARE.
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Old 18-10-2016, 12:15   #4
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Re: 5 year Charter Company Contracts good deal or not ?

I've heard a number of people explain why they wouldn't do a charter-to-own.

I've not yet heard from someone who did complete a charter-to-own.

Do we have anyone who has completed a charter period?

What were your experiences? And your expectations going in?
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Old 18-10-2016, 12:49   #5
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Re: 5 year Charter Company Contracts good deal or not ?

You should take into account depreciation when doing your numbers. Boats generally depreciate about 30% in the first five years.
Also, once your five years are up, plan on a hefty bill to make the boat ready for cruising.
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Old 18-10-2016, 14:36   #6
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Re: 5 year Charter Company Contracts good deal or not ?

I have no knowledge on subject, but there's simple explanation why companies "not buying these boats themselves". I'm watching the market, and it's easy to see that it's not easy to sell 5 year-old boat even if price seems to be right. Many boats sitting on the market for months if not years.
So, when company finds someone willing to put brand new boat to charter, it simply sells 5-year boat at fair price in advance, eliminating selling hassle down the road completely! Great way to keep newer boats in the fleet!

And I agree with what other say - many things can happen in 5 years - plans changed, market changed, financial situation changed, etc, etc...But you still be obligated to buy 5-year old boat at the price you agreed 5 years ago. Yes, you can sell it then. But let's face it - you will lose money in that case for sure.
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Old 18-10-2016, 16:24   #7
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Re: 5 year Charter Company Contracts good deal or not ?

Quote:
Originally Posted by ol1970 View Post
Sort of a complicated question with a few different angles, but as a person a few years ahead of you in the process I'll chime in:

1) Strictly financially speaking. No. If it were financially a better deal the charter companies would buy the boats themselves. They are smart though and they are leveraging your capital investment.
2) It may make sense (admittedly I haven't done a deep dive into the math) if you and your family are truly going to sail 8 weeks a year.
These two capture the jest of the answer, at least from what I can tell from researching the question long ago. It only starts makes sense if you were going to charter the boat anyway. For what it's worth, I'm a CPA.
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Old 18-10-2016, 16:41   #8
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Re: 5 year Charter Company Contracts good deal or not ?

Another thing to consider is that equipping a boat for charter and equipping a boat for cruising are two very different things. If you want to charter a boat for a five+ years and then take ownership you'll have to figure in the cost of re-equipping the boat how you want it set up for cruising. (Especially if you go with a company like Moorings, which won't likely give you much choice in set-up, because they want consistency in their fleet, for user familiarity and ease of maintenance).

I've been very interested in doing what you're doing, and I've re-read every thread on here about it (Google is your friend) and I have incessantly pestered one member who has put a boat through charter. The end result (depending on finances) is that the best plan for me is to buy a used, non-charter boat that is set up pretty close to what I want. If I have the flexibility in my last five years or so of work, then I may buy a charter boat for the sole purpose of taking trips at a significantly discounted rate via owner usage. But only if I can use the full time allotted, with the intention of letting Moorings sell the boat at the end of the contract. Whatever "hit" I take after the sale will be the cost of my trips over the prior five years. If finances allow the other option would be to buy a boat new, set up how I want it, and charter it through a smaller charter company (that offers the flexibility to do this) for a year or two in order to offset initial purchase price, and write off depreciation at the same time, then take the boat out of charter and refinance it. That is more expensive, but it allows me to buy a new boat, set it up exactly how I want it, and not take as big a hit on initial depreciation. If you can do this, (and that's a massive if, I haven't had the chance to completely research this yet), it has some advantages. Buying through a charter brokerage can get you some discounts, so you'll save some money on the initial purchase, and using the charter income to pay the boat down for a year means you could potentially walk away with the exact boat you want, bought new, at 85% +/- of the "as new sail away" price, at the cost of a years worth of charter "wear and tear". If you factor in lower purchase price, writing off depreciation, selling your owners time (for a year) and charter income I think offsetting 15% or more of the purchase price is achievable.
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Old 18-10-2016, 17:31   #9
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Re: 5 year Charter Company Contracts good deal or not ?

