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Old 03-08-2015, 12:06   #31
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Re: Boat financing help

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Originally Posted by 2Hulls View Post
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
I always like to see that - I'm just not good enough to be there yet. Hopefully I'll be able to get the experience necessary to be there in a few years time.

However, that's still 6% they did not build into their estimate. Thats a lot of money on a 400,000 boat - $240,000 over 10 years.

I'm in the camp, right or wrong in some people eyes, that unless you are sitting on a couple million in cash you should not be out buying a $500K boat. I'm in the "Cash is King" crowd. To some people like the OP, 'cash is king' means keeping cash around but to me it is being wealthy enough to pay cash for everything. I have an extreme dislike of paying interest to a bank to get tax money back. Seems to me like the government should be paying me interest for borrowing my money for 12 months.
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Old 03-08-2015, 12:23   #32
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Re: Boat financing help

My current loan is with Suntrust and I don't remember anything about is/no on live aboard. I did my loan though Boat US and let them go find a lender for me.

Far as a live aboard, far as I'm considered if you currently have a land address you aren't financing a live aboard. All the bank cares about later is that you have insurance and are making your payments.
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Old 03-08-2015, 13:01   #33
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Re: Boat financing help

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Originally Posted by Stu Jackson View Post
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.
I think this might be the thread you are referring to, Stu.

I am being told that Liveaboard Boats loans are now impossible
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Old 03-08-2015, 14:29   #34
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Re: Boat financing help

B of A did a really good job financing our boat at 3.75% this time last year. They required 20% down and it's a 20 year term structured as a mortgage. We financed $198K of $248K with them. This was for new boats however. I'm not sure what a used boat program looks like for them.

There were no live aboard stipulations of any sort.

At that cost of money, it didn't make sense for us to pull cash out of our investments either.

There's a silly disconnect in this discussion about financing: Financing isn't the same thing as going into debt. Debt is finance beyond your ability to repay. I wouldn't go into debt for a boat, but I also would dump a lot of cash into a boat either unless there was some unusual reason why I couldn't get a decent rate on a loan.

As for finance vs. cash, finance makes sense when you're capital is earning more than the loan price, and doesn't when it doesn't. It's that simple. If you've got investments making you an average of 5% per year and a loan that costs you 3.75%, get the loan and pocket the 1.25% on your capital. You don't have to do a lot of analysis unless the numbers are very close, and in that case it doesn't actually matter much which way you go.

If your investments slow down to 2% and you don't feel they'll recover in the short term, pay off the boat.

To me, that's pretty simple.

I agree with the sentiment that you shouldn't buy any luxury item you cannot afford to pay off immediately.

I only into debt for things that make me money: Tools (car, home, business equipment, and business lines of credit for growth), never for luxuries.

If your boat is your primary residence, that's a necessity that is worthwhile to go into debt for.
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Old 04-08-2015, 08:52   #35
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Re: Boat financing help

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There's a silly disconnect in this discussion about financing: Financing isn't the same thing as going into debt. Debt is finance beyond your ability to repay.

If your boat is your primary residence, that's a necessity that is worthwhile to go into debt for.
thank you.. you said this brilliantly!
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Old 05-08-2015, 01:06   #36
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Re: Boat financing help

Just hedge your bet and finance half of it. That way you'll always be somewhat right. Ha!


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Old 05-08-2015, 18:03   #37
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Re: Boat financing help

Try a local credit union.


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Old 06-08-2015, 01:43   #38
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Re: Boat financing help

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As for finance vs. cash, finance makes sense when you're capital is earning more than the loan price, and doesn't when it doesn't. It's that simple. If you've got investments making you an average of 5% per year and a loan that costs you 3.75%, get the loan and pocket the 1.25% on your capital. You don't have to do a lot of analysis unless the numbers are very close, and in that case it doesn't actually matter much which way you go.
I hear what you are saying - I really do... but we are in the camp that believes that its better to buy a 80K boat with cash, rather than a 500K boat with a loan, and let 100% of your money make 5% and not give anything away.

If you really want to borrow money because money is cheap then do so and turn around and reinvest it in an appreciating asset, not a boat! Take out loans to buy things that appreciate in value, pay cash for items that depreciate in value.

