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Old 18-02-2014, 11:28   #1
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too good to be true?

when we were at boat show">Miami Boat show... we had a sit down with a guy who talked to us about buying a boat, and putting it into charter. He talked about tax credits (which were great if you were in the 39% tax bracket!!! which we aren't)... also about depreciation... and income. He made it sound sooo great.. like it would cost us practically nothing for our catamaran...

But, I'm always so suspicious of these things.... is it really as great as he said? anyone have any experience with this?
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Old 18-02-2014, 11:50   #2
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Re: too good to be true?

Short answer: Yes -- too good to be true.

There are several existing threads on here that discuss this topic. Might be worth a search. In a nutshell, the tax write-offs differ dramatically for "passive" vs "active" investments. Putting your boat into someone else's charter company where they do the work is a passive activity and does not provide much write-off opportunity. Running your own boat as a charter where you do all the work is an active business and can take advantage of additional tax write-offs.
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Old 18-02-2014, 13:01   #3
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Re: too good to be true?

If it's such a great money making scheme, why doesn't he just buy a couple dozen boats himself?

The reason: It is too good to be true.
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Old 18-02-2014, 14:00   #4
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Re: too good to be true?

Exact same thing is told about small airplanes, doesn't work though, seems all you get is your equipment abused and really depreciated value
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Old 18-02-2014, 14:40   #5
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Re: too good to be true?

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Originally Posted by valhalla360 View Post
If it's such a great money making scheme, why doesn't he just buy a couple dozen boats himself?
Say you want to open a charter base with 100 boats that cost $200K each.

Option A is you borrow $20,000,000 from a bank. Problem 1: No bank would loan you this money. Problem 2: If your business fails, and you need to close up shop, after you liquidate all the assets you would still be millions of dollars in debt.

Option B is you get other people to buy your boats. They are arranging the financing and if you need to close up shop, they are left with the debt. You can make it a good deal for them and still come out way ahead.

With most businesses, raising capitol is the greatest barrier to expansion.

I am not saying it is a good deal in this case, just explaining why it is done this way.
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Old 18-02-2014, 14:52   #6
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Re: too good to be true?

I think it depends on the boat, location and charter company.

If you have a popular boat that you can realistically expect to charter at a decent rate for a minimum of 100 days per year then the numbers probably work.

Depreciation aside, assuming you can get 60% of $500/day for a 36' catamaran charter for 100 days => $30000/year to cover all expenses including slip, financing, insurance, registration, maintenance, and repair as well as compensate you adequately for all the additional wear and tear on your baby, then it might work on a straight P&L basis and depreciation expense is gravy for those with enough income to benefit from it.

Lower the charter rate and/or the number of days chartered then not so much.

That said, our club has 80 boats in the charter fleet so it must be working on some level.
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Old 18-02-2014, 14:54   #7
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Re: too good to be true?

This question has been asked several times and I will answer from the other side of the table as I run a charter business..

First of all, to enter to this kind of agreement you should answer "yes" to all of the following questions;

-I have enough or almost enough cash to buy a boat, (don't rely on leasing or bank credits)
-I like sailing but cannot spare for more than a couple of weeks a year, for whatever the reason,
-chartering a boat for a week or two can be more sound financially, but I want to have my own boat (fully emotional..) and I may accept to lose money in the end.

Then, couple of suggesions;

-never commit yourself into long term contract. You should be able to leave if you are not happy with the bookings, overall income and the way yr boat is treated. If in turn the charter company requests the same rights, let it be. (that's why I said don't lock yrself to leasing or bank loans..)

-make sure that yr boat is serviced regularly and maintained at high standards. Many boat owners underestimate this fact and focuse on income side only. However, if yr boat turns out to wreck when charter agreement is over, regardless how much booking you received, you will be the loser. Go and check the state of the 3-4 years old charter boats in the base of the company you want to put yr boat at. Even better, go and see the check in/out process and how the boats are prapared for the next charter.

-yes it will be yr boat after all, but listen carefully to the make and model of boat that the charter company will suggest for a better chance of booking. If they have many of the same boat that you want to buy, the chance for higher revenue could be slim. If you insist on the same boat, then call for another charter company..

-try to get in touch with someone who has a boat in charter with this company. You can ask the company to give you the mail of couple of owners. The charter company has to get the approval of the owners before doing so but some owners may want to give you their impressions.

The last word; if someone tells you that yr boat will be amortised in less than 5 years and yr boat will be like new at the end of process, then it certainly is "too good to be true".

If yr investment is back in 6-7 years (with couple of weeks of owner's use each year) and yr boat is in decent shape, that's good deal..

If it's more than 8 years, get another company..

The second hand value of yr boat at the end of charter period is yr interest income on the investment you made. The second hand value will depend a great deal on the make and model of the boat and more importantly on how well she was kept..

Pls remember that all these calculations are made w/out taking into account the tax impact as I am not aware of tax implication in each country.

Hope this helps..

Cheers

Yeloya
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Old 18-02-2014, 19:38   #8
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Re: too good to be true?

