Boat financing help

[scarlet]

Originally Posted by iSaint

The link I supplied goes straight to the rate table for live aboard loans.

Ahhhh Got it!! thank you. Their rates look great. This was really helpful. Thank you!

[The Good Life]

I love the "old school folks" that think financing is a silly option. I half several properties with about half leveraged and if I deem my 27 Catalina not sufficient I have no problem financing a big ticket boat. Math is math, if the OP crunched numbers give him the benefit of the doubt. If I waited to have cash to make my purchases thus far my net worth would be 200k-400k less, it's not the 1930's! Lol


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[scarlet]

Originally Posted by The Good Life

I love the "old school folks" that think financing is a silly option. I half several properties with about half leveraged and if I deem my 27 Catalina not sufficient I have no problem financing a big ticket boat. Math is math, if the OP crunched numbers give him the benefit of the doubt. If I waited to have cash to make my purchases thus far my net worth would be 200k-400k less, it's not the 1930's! Lol


Sent from my iPhone using Cruisers Sailing Forum

Thanks for saying this. Sometimes people equate "financing something" with not having the money to pay for it. That's not true. The richest men on the planet, finance their acquisitions regularly even though they have plenty of cash. Why? because it makes financial sense to do so.

Why does it make financial sense? They get tax deductions on the interest, essentially decreasing the interest rate even further. They get to keep their money in investments which actually have a chance to make money for them... Their assets are protected by insurance in case of loss, and in a worst case scenario, They have easy access to their own money.

Don't believe me? run numbers. If you aren't good with numbers, find someone who is, and have them run the numbers. Look at cost of the boat... interest rates, tax deductions, depreciation of asset, investment history.. and amortize those numbers over the length you plan on owning the boat. In our case, even if our investments only made 2%, with the tax deductions on the interest, we still came out ahead.

Lets face it... living life costs money. But, managing your money is not all black and white. It's multi-dimensional. Money isn't just a limited resource, it's a tool. So, learn how to use it to your advantage.

[scarlet]

Here is some simple math for you:

scenario 1

$400,000 boat.. pay cash
$200,000 resale after 10 years
Cost of ownership is $200,000

scenario 2
$400,000 boat
$100,000 down payment
$300,000 finance at 4%
$300,000 of own cash stays in investments, and lets say you get 5% return
$200,000 resale after 10 years.

totals?
including $100,000 down, principal and interest, you would have a total of payments of $319,368 sell your boat after 10 years for $200,000 (consistent with the example above) and you would walk away with $21,662 in your pocket.

The $300,000 (of your own money) that you kept in investments with a 5% return over 10 years would now be worth $488,668. you MADE $188,668 on your investment over that 10 years!

So..
$400,000 (price of boat)
319,368 (total of payments)
- 21,622 (money in your pocket after you sell)
- 188,668 (money you made off of investments)
109,038 total cost of ownership NOT including tax credits...

No brainer...

[2Hulls]

Hi Scarlet - I financed my boat and attempted to re-fi recently (more on that below). Financing make sense for some folks and it worked for me. I'm doing better than the loan interest rate with my investments and can deduct the loan interest as boats can qualify as a second home from US income taxes. I have no regrets.

The Annapolis Boat Show isn't that far off and if you're planning to attend you'll get a opportunity to talk to a slew of lenders and lender brokers who are always there. That's where I started.

Fortunately, I didn't have to originally contend with the "live aboard" issue as I have a primary shore side residence. But this did bite me recently as I attempted to refinance to a lower rate. I was all set to secure a new loan at a lower rate with no term extension and was approved - just sign these papers. Reading the fine print the bank (Suntrust - who promotes marine lending) imposed navigation restrictions to US waters and prohibited the boat to be used as a "dwelling." Both were show stoppers for me and I proposed alternative language, including replacing "dwelling" with "primary residence" and the bank refused. I even spoke to a decision maker explaining that my boat has a galley, berths, and heads - how can you expect that it NOT be used as a "dwelling"? Needless to say I backed out.