Let's face it this discussion has nothing to do with actual financing, its about the desire for a fancy boat. If you really want to own a fancy boat go buy a fancy boat because you like it not because it makes financial sense, which I don't believe is ever the case.

Boat are a horrible investment proposition. The first time you crash that new boat against the dock you are going to crap your pants. Every time you drop a heavy wrench on the deck and chip it, you will freak.

Its just not worth the stress IMO. I freak out when I drop that wrench on my 80K boat because I know how much work it takes to upkeep. I cannot imagine the work needed to upkeep a 500K brand new boat.

My 80K boat is going to get my wife and I around the world just as well as that 250K or 400K boat does and in plenty of comfort.

FWIW, we went down the same thought process as you but in the end we decided we would rather have cash on hand in a Vanguard account and not really bother with a boat loan... it's just another thing that binds us to the suburban way of thinking, which we have rejected.
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Old 09-08-2015, 00:03   #39
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Boat financing help

Wait wait--I'm not saying finance something you can't (or don't want to) afford. Financing is not an excuse for living above your means, it's just a tool. I'm talking about financing an $80K boat or paying cash for an $80K boat, not deluding yourself into thinking that just because you can afford a payment means that a boat is an investment.

It's a toy, or maybe a home. As the first, you should be able to pay cash whether or not you do. As the second, it is worthwhile to finance what you need because it eliminates another, higher cost: the cost of rent or a house payment. But you do have to understand that it's not like real-estate.

House structures do not appreciate. The real-estate they are sitting on appreciates. Boats aren't sitting on real estate, and so they aren't an investment.

I guess a lot of people equate financing with debt. It's not. It's just a financial tool like your vanguard account is a financial tool.

You also have to consider the cost of not keeping your cash in the market. Consider this scenario: $100,000 boat. You have the option to take a 10% loan out for a 20 year period structured as a mortgage, and keep your cash in a vanguard account making 5%, or take the money out and pay cash. What should you do?

Take the loan and keep the investment. You'll be ahead by $25k in the end vs. paying cash--and that's a whopping 25% of the original 100K value. Take those numbers and run them in the mortgage calculator and future value computer of your choice to see the truth.

The fact is that financing usually makes financial sense even if you have the cash to put down, unless you simply have no performing investments whatsoever or interest rates are absurdly high.


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Old 09-08-2015, 01:32   #40
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Re: Boat financing help

Essex Credit approved a loan for us in April 2015- 51' liveaboard catamaran.

They offered us the interest rate shown on the website in February when we started the loan process (4.59%) but wanted a substantial down payment (more than 40% and it took a lot of negotiating to get it that low) because of the unique character of the Brazzapi we were buying and their concern about resale if we defaulted.

We did not get the boat because we took to long to make our best and final offer. Someone else made the same offer we would have made but did so 36-hours before us.

We are currently working with Essex on another catamaran liveaboard purchase in the price range you describe. 4.69% 25% down ( it is a brand name high end production boat) and 15-years.

Another lender who is trying to get our business is Intercoastal Financial Group - Fort Pierce, FL Gerald L Kraaz. They have pretty aggressive rates and terms.

Someone mentioned they got a loan from BofA - that is odd because we have a very long history of big house, boat, and car loans with BofA during the last 40-years. Our current boat was financed with BofA. I called BofA and asked about another boat loan, in late January 2015, and was told they are not doing boat loans at this time.

Trying to explain the merits of finance when your investments earn multiples of your loan interest rate is futile. Those who understand the issue and have the personality to take on a big loan will do it. Some people understand the merits but do not like the idea of owing money (my brilliant sister who has been buying gold for 20-years) and will never do anything except pay cash.

I have many very detailed and complex spreadsheets to show the financial advantage, over a 20-year period, of borrowing money. Those sheets can model any economic, and financial situation and there are very few where it is not advantageous to finance major purchases.

Another difficulty is that some folks can not believe it is possible to sustain long term net gains of more than 10% in the stock and bond market. We have done so since 1980 and continue to do so, when averaged over at least 10-years. But, that is a reality that some cannot accept.