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Originally Posted by scarlet View Post
when we were at Miami Boat show... we had a sit down with a guy who talked to us about buying a boat, and putting it into charter. He talked about tax credits (which were great if you were in the 39% tax bracket!!! which we aren't)... also about depreciation... and income. He made it sound sooo great.. like it would cost us practically nothing for our catamaran...

But, I'm always so suspicious of these things.... is it really as great as he said? anyone have any experience with this?
Did he give you a free 3-day stay at a 'resort' only requiring that you sit through 3 days of their salespitch???

The killer is they want a new $500k boat, not a $50k boat,
and that blows up all the 'deal', so in short, yes, too good to be true.
When people starting selling you 'tax savings', generally run away.
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Old 19-02-2014, 05:42   #9
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Re: too good to be true?

...as we say: you can make a little fortune, if you get a big one.
Like horse keeping...
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Old 19-02-2014, 06:07   #10
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Re: too good to be true?

Irrespective of the deal mentioned above. Investing in a charter boat can be a good option. (depending on local laws) My former DR did just that four years before he retired. And depreciated his boat against his other business over that time. In the final year he bought new electronics, sails and assorted toys for the boat. Then at the end of the 4th year he owned a boat outright (having made asst payments himself) that had all sorts of new goodies on board. Though our tax laws have changed since he did it, I am sure there are till ways to make these things work with the right accountant.
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Old 19-02-2014, 07:09   #11
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Re: too good to be true?

Quote:
Originally Posted by RainDog View Post
Say you want to open a charter base with 100 boats that cost $200K each.

Option A is you borrow $20,000,000 from a bank. Problem 1: No bank would loan you this money. Problem 2: If your business fails, and you need to close up shop, after you liquidate all the assets you would still be millions of dollars in debt.

Option B is you get other people to buy your boats. They are arranging the financing and if you need to close up shop, they are left with the debt. You can make it a good deal for them and still come out way ahead.

With most businesses, raising capitol is the greatest barrier to expansion.

I am not saying it is a good deal in this case, just explaining why it is done this way.
If it was a reliable profit maker, the banks would be lining up to fund the charter companies and the charter companies would be pouring all thier extra profits into buying boats directly so they could keep all the profits.

While I won't go so far as to suggest you can never make a profit, it's not good odds. They are counting on you being so in love with your shiny new boat that you overlook the pitfalls.
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Old 19-02-2014, 07:42   #12
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Re: too good to be true?

Quote:
Originally Posted by OldFrog75 View Post
If you have a popular boat that you can realistically expect to charter at a decent rate for a minimum of 100 days per year then the numbers probably work.
For quite a long time a 16 weeks (112 days) was regarded as a bare minimum for the break even in such a business for Eastern Med.
Now, with prices at their deep low a least 18 weeks (126 days) are necessary and this is the figure unrealistic to achieve.
The business is still running, as many owners using their boats only for part of the season are keen to cover just part of the costs...
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Old 19-02-2014, 10:31   #13
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Re: too good to be true?

Very much too good to be true. The average boat available for charter, has two charters per year. Now some are chartered to their maximum availability but some get no charters. Yes, choosing your charter company wisely is important. But still:

If you're going to buy a boat anyway and can only use it a small amount each year, then chartering maybe a means of reducing your cost of ownership. Then, with the right company, it maymake sense for you.

But buying a boat simply for the purpose of chartering it is on average a very poor investment.

The tax benefit angle is one that always gets me, because here is the reality, "Any business loss will reduce your taxes". So if you lose money chartering, you'll have a tax benefit. That's a pretty lousy way to reduce taxes in my mind. Now, if you were going to purchase the boat anyway, you were going to lose money. The boat was going to cost anyway, so then chartering may benefit by making part of that loss tax deductible.

I'm going to advise of one other thing related to these deals. Do not listen to the charter company's tax information or advice. Get that from your own accountant. Let me assure you that private airplanes and boats are targeted areas in the event of an audit so it's imperative that everything be in order. Ultimately handled correctly the losses will be deductible but you will have to prove it was a valid business and business expense. To be blunt, it becomes a little personal to some agents in audits as they just don't like what they consider wealthy people getting tax deductions for yachts and planes. So you better be able to show that you were serious about the business of chartering.
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Old 19-02-2014, 12:15   #14
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Re: too good to be true?

Wow.. as always, SOOO much good information here. Based on many of the things said here.. I think I'd better stay away from chartering. Especially since my husband and I can't afford to pay cash for a $750,000 boat. My fear is that we would have to make those payments every single month and that would really stretch us right now. And since we aren't rich.. the depreciation on the new boat would kill us.

I think we are best to keep stocking away our money in investments, and pay cash for a decent used Cat when we are actually able to retire... seems to make the most sense...
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Old 19-02-2014, 12:21   #15
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Re: too good to be true?

I agree. I chartered my boat for the first 3 years. I now own it outright and enjoy it a lot more. The last charter cost me 20 k when he blew my engine, not only that he thought I owned money back because he looked around for a place to dump my boat. If your a business, maybe. If your a sailor, don't do it.
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