Charter Boat Ownership and the Phase Out.

[BlueBuddha]

Originally Posted by belizesailor

Boat ownership makes no financial sense.

No argument there. I hope no one buys a boat because it is a good financial investment. The issue is one of the relative financial costs for the purpose of paying for a specific end goal. Hey I think having kids is the worst financial decision anyone can make, but that is not stopping anyone.

[Kristoff21]

My view when it comes to boats....Rent or own, but never own and rent.


I charter regularly and I feel sorry for the lives that charter boats have. I'm very careful with all valuable assets, whether they are mine or not, but even I have duffed up a charter boat doing something stupid when I've not been paying enough attention. I simply don't sail often enough to be always right 'on it'.

The stress of owning an asset of that value and leaving it in the hands of morons (like me, and far, far, worse) would easily outweigh any cost saving to my mind.

[belizesailor]

Originally Posted by BlueBuddha

No argument there. I hope no one buys a boat because it is a good financial investment. The issue is one of the relative financial costs for the purpose of paying for a specific end goal. Hey I think having kids is the word financial decision anyone can make, but that is not stopping anyone. [emoji3]

At least its a useful excercise for guesstimating how bad the financial pain is going to be. But, having been around the charter biz for decades, I see potential owners go thru this drill often...almost always with overly optimistic assumptions...in the end, it never works out that way. There are always plenty of unexpected expenses to throw a dose of reality over the original rosey estimates.

The overly optimistic assumptions are made to justify the decision they want to make anyway. Like above, assuming a 1% return on capital not spent on a boat. That assumption totally ignores current market performance...Ive averaged 12% on securities this YTD...and much better on real estate (about 80% average). My boat(s), yep plural, are both in the midst of major refits....I dont even like to think about those numbers. [emoji30]

In decades around the biz, Ive seen precisely one owner actually make a profit on a boat. That was due to getting an amazing promotional price on new model boat. Manufacturer then raised the price substantially on future sales and he was able to sell the boat within a year at a very good margin.

I think crunching numbers is a worthwhile excercise to asses the likely financials...and then if not too bad...you make the decision you really want to make anyway. [emoji41]

[CalmSeasQuest]

Originally Posted by belizesailor

...I think crunching numbers is a worthwhile excercise to asses the likely financials...and then if not too bad...you make the decision you really want to make anyway. [emoji41]

Bingo!

[Village Idiot]

Drinking red wine makes no financial sense either, but i still get through enough of the stuff ...

[belizesailor]

Originally Posted by Village Idiot

Drinking red wine makes no financial sense either, but i still get through enough of the stuff ...

Boats, and many other things, make no financial sense, but do yield other benefits.

Boats and other toys, girlfriends/wives, good craft beer, fine cigars, travel...all have non financial benefits...its just a matter of balance.

[cyan]

Originally Posted by belizesailor

In decades around the biz, Ive seen precisely one owner actually make a profit on a boat.

That's one more than I would have guessed!
This discussion gets confusing with such cautionary tales of money lost. I haven't seen anyone here suggesting a profit is expected.

As I see it, the object of the exercise is to compare the COST (and pros and cons) of simply renting for the next 5 years then buying, versus the COST of one of these charter ownership programs. In both cases, there are 5 or so years of sailing vacations after which there is a used boat to be owned. This odd little schedule sometimes fits EXACTLY into the plans of a SMALL group of people. THOSE people have reason to examine the financials of charter ownership.

I did not see anything overly optimistic in BlueBuddha's estimations. I did see items like 12% for annual maintenance and repairs. That seems high, but I suppose heavy charter use might demand such expense. If I would have to pay $66,000 every year just to maintain my Lagoon 42 NOT in charter, then I need to re-think our own cruising plans. (!)

Originally Posted by belizesailor

Boats and other toys, girlfriends/wives, good craft beer, fine cigars, travel...all have non financial benefits...its just a matter of balance.

Your boats sound well-stocked!

[leboyd]

Originally Posted by belizesailor

Ive averaged 12% on securities this YTD...

But I bet you didn't in 2015 or 2008.

The difficulty in any financial planning, whether buying a boat or retiring, is that actual returns on investments are not "average". They're either higher or lower. Whether the returns are higher or lower in year 1 can make huge differences in the outcome.

If you take a simple example of +25% in year 1 and -15% in year 2, you "averaged" 10%, but you don't have $121 (starting at $100). If you reverse the returns, you still have 10% "average" return, but still don't have $121. If you "only" returned 10% each of the two years, you will have more money than both examples.