Good luck with your financing.
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Old 20-08-2015, 11:54   #41
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Re: Boat financing help

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Originally Posted by scarlet View Post
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 applaud your thinking here because I am planning to do the same. Having a real estate investment background, I know I can buy an apartment building at 10% Cap. If I buy that building all cash, the net income will off-set the financing and maybe other boat expenses.

In your example, if amortized for 10 years your payments (not including insurance & boat maintenance) would be a little over $3k/month ($36k/yr). And if your building is giving you 10% ROI yearly then you've just covered 83% of your boat financing.

I figured, a boat is a depreciating asset and a cash flow drain so it doesn't make sense for me to buy it in cash. So why not acquire an appreciating and cash flowing asset and use the cash flow to cover my costs for the boat.
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Old 20-08-2015, 12:01   #42
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Re: Boat financing help

If you get a 10% ROI with Real Estate, your doing very well.
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Old 20-08-2015, 12:27   #43
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Re: Boat financing help

And your 4% interest paid on the boat mortgage is a tax deduction (if you itemize). I would assume anyone buying a $400,000 boat is in the 25% Federal bracket so that real interest rate is only 3%.

And... if you are in an income tax state, e.g. California, you're probably in a 8% state tax bracket and can deduct another 0.32% interest which gets your effective interest rate down to 2.68%.

You are going to pay that money to either the State/Feds or the bank so why not do something that helps yourself and finance the boat?

It is hard to understand why anyone would pay all cash for an expensive boat.
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Old 20-08-2015, 12:35   #44
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Re: Boat financing help

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.[/QUOTE]

These costs are there whether the op finances or pays cash for the boat, so are irrelevant to the argument.

A similar situation, my parents just bought a new car. They were offered 0% financing for 5 year's. They have the money but why spend it when it's earning interest in investments. If the loan interest is lower than the investment interest, it's a logical choice.
Can you use your investments as collateral? Then it's not a boat loan, it's a secured loan. Usually interest rates are lower that way.
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Old 20-08-2015, 14:51   #45
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Re: Boat financing help

Good discussion.

btw.. I talked with another finance broker yesterday, who works with a couple dozen banks, and he also reconfirmed that they will do a loan for a live-a-board but recommended that we do a couple of things...
1. buy the boat before we sell our house. this isn't because a bank won't finance a live-a-board.. it is more about the actual loan process, rates, etc. it is less hoops, and better rates (generally) than if you do it when you don't have your own home.
2. buy before my husband retires from the Military. Even though he is going to continue working, in a similar capacity job... the fact that he would be in a new job, would probably delay the approval process while we prove new job history.
3. Go in with an exit strategy.

So, I wanted to talk about that a little bit. It has always been in my strategy as we've started to navigate this whole process, but he interjected somethings I haven't thought about.

We have always considered the "re-sale-ability" of the boat. And according to him, and our broker, staying with the big manufacturers is a good idea because they sell faster, and generally maintain their value (based on the assumption you've taken care of your boat).

We've also always kept in mind purchase price, depreciation, and resell value. I've read here, in several posts, that Cats rarely depreciate more than 50%-60% of their original purchase price, new. So, a boat, that's $500,000 new... even after 20 years, in good shape, would probably not go much below $200,000-250,000. So, based on that... you can get a fairly good estimate of how much your used boat might go for when you want to sell it. NOT completely accurate, but at least it gets you in the ballpark

Also figure your loan structure, so that you don't end up owing money at the time you sell your boat. Most boat loans require 20% down.. and terms which make sure you don't get upside down. but, still... give yourself a little wiggle room.

The other factor is age of boat. The finance guy yesterday told me that once a boat is 15 years old.. the potential buyers are drastically reduced. (most buyers want a boat newer than that) AND, if it is 20 years old.. your chance of reselling is very slim. Especially a cat because of how expensive they are. he wasn't aware of any finance companies that would finance a boat older than 20 years.

so, what does that mean? if you plan on owning a boat 10 years... it is best to buy a boat 5 years old or less. (ONLY in terms of selling it down the road). if you plan on living on a boat 20 years... probably best to buy, sell, and buy a new one 8 to 10 years down the line.

YES, there is no denying it... Boats depreciate.. a LOT. Finance, don't finance.. buy new, buy used. we can argue that until we are blue in the face. In the end, there is only 1 number that truly costs.. and that is "cost of ownership".
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