Liveaboard Financing Quandary

[Zingaro]

[quote=Ex-Calif Based on selling a home every 3-5 years it is cheaper for me to rent.

Owning isn't for everyone.[/quote]
If you are going to own a home less than 5 years chances are your realtor is going to make more money than you. Exactly for that reason he should not sell the home any time soon.
the thing is, when you rent you generally put up with less fancy conditions because the costs are more visible. So if you are willing to live with less frills, move out of the home but don't sell it. Rent it out.
I know what it is to own in a downward market. I had a home in '92 that the bank wouldn't refinance because the value had dropped 30% and equity was negative. I just gave it back to the bank after three years.
Since then I saved and put my money in the stock market. As my luck had it I caught the biggest slump since the depression. In ten years I'm still negative. That would not happen if I had some property. You have to set something aside. what are you gonna do? Put it in a savings account?
I think some people saw the good housing years and easy money and now they are spoiled. Times are hard now. But this will pass.

[GDFL]

Rental market here sucks. It hasn't caught up with the last housing boom. I can get a whopping $1300/mo renting my house out. That's a real number because I bought it from an investor that was doing exactly that. Mortgage plus HOA fees and flood insurance puts my cost of ownership close to $3100 per month. I'm done with expensive housing period. I could rent a house, but that's not what I want to do. Living aboard might cost me a few hundred extra per month than a decent rental around here, but I'm willing to pay that few hundred dollars to get something that I really want. I'll still have plenty of money to sock away not including the significant dividends that will start flowing in this year from my partial ownership in the business I co-manage. FYI the boat I chose isn't going to go down any significant amount anytime soon. The very similar Island Packet model starts at 350k and there are plans to start producing Schuckers again in the range of 200k+. I'm not counting on it, but I wouldn't doubt if the value of the boat actually went up.

[GDFL]

Originally Posted by Zingaro

If you are going to own a home less than 5 years chances are your realtor is going to make more money than you. Exactly for that reason he should not sell the home any time soon.
the thing is, when you rent you generally put up with less fancy conditions because the costs are more visible. So if you are willing to live with less frills, move out of the home but don't sell it. Rent it out.
I know what it is to own in a downward market. I had a home in '92 that the bank wouldn't refinance because the value had dropped 30% and equity was negative. I just gave it back to the bank after three years.
Since then I saved and put my money in the stock market. As my luck had it I caught the biggest slump since the depression. In ten years I'm still negative. That would not happen if I had some property. You have to set something aside. what are you gonna do? Put it in a savings account?
I think some people saw the good housing years and easy money and now they are spoiled. Times are hard now. But this will pass.

or if you had some wisely selected real estate mutual funds. I used to think that I should keep a house in order to keep pace with rising real estate costs, but I believe that you don't have to. If you want to follow the real estate market, a real estate mutual fund can let you do that. Besides, "as Robert Shiller has written in his updated book, real housing prices are essentially unchanged for 100 years, and today’s real interest rates are back to those witnessed in 1900 as well." I can live with that. Besides, I'd rather sell my home when I want to in no big rush (now) rather than in a firestorm rush after I lost my job and have to move quickly. It's hard to put a dollar amount on the security of knowing that I can move on a whim whenever life demands.

[Ex-Calif]

"You have to set something aside. what are you gonna do? Put it in a savings account?"

We have pretty much strayed from boating to "lifeing" so this'll be my last post - promise - LOL.

I have a Merril-Lynch account and dollar cost average with "auto" purchases every month. Auto purchasing is free and I pay no trading fees. I put 15% of my income into no/low load funds and have a mix of a dow, small cap and foreign equity funds.

The dow beats the economy over a 30 year period - i.e. you are betting on America "growing" and the funds will be drawn down at retirement so I am not sweating a down cycle.

The small cap links me to the American entrepeneur (who I have faith in) and the foreign equity (Asia) fund ties me into 1/3 or more of the world population with almost unlimited growth potential.

A make about 8-12% per year and that's way more than I ever will make buying a house.

I am not a market timer - I bought AOL at 6 and sold it at 15 and thought I was a genious - LOL.

The only thing I do is look for changes in the manager or management of the various funds. I look at a change in managers as an opportunity to evaluate funds in the same class.

BTW - Just like a house, you don't lose money in the market until you sell. The difference is you don't have to keep paying for it.

[GDFL]

It can go as far off topic as anyone desires now. I've got my plan in my head and I'm moving forward. Thanks for all the helpful (and unhelpful even) advice on the questions posed, implied, or otherwise.

Real estate and boating aside, the main reason that I don't have the liquid cash that I should by now is because I've spent the past 3 years gambling on making a small business work. First it was on the side using my extra money. When I realized that wouldn't work, we made the move to Florida to work directly in the family business that I was trying to rep for. My gamble seems to be paying off and starting at the end of this year I should get my first of many large dividends from my portion of ownership in the business. I'll be able to put that together with the money I save from living on a boat and I'll be out cruising full time before you know it.