This is referred to as "sequence risk". The last two years of return prior to a large financial decision and the first two years after the decision affect the outcome by about 80%. In other words, if these four years are great, the following years (2+ after the decision) don't make a lot of difference. But if they are bad (highly volatile or no up years), the following years won't make enough difference to help.

[cyan]

Originally Posted by leboyd

This is referred to as "sequence risk".

Which refers to the order of the ups and downs. However, even with the "ups" safely on the front-end, there can be confusion...

I have $100 in the market.
The market goes up 10% this year.
I have $110 at year-end.
Next year the market goes down 10%.
I now have $99 left in the market.
Where did my $1 go?
To the Money Fairy??

I posed this riddle to the admiral. My angle was pointing out that the Money Fairy would eventually take our investment away, therefore we should just spend it on a boat before that happens.
(She said "ok" without hesitation)

I suppose you finance types have a name for this, such as improper base-mixing of periodic interest rates?

[belizesailor]

Originally Posted by leboyd

But I bet you didn't in 2015 or 2008.

The difficulty in any financial planning, whether buying a boat or retiring, is that actual returns on investments are not "average". They're either higher or lower. Whether the returns are higher or lower in year 1 can make huge differences in the outcome.

If you take a simple example of +25% in year 1 and -15% in year 2, you "averaged" 10%, but you don't have $121 (starting at $100). If you reverse the returns, you still have 10% "average" return, but still don't have $121. If you "only" returned 10% each of the two years, you will have more money than both examples.

This is referred to as "sequence risk". The last two years of return prior to a large financial decision and the first two years after the decision affect the outcome by about 80%. In other words, if these four years are great, the following years (2+ after the decision) don't make a lot of difference. But if they are bad (highly volatile or no up years), the following years won't make enough difference to help.

Not in securities in those years, but real estate made up for it.

Yes, thats the difficulty of financial planning or boat ownership...you can't predict the future, but you can try to prepare by living conservatively and diversifying investments.

I could not predict the machine shop would damage my roller furling while trying to press in new bearings...caching! Now Im out the cost of the rebuild parts AND I need to buy a new roller furling...ouch!

[belizesailor]

Originally Posted by cyan

Which refers to the order of the ups and downs. However, even with the "ups" safely on the front-end, there can be confusion...

I have $100 in the market.
The market goes up 10% this year.
I have $110 at year-end.
Next year the market goes down 10%.
I now have $99 left in the market.
Where did my $1 go?
To the Money Fairy??

I posed this riddle to the admiral. My angle was pointing out that the Money Fairy would eventually take our investment away, therefore we should just spend it on a boat before that happens.
(She said "ok" without hesitation)

I suppose you finance types have a name for this, such as improper base-mixing of periodic interest rates?

Its easy to get someone to believe a message they want to believe! No matter how flawed the logic. [emoji16]

Just look to politics for grand examples of that.

[GTom]

I agree, no one can do an exact prediction. But as I wrote earlier, it does matter for many of us how big is the hole we have to stuff with greenbacks! Is it 5k/year, 20k/year, 50k/year? Quite a big difference can accumulate over 5 years.

I think everyone has to run his/her calculator in pessimistic mode, subtract a good 20% of those resale prices seen at boats.com/etc and if it still adds up, go for it.

The basic principle of a charter model is that the company takes care of the running costs. If the boat of your dreams have high running costs (especially marina & insurance), then you will most likely enough margin to cover all repairs at the end compared to any other type of boat use.

[belizesailor]

Deleted.

[Village Idiot]

6 months since the last post on this subject, where did that go?

So anyway I signed up for this charter deal with DYC in the end, with a 2017 Lagoon 380 based in Dubrovnik, and at the moment we are gearing up for the first trip on it - 6 weeks starting end June during which we are intending to sail down to Greece and back.

We dont yet know how good of a decision that will turn out, but its the decision that has been made and we are going to enjoy the experience come what may.

The financial outcome of course wont be known till the end, but I am happy to keep a track of the whole thing on here should any folk be interested.

For the record, we paid so far about 92k Euros to be part of this scheme. This first 'charter' , according to the DYC rates and paperwork , would cost a punter 33k euros after long term and early booking discounts. I did have alternative quotes for a similar model but older boat with other companies, which would have done me, the cheapest being around 20k euros , so that's probably a fairer representation of what we have 'saved' on the credit side of the ledger. Be interesting to see what it adds up to over the next 5 years.

But anyway, it's not about the money, only this thread is, it's about living the dream baby, and that's priceless

[GTom]

Indeed, once you're behind the steering wheel, it's about the dream. I ended up just buying a second hand boat, that's also a can of worms when I think about refit. (Costs are manageable, I more or less knew what I was buying, but the hassle...)