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Old 28-12-2006, 11:16   #1
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Economics of putting your cat in Charter?

What are the economics of putting your cat in charter when your not using it? Do you actually make a profit or is it just enough to pay for loan payments and insurance?
The last charter I was on had a lot of scars. The interior wood had minor and deep scratches, the sheets were all showing signs of wear, the electronics were starting to have problems. The hull had some scraps from hitting docks. Just all the problems you get from heavy use, but this boat was supposedly 6 months old. Although I would say it was 1 to 2 years old.
Also, when I was in Tortolla last, there were a lot of Cats in the charter fleet not being chartered. So the amount you get each month would most likely not be very deterministic.
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Old 28-12-2006, 13:51   #2
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Old 28-12-2006, 14:00   #3
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Limpet, ask yourself this:
What's the difference between a charter company supplying their own boats, and a charter company using YOUR boat?

If chartering was SO profitable...wouldn't it be easy for them to raise the capital and keep all the profits?

For you, as an owner, the question of whether it is profitable depends on your tax situation and the charter company. IF they are very well run, if thye screen their clients, if they have good locations and a good maintenance operations, if they advertise and keep your boat busy but well-maintained...maybe you make a profit, before taxes.

For folks in a certain income bracket, putting their boat (and the same thing applies to private planes) into charter service can make good tax sense regardless of the profits. You put the boat (and the investment) into the "business" category, the business absorbs all the costs (and hopefully generates SOME profit, even if slim, because the IRS requires profit in 3 out of 5 years or they may declare it to be a hobby) and you, as the owner, still get to use owner's perogative and/or charter the boat from the company yourself when to want to use it. If you charter it at book rate, you're effectively paying yourself, so you still come out ahead.

Wear and tear? Big Yes. Some charter companies will contract for a five-year period and then commit to a major refit before returning the boat. Others don't. Bottom line is that you need to speak to your tax accountant/attorney, and specific charter companies, to see specific numbers. If you don't have your own "tax man"...this probably isn't the investment route for you anyway. (Or, you may be moving up.<G>)
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Old 28-12-2006, 14:06   #4
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We looked at chartering Makai or just buying it new and it worked out financially to be no real great advantage.

After spending a few years in the Caribe and seeing the way charter boats are operated and how they are used I am glad our boat never had to be treated the way we saw most boats being treated. Operating treatment included, full throttle to reverse throttle especally when anchoring, lots of jibs, groundings, and actually saw several occasions of boats hitting others.

This is on top of the the day in and day out use. Charter boats rarely sit when chartered. They are always rushing from one location to the next, so the time of the engines is greater. While cruising we would sit for weeks without starting and engine.

We had several friends that have had their boat in charter or bought boats out of charter and have had to deal with high levels of wear and tear, including replacing outdrive legs, engines, sails, etc. Very few said they would ever go that route again and some had their boats with the good companies. I would hate to think of what is coming from the companies that are not the best a maintaining your boat!
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Old 28-12-2006, 18:02   #5
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Quote:
Originally Posted by delmarrey
Would you load your car out to someone you don't know?????
Not unless I had to, or I was profiting greatly from it.
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Old 28-12-2006, 18:07   #6
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Thanks for the comments. I suspected that this would be the case, but I wanted to hear it from those who have experienced it. I'm always up for keeping an open mind, even when I think I know the answer.

HelloSailer, I do have a "Tax guy" but I never rely on anyone for such an important subject such as taxes. I do a lot of the tax homework myself so I can minimize my taxes
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Old 28-12-2006, 18:20   #7
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We chartered out our boat (but I was the captain/plumber/deckhand/grocery boy and my wife the stew/chef/deckhand). This is a good way to make money if you can stand the whackos, working 24/7 and keeping the whackos from destroying your pride and joy.

If you lend your boat out to another company for them to charter it, you would lose profitability rapidly. Additional costs (to the charter company, which ultimately are out of the profits in general) are:

*Hiring a skipper
*Hiring any crew
*Provisioning
*Maintenance (if they do any)
*Fuel
*Marketing and Advertising
*Overhead (like phones, internet sites, employees to book the charters)
*etc.. etc...