Good luck,
Dave

[ol1970]

[QUOTE=The Good Life;1881585]I love the "old school folks" that think financing is a silly option. I half several properties with about half leveraged and if I deem my 27 Catalina not sufficient I have no problem financing a big ticket boat. Math is math, if the OP crunched numbers give him the benefit of the doubt. If I waited to have cash to make my purchases thus far my net worth would be 200k-400k less, it's not the 1930's! Lol QUOTE]

I don't think it is so much "old school folks" as it is "keeping life simple folks". There is no doubt that statistically speaking it is easy to "prove" the prudent financial thing to do is finance. Personally I think when you get to a point of financial independence if you are trying to squeeze every last percent out of your money you create more worries in your life than its worth...if $10-15k year affects your lifestyle I would do it I suppose if that means you can get out on the water. I like how Dave Ramsey puts it "if your house was paid off...would you go get a mortgage on it to buy into other investments?" A ton of people would...and do.

[scarlet]

Originally Posted by 2Hulls

The Annapolis Boat Show isn't that far off and if you're planning to attend you'll get a opportunity to talk to a slew of lenders and lender brokers who are always there. That's where I started.

Fortunately, I didn't have to originally contend with the "live aboard" issue as I have a primary shore side residence. But this did bite me recently as I attempted to refinance to a lower rate. I was all set to secure a new loan at a lower rate with no term extension and was approved - just sign these papers. Reading the fine print the bank (Suntrust - who promotes marine lending) imposed navigation restrictions to US waters and prohibited the boat to be used as a "dwelling." Both were show stoppers for me and I proposed alternative language, including replacing "dwelling" with "primary residence" and the bank refused. I even spoke to a decision maker explaining that my boat has a galley, berths, and heads - how can you expect that it NOT be used as a "dwelling"? Needless to say I backed out.

Good luck,
Dave

Hi Dave!

First off, are you going to Annapolis? We are already locked and loaded. fights booked, hotel booked. We even signed up for "couples take the wheel" so we can take a couple of cats out. If you think you are going to be there.. I'd love to get together for dinner.

As for the loan issue. Just keep looking. Dearmst, above, recommended Essex. I've reached out to them.. but based on reading their website info.. they do lend to live-a-boards. I'm not sure about the international waters issue, though. I'm waiting to hear back from them. They also do refinance, and I think their rates look pretty good. (comparable to mortgages) I think it is a good suggestion you made about checking at Annapolis. You have a captive audience there of lenders.. so, you could have all of your questions answered. I think you, (and us) would be better seeking out a lender who specializes in marine loans. I know that I checked with our normal lending companies, (pen fed, USAA, USbank, etc) and whilst they were happy to lend us money, and stiff requirements for their boat loans. Where as a specialized marine lender, (like Essex) would treat our situation differently, you would presume.

If you learn anything with any other lender.. drop me a quick note.

Oh, and don't forget about Annapolis. Love to hook up!

[2Hulls]

Hi Scarlet - I live in Virginia and have been going to the Annapolis Show since the Carter administration - so I commute from home and don't stay around for dinner. But I usually arrange to meet friends on the roof for a burger and beer for lunch. Monday is my favorite day, but if the weather is crappy I go on Friday as well. Only if the weather is really crappy do I ever go on Saturday or Sunday - too many people otherwise.

I have decided not to pursue refinancing any further as the rates have crept up to not make it beneficial for me any longer.

Dave

[Rohan]

Originally Posted by scarlet

I've been making some calls, and I've hit a few walls, i.e. won't finance if it will be your primary residence, or, (this one will make you laugh), they will do $350,000+ if it is a monohull, but it must be under $100,000 if it is a multihull.. REALLY?!?

Wow, does anyone have an explanation for that? Do the loan companies think multihulls are inherently more dangerous?

[Rohan]

Originally Posted by scarlet

Here is some simple math for you:

scenario 1

$400,000 boat.. pay cash
$200,000 resale after 10 years
Cost of ownership is $200,000

scenario 2
$400,000 boat
$100,000 down payment
$300,000 finance at 4%
$300,000 of own cash stays in investments, and lets say you get 5% return
$200,000 resale after 10 years.

totals?
including $100,000 down, principal and interest, you would have a total of payments of $319,368 sell your boat after 10 years for $200,000 (consistent with the example above) and you would walk away with $21,662 in your pocket.

The $300,000 (of your own money) that you kept in investments with a 5% return over 10 years would now be worth $488,668. you MADE $188,668 on your investment over that 10 years!

Yes... UNLESS the market undergoes another "correction" putting you years behind in investments. Eventually the markets always recover, but do you have time? A lot of people who buy boats are seniors, and they are not necessarily looking for 10-20 year investments.

Also, you may not be able to tie up all your money. That $300,000 boat loan might make it harder to get other loans. But I assume that owning that $400,000 boat free and clear can be used as collateral on another loan.