Leszczynski you need to talk to your accountant. From what I've researched the charter contracts don't work on a stand alone cash basis. However if you can use the vessel's depreciation to offset taxable income you can come out ahead.
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Old 18-10-2016, 18:59   #10
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Re: 5 year Charter Company Contracts good deal or not ?

I owned a boat that was in charter of close to 5 years with the Moorings and then a couple more with Footloose.

My experience was similar to what you explained. In the end, about half the cost of the boat was covered by guaranteed income and I paid the other half. Insurance, maintenance and dockage were all covered by the company. I did have to pay a very small owner's fee each time I used the boat which included cleaning, fuel, dingy use, etc.

When I was in the program, the Moorings and Footloose each had slightly different standards regarding their guarantee of condition the boat would be turned over to the owner. I believe the Footloose standard was charter ready, and the Moorings was above that. When I went to take possession of the boat, I found some things wrong, but they fixed them at their expense. That boat was certainly in better shape than most boats I've seen for sale are. I sailed it from the BVIs back to the states with no refit at all - just added jacklines, spare parts, more tools, etc. Pots, pans, liferaft, even bedding and all the other things a charter boat has, were included. I did have fuel problems which I understand can be a fairly common problem with boats that have been sailed almost exclusively in protected charter areas.

I've also owned cruising boats not in charter and this was by far cheaper for me in the end but of course you are stuck with the cruising locations and time frame set forth by the company and base location, although I did trade time for other locations often. For some the charter like use suits their desires well, for others it's not such a good fit. I sure appreciated not being responsible for all the maintenance compared to other boats I've owned.

One thing I recommend (as above post mentions) is to talk to your tax advisor about the tax implications of declaring income and deducting depreciation. For me these were about a wash.

My only other advise is to crunch the numbers and be objective based on the alternatives you actually face. Make your decision based on what really makes sense given your alternatives, not generic arguments that may not fit your situation and alternatives.
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Old 18-10-2016, 21:33   #11
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Re: 5 year Charter Company Contracts good deal or not ?

I'm three years in on a five year charter program and so far fully enyoing. I can see only more benifts than hassels.
The boat is based in the town where I live, on a south pacific island where there are hundreds of spots to discover, all year around. I'm sailing 30-40 days a year + two or three weeks on another base. All this without any extra cost. I have no income but paid upfront a bit less than 50% of the value. The boat is fully equiped for liveaboard and offshore cruising. I will add some smaller personal extras when bail out and off I go, with a boat I know inside out, including maintenance and her history. I couldn't say that about my prevoius boats that I bought secondhanded.
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Old 19-10-2016, 01:00   #12
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Re: 5 year Charter Company Contracts good deal or not ?

It all depends on the charter company you are dealing with. People generally focus more on the yearly income, initial purchasing price which are important but the key is how you are going to find yr boat after 5 years.. Many companies save money on maintenance..
I see many comment questionning why the charter companies don't buy boats for themselves. Well, I have 4 boats and if I had more money, I would have bought more. The big charter companies have 100 to 1.000 boats in their fleet, it simply impossible to finance them.
Lastly, I urge you to check carefully the contracr, if possible with yr lawyer. These contracts are usually one sided , prepared by their lawyers and there might be some hidden items that you may overlook. Remember, in case of dispute there is no way you can win against them in any court case.


Good luck


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Old 19-10-2016, 06:53   #13
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Re: 5 year Charter Company Contracts good deal or not ?