What little is left of profit from a charter will first go to the charter company and then to you if there is any left over. Why would they pay you before they paid themselves?

The worst part of all? Your boat will be in the control of someone who does not care about it the same way you probably do. Even on a skippered charter, the skipper they hire won't likely give a rat's *ss if the guest gouges up your cabin sold with their heavy suitcase, so long as he's paid for his week out touring Mr and Mrs vacationer (and their 4 kids) around.

Bareboat service? I'm to scared to even imagine what kind of damage you'd have there. Think rental car...
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Old 29-12-2006, 06:54   #8
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If you already have a boat and you can afford to keep it to yourself, then, do so.

If like me you want a better boat than your pocket will allow ( or can be explained away to wife/whatever) then chartering can work.

My boat - which I couldn't possibly justify as a toy - has paid for itself every year so far AND given me enormous pleasure AND enabled me to fulfil my dream of crossing the Atlantic on a yacht.

Sure in an ideal world the income could be higher, the maintenance lower and the damage slightly less but it has been well worth the minor hassles.
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Old 29-12-2006, 10:31   #9
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Mike, if you'd pardon a crass question...

"My boat - which I couldn't possibly justify as a toy - has paid for itself every year so far "

Are you taking into account the whole finances, that is, the money you have been spending on the boat, and the profits from the boat, versus what you would have earned by taking all those same "boat bucks" and either putting them in bonds, or real estate, etc and then simpyl chartering a boat when you wanted one? Are you actually earning 7-10% or more on the money your boat is costing you, including the excess wear and tear and depreciation on the boat itself?

Don't mistake me for disbelieving, I'm only asking because I never know how closely someone is looking at a complete financial picture versus a short-term one.
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Old 29-12-2006, 11:36   #10
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I didn't actually put very much into the boat at all so wouldn't have earned much on it. I would certainly have paid more to charter a boat of this quality over the 4 years than I have spent. Depreciation is the only unknown. If I sold now I'd probably be behind but I have no intention of selling now or at any time in the next 5 years.

My original plan was to buy a 5 - 10 year old boat when I retire and go sailing. I then decided to buy a new boat, have some fun, have someone else pay for my fun and at the end of the charter period I will have a 5 - 10 year old boat that I already know and love.

Sure, if all you care about is making money, then you'll do it differently. However, having said that... If the Pound/Dollar relationship had remained the same as it was when I did the original figures I'd have been ahead even including depreciation!
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Old 30-12-2006, 20:31   #11
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Jeannius,

I like your thinking on this. I was thinking of buying a 2001-2003 Lagoon 410 or a Leopard 40-43, just because these are in my price range. But your plan is an interesting one. There is quite a bit of depreciation that occurs on a new boat. You can really see this in the 2000 and older boats. Personally I don't look at anything older than 2000 as a 19xx just has the perception of being "old", from last century

Which Charter firm did you go with? What issues have you had and what would you do differently?
Do you have any restrictions on who can charter your boat...for example, a certain certification level?
I was looking through some listings on-line and one owner that had his boat in charter said that as part of his charter agreement, the boat was to get a refit at the end of the charter term, and he was touting this as a plus for the new potential owner. Do you also have such an agreement? Is this common?

Thanks,
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Old 30-12-2006, 22:47   #12
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Hellosailor has intersting question about the oppurtunity cost (OC) of using the $ invested in the boat to make more money but I think that the OC of the money is an apples to oranges comparrison. Here is my logic. At a certain point some people have enough $. They want to by toys. If you can by a toy and have that toy pay for itself or even produce a loss that is offset against other income it can make more sense to buy your toy as an investment.