[monte]

Originally Posted by scarlet

Here is some simple math for you:

scenario 1

$400,000 boat.. pay cash
$200,000 resale after 10 years
Cost of ownership is $200,000

scenario 2
$400,000 boat
$100,000 down payment
$300,000 finance at 4%
$300,000 of own cash stays in investments, and lets say you get 5% return
$200,000 resale after 10 years.

totals?
including $100,000 down, principal and interest, you would have a total of payments of $319,368 sell your boat after 10 years for $200,000 (consistent with the example above) and you would walk away with $21,662 in your pocket.

The $300,000 (of your own money) that you kept in investments with a 5% return over 10 years would now be worth $488,668. you MADE $188,668 on your investment over that 10 years!

So..
$400,000 (price of boat)
319,368 (total of payments)
- 21,622 (money in your pocket after you sell)
- 188,668 (money you made off of investments)
109,038 total cost of ownership NOT including tax credits...

No brainer...

I don't know but shouldn't that read more like:

totals?
including $100,000 down, principal (300K) and interest (65K), you would have a total of payments of 465K

or to put it in simpler terms, your talking about a difference of 1% on a 300K loan over 10 years, which is around 15K saving, maybe, if things go to plan (which they always do when it comes to boats and finance )
No Brainer...maybe..

[RELENTLESS 1]

Consistent with the above scenario we have been 'saving' through our Real Estate acquisitions for the last 10 years. We have kept our regular income to live off of and all income from the properties has gone into a new acquisition or principal pay-down.

Within the next 3 years we are going to be buying a Cat - 45-50' - and plan to cruise 6-8 months/ year for the next 5 years. Most likely new (or one year old) as we would like to spend more time cruising and less time fixing - though I am handy, I am not proficient!

Since I have one property paid off and significant equity in others I will have the freedom to refinance an 'appreciating' and 'cash flow' asset to purchase the dream boat. In my thinking I am not 'beholden' to 'live-aboard', 'off-shore' bank rules. I can minimize my 'depreciation loss' with the aforementioned appreciation and cash flow - and I still have assets at the end of the day.

As an added note - several of the properties have long term leases where the Tenant takes care of all expenses - I receive a direct deposit check and the bank will draft the payment directly from the account.

I do this for a living (aka RE Broker) and would be glad to discuss with anyone to help them think this through - BTW low yield 401K's can buy Real Estate - though your stock broker will never tell you this! PM me with any questions.

[zboss]

Originally Posted by The Good Life

I love the "old school folks" that think financing is a silly option. I half several properties with about half leveraged and if I deem my 27 Catalina not sufficient I have no problem financing a big ticket boat. Math is math, if the OP crunched numbers give him the benefit of the doubt. If I waited to have cash to make my purchases thus far my net worth would be 200k-400k less, it's not the 1930's! Lol


Sent from my iPhone using Cruisers Sailing Forum

I don't think its old school. I think it has more to do with an attitude of living a simpler life. Its about not having to worry about mortgages at all, about not worrying if the insurance will pay out at all... about putting your finances in cruise control and letting go of the materialistic world that USA suburban living presents.

One thing I have not seen is to how to deal with the 40 to 60 thousand a year in maintenance expenses on a brand new 500K boat. I've found that the 10% a year thing is pretty accurate so far. I assume you are going to want to keep the boat looking pretty and acting well.

Or how much is needed to get that 500K boat fit enough for cruising offshore. Solar panels, wind generators, watermaker, engine spare parts, proper ground tackle, ssb, etc. Outfitting can add another 25% to the cost of the boat, depending on your needs I guess. I suppose less % if the boat is more expensive.

Those are two pretty expensive line items to be left off a budget.

[Stu Jackson]

There was an extensive discussion on just this very topic within the past three months. I do not recall what sub-forum it was in. Steady Hand, a frequent contributor to these forums often writes about how to use the built in Google search engine. I recommend you do so. I'd start with boat financing, and boat financing liveaboards. Good luck. It really was a helpful discussion.

[2Hulls]

Originally Posted by zboss

I've found that the 10% a year thing is pretty accurate so far.

It hasn't been for me. After almost nine years of ownership - buying a 5 year old boat - all of my expenses except mortgage have averaged 6%/year. That's maintenance, upgrades, operating costs, insurance and dockage/storage/hauling, etc. Even customs and immigration fees. If you stay away from marinas and do your own work you can get by for WAY less than 10% per year.

Dave