Charter Boat Ownership and the Phase Out.

[Village Idiot]

Yes its simple maths. upfront money is 92k euros. at 5% that is about 4500 euros per year, assuming you dont pay any taxes, which you would

charter of an equivalent boat is at least 3500 euros per week.

Not sure how you work out that 'more than pays for a couple of weeks charter per year', let alone turn into an amount that buys a nicer boat than a 6 year old boat, even ex charter.

[John_Trusty]

As many have said on these forums ... If the deal really was good in owning a charter yacht, and they retained their value, then Charter Companies would own the boats and not share the great deal with you. The reason that charter companies advertise and are at all the boat shows is because they are selling financial deals to unsophisticated buyers. You don't see the hotels or internet companies offering to let you own their assets.

As noted in this thread, the buyer thinks that they get a five year old boat for half-price, when what they really get is a much older boat, built to someone else's specifications, at half price.

[td0tz]

Originally Posted by John_Trusty

As many have said on these forums ... If the deal really was good in owning a charter yacht, and they retained their value, then Charter Companies would own the boats and not share the great deal with you. The reason that charter companies advertise and are at all the boat shows is because they are selling financial deals to unsophisticated buyers. You don't see the hotels or internet companies offering to let you own their assets.

The charter scheme is a (very) inexpensive way to finance a high risk, fragile business model. They are financing their business with (your) 50% down factored in. And they are doing little more than if they did it all with their own money - buy, charter, insure, maintain, re-sell. Nice work if you can get it...

As noted in this thread, the buyer thinks that they get a five year old boat for half-price, when what they really get is a much older boat, built to someone else's specifications, at half price.

Among those specs I haven't seen mentioned is usually a very de-tuned sail rig. After all, charterers mostly motor, and usually are not the most competent sailors. So a smaller rig is just better for everyone, right?

[GTom]

Originally Posted by John_Trusty

As many have said on these forums ... If the deal really was good in owning a charter yacht, and they retained their value, then Charter Companies would own the boats and not share the great deal with you. The reason that charter companies advertise and are at all the boat shows is because they are selling financial deals to unsophisticated buyers. You don't see the hotels or internet companies offering to let you own their assets.

As noted in this thread, the buyer thinks that they get a five year old boat for half-price, when what they really get is a much older boat, built to someone else's specifications, at half price.

The maths are very boat, location and use dependent. Quick and dirty for a Lagoon 380:
1. ownership of an older model: 10+k€/year berth + insurance+ maintenance =70k€/5 years?
2. charter for 3 late-season weeks (October): 6k€/year =30k€/5years
3. charter management: if that 92k€ was the 35% downpayment, it means a 160k€ purchase cost and a realistic resale value of 130k€ after 5 years.

Net 5% clear and safe capital gain is unlikely, unless you are good on the stock market.

It is clear, a charter managed boat is a sink of money but in certain situations it is a smaller sink then the alternatives. In this example the charter or mooring fees are relatively high compared to the boat price. A monohull doesn't take 50% penalty for mooring and probably cheaper to charter which turns the maths completely upside down.

[Village Idiot]

It is clear the model where a punter finances half or all of a charter boat and cops the guaranteed depreciation and takes the boat off their hands at the end of it, is a good one from the charter companies' point of view.

However this isn't a zero sum game, (where their gain = my loss) , because there is a 3rd party pumping money into our little system (the charterers), so its quite possible it can be a good deal from both the punter's point of view and the charter company.

Because it's not a zero sum game, I dont have to care whether it's a good deal from their point of view, i only have to care whether, for my specific circumstances, it's better deal than the alternatives, (assuming I am willing to spend some money going sailing , which I am - nobody disputes the cheapest option is to not go sailing at all ).

Re the down and dirty maths put forward by Gtom, the main issue I would take with that is the charter costs in the model - 3 weeks low season in october is not what you get under this deal, nor would I ever book - what I do get, and I do want, and will use, is 2 weeks high + 2 weeks low season, which eg gives me the whole of June. Since I am going to do this next year one way or another, I have obtained many real actual quotes for it. The lowest, which was for a 2009 Lagoon 38, was 12k Euros.

If you plug that figure in to Gtom's calcs, charter the equiv amount is now 60k over the 5 years, up there with owning the (much older) boat

And that is without counting anything for the walk on weeks all over the world, which will have some value

i am not sure I could buy a 6 year old lagoon 38 for 130k either (cheapest asking price just now for similar is about 180k), but assuming it was the realistic price, this model is still half the cost of either outright owning or outright chartering the same thing.

In reality i have a slightly more detailed model that includes financing costs for all options but the result is pretty much the same.

[cyan]

Hi Village Idiot,

Thanks for your detailed thoughts! My main interest in this program is that it does look like a good fit for someone who ALREADY has the plan to charter a cat every year for the next 5 or so years and then sail away on a used cat similar to those chartered.

Our own charter costs go over $6K (USD) per week for a smallish cat, and is a bit painful to do that more than once or twice a year as we plan to buy a boat in a few years. (not yet, due to work) More than $15K in charter costs per year starts to sounds similar to slip/insurance/maint. I wouldn't mind owning right now, but I don't really love to sail in the cold waters near me. I wouldn't want to leave my own boat alone in a far away (warm) place for obvious reasons.