After all you can still play with it even though it is an investment.
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Old 31-12-2006, 00:10   #13
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Opportunity Cost

Opportunity cost.....
Lets say the boat costs $500K, and lets ignore insurance and other costs for now. Instead of buying the boat, the 500K is put into in a CD yielding 5.25% This would return $26.25K/year. Let's say that 30% goes to taxes, this leaves $18.4K. If a weeks charter costs $6.5K, then one could charter for almost 3 weeks a year....always on a relatively new boat.
So if you want to cruise for longer than 3 weeks, lets say 3 months, you want to own, if less than that, then chartering might be the right choice

The other advantage of not owning, is your not tied to a given location. You can charter in the BVI, then the Bahamas, then the south Pacific. Each time on a different boat, allowing you to test out a lagoon, then a Moorings, then a ....
Which actually brings up a question I have had...
If you own a condo, you can submit it to a condo service which then frees you to stay at any like condo in their condo ring. Your condo may be in Hawaii, but if another member has a similar condo in Bora Bora, you can stay at that condo. My quesition is, Is there a similar arrangement with charter boats. Perhaps with the Moorings, since they are so global.
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Old 31-12-2006, 01:44   #14
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Limpet...

Jeannius is with TMM in the BVI ( Privilege 43 spec )

On your other questions....

Basically there are two types of charter agreement. Sunsail and The Moorings ( now owned by the same parent ) run guaranteed income schemes ( or guaranteed loss as I think of them ) You buy the boat through them, to their specification (virtually no options) and they guarantee you a check of given size for the period of the agreement. I think the current agreement is around 13% of list price for the boat per year. This is a very good deal for Moorings/Sunsail as they probably pay no more than 50% of list to get their hands on a couple of hundred or so Jeanneau/Beneteau/Leopard and they then charge you full list. At the end of the charter they do have a refit but it is fix anything that's broken, sort out cosmetics to the hull type of refit. Not rebuild the engines, new suit of sails etc.. Both outfits are global and run programmes that enable you to use a similar boat to your own in another part of the world.

The other type of agreement is charter management. In this type there is no guaranteed income. You place your boat in a fleet, the charter company maintains it, organises charters, takes a cut off the top of the charter fees (usually around 25%) and sends the owner a check of variable amount - or sometimes an invoice - at the end of the month. Here, the boat owner specifies and purchases the boat - sometimes through the charter manager (TMM have agencies with a number of manufacturers) or, as in my case, directly with the manufacturer, Privilege. If you go to the 'Yacht Sales' tab on the TMM site you'll find a more detailed explanation of the agreement.

You don't have the simple process of using a boat in another part of the world that you do do with Sunsail/Moorings but TMM have several bases in the Caribbean and will arrange boat swaps with other owners. I have never bothered about that as I want to sail my own boat.


I don't know tax law in the US but, in the UK, this type of arrangement will be regarded as a business by the tax people provided you put some effort in yourself such as arranging charters directly. A guaranteed income scheme will not.

There are many charter management companies around the Caribbean all offering similar deals.

Issues... I 'talk' to quite a number of charter boat owners that are not in guaranteed income schemes and EVERYONE has the same issues regardless of the charter company... Maintenance charges too high... owner is paying for damage that should be down to the charterer... things like that.

I could spend hours going on about all this but... Bottom line... Would I do the same again? Yes.
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Old 31-12-2006, 05:38   #15
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I'd like to add a couple of extra perspectives. These are both economic reasons that attracted us to charter and the latter has a practicality bonus. This relates very much to our situation.

Our goal is to live aboard sometime around the end of this decade. In our case, our projected boat budget had us looking at a used boat but not too old.

What we opted to do was to buy a new boat well ahead of the product line being established. This brought immediate benefit in that there was an initial discount to attract early customers. Based on previous product lines, our guesstimate was that would save us 10% on the boat of the get go. We were of course taking on some risk that the boat would not be as good as her sisters. In the end our savings were north of 20%. That was benefit number 1.

Benefit number 2 comes from knowing where our boat is and having precise control over where and when we start our live aboard experience. This eliminates all the expense and hastle of finding and buying a used boat. getting to it (or getting it to us) at the right place and the right time. This is no small cost.

What we have is a boat we want, at a price we can afford with full control over when we move aboard with no future boat purchasing to worry about. Oh - and we have a "toy" to play with in between times.

Steve
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