Quote:
Originally Posted by Chablis 1 View Post
I'm three years in on a five year charter program and so far fully enyoing. I can see only more benifts than hassels.
The boat is based in the town where I live, on a south pacific island where there are hundreds of spots to discover, all year around. I'm sailing 30-40 days a year + two or three weeks on another base. All this without any extra cost. I have no income but paid upfront a bit less than 50% of the value. The boat is fully equiped for liveaboard and offshore cruising. I will add some smaller personal extras when bail out and off I go, with a boat I know inside out, including maintenance and her history. I couldn't say that about my prevoius boats that I bought secondhanded.
I really like this concept and is more of what I am leaning towards these days. One thing for the OP to consider is a hybrid type of lifestyle where you have a modest home/condo in paradise and then also get involved in a charter program. You'll be almost guaranteed to use your charter time allotted, you'll have a home base to come back to and recharge your batteries and have some land time to get excited about the next adventure. My guess is if you are the fun/courteous/helpful/social type, you'll probably be invited out along with friends as well and your time on the water will be as much as you choose to make it.

Yeloya, as a retired former small business owner I'm curious why you say if you had more money you'd have 100 boats in the charter fleet? If the margins were that good there shouldn't be an issue because they pay for themselves and banks would line up to finance you? Of course there are the other issues that go along with scaling a business up to that level (mostly the people headaches) but, I only ask because I've considered doing something similar on a small scale like yourself. I like the idea of simple, small, and manageable...what you are doing sounds kind of ideal. Doing something you enjoy & making a tidy profit along the way.
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Old 19-10-2016, 07:40   #14
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Re: 5 year Charter Company Contracts good deal or not ?

Quote:
Originally Posted by ol1970 View Post
Yeloya, as a retired former small business owner I'm curious why you say if you had more money you'd have 100 boats in the charter fleet? If the margins were that good there shouldn't be an issue because they pay for themselves and banks would line up to finance you? Of course there are the other issues that go along with scaling a business up to that level (mostly the people headaches) but, I only ask because I've considered doing something similar on a small scale like yourself. I like the idea of simple, small, and manageable...what you are doing sounds kind of ideal. Doing something you enjoy & making a tidy profit along the way.
There are 4 reasons; first the interest rates here are well above elsewhere running around 5-6 %. Secondly, I don't think it's wise to rely on banks when investing on a highly volatile business like charter. (that's why I don't understand how some companies can offer guranteed income) Thirdly, charter is a service business and you need a lot of good people which is difficult to get. Therefore, if you grow faster than you can grow yr people, you may run into trouble. And finally, at my age growing the business for making couple of more dollars is calling for troubles. The scale of economy is not high for this business, you can even run it with 8-10 boats and enjoy more.

Cheers

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Old 19-10-2016, 12:14   #15
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Re: 5 year Charter Company Contracts good deal or not ?

Thank you all for taking your time to chime in and provide some very useful information. I hope to continue to get more experienced input. I also really like Chablis 1’s plan. I will tell my wife about it.

Initially my main attraction to the charter contract was the ability to own, at the end of a 5 year contract, a 2017/2018 Lagoon 42 for ~ 60% of what a new one would be.
As it looks now about 350k would be my max budget for a cruise ready boat, I am shooting for closer to 250-300k. After I retire I will be bringing in 3-5k per month of retirement / rental property income. Can I keep my small family living aboard a lagoon 42 with that income? Maybe I should be looking at older boats?
I know ol1970 mentioned
Quote:
from ol1970 3) You absolutely will be able to buy a Lagoon 42 that is coming out of 5 years of constant charter for less than the figure you quoted. Right now I'm able to find Lagoons that cost $100k + more initially for less than what your buyout would be. People will argue, and yes there are exceptions, but this is what I have found to be the case.

I would have to ask is this really the case? Can I get a 5 year old 42’ cat that is near live aboard cruise ready for ~300k? I have not found any online.
If I am not as concerned with taking advantage of my 12 weeks per year, it seems I be better off saving up to drop 300K 5 years from now. That plan would afford me more flexibility than locking into a charter program now.

I also have another quote from a different charter company.
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