What I WOULD like to do is sail at least 4 weeks per year for the next few years. If we DID spend $28K per year chartering a $400K boat, then it would feel like rent-to-own without the "own".

Perhaps such programs as DreamEasy would be quite a benefit to people like us? I'm not sure I'm cool with the wear and tear, non-owners layout, and potential risk. However, I don't see a better solution for satisfying the need to sail now with the future plan to own. (maybe I'm missing something?)

[Village Idiot]

Hi Cyan

Yes whether this works for you depends totally on individual circumstances and what your plans are, and if they align with what the programme offers, happy days.

I happen to want a boat in 4 or 5 years time, starting in Greece or nearby in the Med, and I want to do some sailing (avg 4 to 6 weeks pa) in the meantime, beginning with a good sail round Greece etc next year, for at least a month, but am happy to explore other cruising areas I've never been to as well. That happens to dovetail pretty much with what the programme offers , although I would prefer to come out of it 1 year earlier.

If i only had time to charter say 2 weeks a year its probably not ideal. If I wanted to sail 8 weeks a year they wouldnt let me. If I didnt want a boat about the time it comes out , then I would have to factor in sales commissions, holding costs while it sells, potentially taking a lower price to get out etc, which would reduce the attractiveness.

It looks to me like 4 weeks a year is about the breakeven point between outright owning and outright chartering - longer - buy, shorter - charter , but by my calcs at avg 4 weeks a year this beats them both - if you are willing to take the boat at the end.

the right to use a boat at other places round the world at short notice is a big bonus (from Aus I can use my short notice weeks in Queensland, Thailand, Tahiti..)

wear and tear - last season I sailed a boat for 4 weeks in Greece that had come out of a similar (Sunsail) charter program in Croatia. It was fine, not at all worn out etc , wouldnt have even know it was ex charter. Admittedly that's a sample size of one , hence I would be interested to hear other actual experiences from an ex DYC owner, but that aspect doesn't really worry me.

someone else's specs - I would go for the 4 cabin/2 head arrangement (that this is), regardless, cos that what suits me, so no issue for me there. As far as the other custom options you might specify for yourself - I would never order a new boat other than in a program anyway, so if shopping for a second hand boat you are stuck with what someone else ordered x years ago anyway.

yes there are risks, but owning a boat outright that lives in a foreign country with no one looking after it is not without risk either

Anyway I'll let you know how it goes.....

[cyan]

Originally Posted by Village Idiot

It looks to me like 4 weeks a year is about the breakeven point between outright owning and outright chartering - longer - buy, shorter - charter , but by my calcs at avg 4 weeks a year this beats them both - if you are willing to take the boat at the end.

Interesting point. By my math, the breakeven point in rental weeks per year is all about the interest that you are not earning on your 35% down payment over 5.5 years. If you exclude other factors, this centers upon what your money might have earned otherwise. Assuming a 50% purchase price after 5.5 years versus 35% DreamEasy down payment+ 25% balloon, roughly...

annual interest : breakeven rental weeks
0% : 1 week
4% : 2 weeks
8% : 3 weeks
12% : 4 weeks

For instance, if I can get 8% return on invested money, and I rent 3 weeks or less, then I should just rent and invest the money. If I rent MORE than 4 weeks versus earning 8%, then DreamEasy might make sense.

Beyond the other factors not considered, though, there is one interesting psychological angle: If I have 4 or more weeks "paid for" in the program, I WILL SAIL those weeks. If I only rent, I might not be so inclined to take 4 weeks off work for that per year. (maybe 2 or 3?) Interestingly, DreamEasy lists "8 weeks", but I didn't read the fine print. (is it realistically only 4?) It would be cool to get an actual DYC program member's experience as you said, Village Idiot. I'll be very interested to see which way you go in the future.

[BlueBuddha]

Wow this is quite an old post that just came back to life. As usual with charter company posts, I see the same arguments against charter ownership which mostly reflect a misunderstanding of the very different and yet compatible goals between the charter companies and the charter owner. For those interested in this issue read out post on our own decision making http://bluebuddhaadventures.com/2017...bought-a-boat/

Then read this post with info on how to properly create the financial model to determine if it works based on your own assumptions. Although you will have to adapt it for the specific type of program you are considering.
http://bluebuddhaadventures.com/2017...nancial-model/

[BlueBuddha]

Originally Posted by cyan

Interesting point. By my math, the breakeven point in rental weeks per year is all about the interest that you are not earning on your 35% down payment over 5.5 years. If you exclude other factors, this centers upon what your money might have earned otherwise. Assuming a 50% purchase price after 5.5 years versus 35% DreamEasy down payment+ 25% balloon, roughly...

annual interest : breakeven rental weeks
0% : 1 week
4% : 2 weeks
8% : 3 weeks
12% : 4 weeks

For instance, if I can get 8% return on invested money, and I rent 3 weeks or less, then I should just rent and invest the money. If I rent MORE than 4 weeks versus earning 8%, then DreamEasy might make sense.

Beyond the other factors not considered, though, there is one interesting psychological angle: If I have 4 or more weeks "paid for" in the program, I WILL SAIL those weeks. If I only rent, I might not be so inclined to take 4 weeks off work for that per year. (maybe 2 or 3?) Interestingly, DreamEasy lists "8 weeks", but I didn't read the fine print. (is it realistically only 4?) It would be cool to get an actual DYC program member's experience as you said, Village Idiot. I'll be very interested to see which way you go in the future.

We are recent DYC owners. Feel free to ask any questions or PM me as I can share my experience so far.

[cyan]

BlueBuddha,
Bravo!
Your blog delivers awesome transparency with your numbers and thoughts. You have done a great service to those of us contemplating such a venture. BTW, my spreadsheet looks similar to yours except for the mortgage.

You hit the nail on the head when you describe how the needs of the charter company can work well with the needs of a specific owner: one who wants to charter for a while before sailing full time. I don't think some detractors follow that.

I never considered one advantage to the owner/charter programs that you stated- the ability to sail long distances which are not allowed on regular charters. Interesting!

One question: Your charts show 25% down for the , but the DYC info shows 20% for Performance and Guaranteed Income. Did this change recently? (their website's chart might be outdated?)

[BlueBuddha]

Originally Posted by cyan

BlueBuddha,
Bravo!
Your blog delivers awesome transparency with your numbers and thoughts. You have done a great service to those of us contemplating such a venture. BTW, my spreadsheet looks similar to yours except for the mortgage.

You hit the nail on the head when you describe how the needs of the charter company can work well with the needs of a specific owner: one who wants to charter for a while before sailing full time. I don't think some detractors follow that.

I never considered one advantage to the owner/charter programs that you stated- the ability to sail long distances which are not allowed on regular charters. Interesting!

One question: Your charts show 25% down for the , but the DYC info shows 20% for Performance and Guaranteed Income. Did this change recently? (their website's chart might be outdated?)

Thanks for the kind words.

The 20% on the website is still true but we did not consider the 20% because otherwise you risk being underwater by the end of the program - although this can be solved by significantly increasing your monthly payments. Our model also showed lower overall costs the larger the down payment so 25% seemed like the perfect compromise. Finally, keep in mind that the mortgage is not with DYC but a third party lender and they make their own underwriting decisions. I think 20% is they minimum they request but all decisions are at the individual level based on all other pieces of the application. Best, N.

[Village Idiot]

Nice article Buddha, (you've been following Delos , right?). looks like we agree on the interests of charter companies and owners not being necessarily incompatible, right down to the 'non zero sum game' thing. Thanks for joining.

Cyan, when i spoke of the 4 week breakeven point, i wasnt talking about owning v a DE scheme, i was talking about owning v chartering. A DE scheme is another animal entirely.

the biggest variables in which model wins are assumptions about a) finance or opportunity cost and b) end value. Both have a huge difference on the outcome. I used 4% in my model because it is my actual risk free cost. I reckon 8% is pretty optimistic for an investment, in the circumstances,e specially in the US just now, and after taxes. I certainly wouldnt rely on it.

Cyan, the up to 8 weeks is doable but improbable most of the time. If you live near an area where low season isnt much worse than high season, you can book up to 6 weeks. the other two weeks have to be last minute (<10 days before the start), so whether you can use them in practice depends on your access to a decent base and I suppose your ability to get away from work if you have any, at short notice, considering you have already had 6 weeks hols that year. I intend to give it a good crack.

buddha, what do you know about the ability for an owner to sail further afield than a regular charterer that you mention? I have just come across the small print for a regular charter, which they seem to be booked as, that says you cant sail at night. I hope this is different for an owner. Is it written so somewhere?

[BlueBuddha]

Originally Posted by Village Idiot

buddha, what do you know about the ability for an owner to sail further afield than a regular charterer that you mention. I have just come accross the small print for a regular charter, which they seem to be booked as, that says you cant sail at night. I hope this is different for an owner.

I was told that there would not be any restrictions on what I do with my boat during my weeks. I have not tested that statement though

One thing to consider when doing the comparison against "investing" is that the investment returns are not compounded unless you are using a different source of funds to pay for the charters. For example, it is not as simple as putting 100K into an ETF/Fund and get 4, 5, or 8% in compound returns per year. Instead, the balance of that account is deducted each year by the costs of the charter and that deduction should also be modeled. The only exception to this is when the individual is using funds that would not otherwise be getting interests/dividends/cap gains to pay for the charter weeks, such as some cash account.

[belizesailor]

Originally Posted by Village Idiot

yep the worldwide flexibility is an appeal for me too, even if i dont end up using it much. Its a big benefit over buying and owning a boat outright in any one specific location.

Of course, if you just charter you also get world wide flexibility without the hassles of ownership...and in the end not stuck with a depreciated asset in need of a refit.

You guys can crunch all the numbers you want, but in the end the answer is always the same: Boat ownership makes no financial sense.