[hellosailor]

"I guess you're trying to help me here, but it sure doesn't feel that way."
Bear in mind, none of us know where you are coming from, much less where you plan to be going, so don't take things too personally.

There's a difference between wanting to live on a boat, i.e. a houseboat that stays docked, and wated to live on a boat in order to go sailing or cruising on it. Motorsailors fall somewhere in between, but frankly, looking at that boat and then considering the same boat with LESS SAIL...I'd call that a trawler with a large steadying sail, and suggest that you could probably do better just going for a trawler and getting rid of the sailing part. Less weight, less maintenance, no clearance issues...

It just seems like one of those "neither fish nor fowl" compromise designs that won't move as fast (or as economically) as a motor trawler, burdened by the keel mass and extra impediments of the sailing rig.

I'd say to stick a picture on the wall, see how the house sells, and think it over for six months before putting any money on one. If you still love the idea then...great, go for it!

[s/v Breakaway]

Have you considered liquidating or 'down-sizing' other assets you have, specifically automobiles, motorcycles, etc? Several posters living aboard now mention replacing their expensive new cars with older models as a way to add thousands to the kitty. This could help you generate the initial downpayment for the boat.

A second thought is to consider a 'starter' boat just as you did with your first house. How about a $50,000 Gulfstar? Much easier to afford, live on it for 3-5 years while saving, then move up to the Shucker - just a thought.

Instead of asking cruisers/sailors how to get a mortgage and being frustrated with their/our tendancy to advise on your intended boat model, (for Pete's sake!) ask the money-lending community! We don't know or we would all have done it and be out there now! Maybe there is a better internet community for that purpose than this one. Heck, you've nothing to lose by picking a few lenders out of the yellow pages and calling them. You've nothing to lose and can get facts about what you need to do, rather than sailors trying to give you mortgage advice.

Hope this helps and best of luck to you. For 27 y.o., you have already accomplished a heck of a lot. I'm sure you'll work it out if you stick with it.

[Weyalan]

My advice, for what it is worth:

>Take the scissors to all your credit cards, except one, and have the limit on that one set at around $2000. Use that card only as a last resort and get used to the idea that if you can't pay for it there & then, don't buy it.

>Sell all your cars and buy a cheap-to run (i.e. 4 cylinder) 20 year old "beater". Use that vehicle only when you need to (i.e. walk, jog or cycle wherever viable).

>Stop eating out except for special occasions (if you are eating out more than once per month, you should ask yourself if it is really justified). Buy in bulk wherever possible... where I live, 1lb of potatoes costs $1 but 25lb of potatoes costs $6. Lamb chops cost $8 per pound, but a whole side of lamb costs $2 per pound, etc. Buy your liquor wholesale too and drink at home. Do you need to eat meat (or fish) every day? Vegetables are generally cheaper. Could you be happy eating meat every second day?

>Don't pay a guy to do a job that you could do yourself in your spare time unless you could, for sure, use that spare time to make significantly more more money. DIY jobs will teach you skills that will be extremely valuable when you live aboard your own boat. Any fool can paint a house(inside or out).

>Minimalise possessions. How many telephones do you need? How many computers? TVs, VCRs, DVDs, microwaves, etc? Do you nedd a stereo (if you have a computer, will that not do the job just fine?). If you buy more than 1 pair of shoes per year, ask yourself why.

>Whatever savings you have need to be working for you. Money in the bank only makes money for the bank. Personally, I use managed funds, but pick your own posion...

At 27 I had a good education, all my wordly possesions in a backpack and a couple of hundred dollars in my wallet. I am recently turned 40 and have a 40' yacht bought and 100% paid for, a $400,000+ house that I owe about $250k on. $100k in managed funds, $75k in superannuation (pension fund) and should be at least semi-retired in 5 or 6 years and will then be living aboard full time. I have never earned more than about $60k per year. I still pretty much live by the above rules.

[OldSchool]

To answer your question about non-traditional financing options, there is a company that facilitates loans between private individuals. Its at prosper.com. You go there and say what you want the money for, how much you want, probably some credit information and some personal background is always good. You post that profile and other people bid on financing you. Effectively, they bid on the interest rate so you get a loan at a competitive rate. Its a cool model and I was considering it as an investment vehicle.

Good luck.

David

[Sailormann]

Why can't people seem to understand. I never asked anyone to comment on my choice of boat and it's sailing ability. I never complained about buying at the wrong time in the market. I asked a simple question about getting a boat loan based on my current situation. 99% of the answers were centered around how I was rushing things and I should wait to pay cash for a boat. This makes absolutely no sense to me.

Pretend that I was in a 300k house and I asked for advice on how to work through getting a loan to downgrade to a 150k house instead because that's where I could save more money and be more happy. I doubt that one single person would have half the negativity that most of you have shown. Why is it any different just because my downgrade happens to be a boat?

I think the difference is that you can expect the house to be there after 30 years or so, and worth at least what you paid for it.

I realise that you probably don't want to hear this (again) but you need to be intelligent about your future. If you are smart now, then you will be able to do a lot more of the things that you want to later on. THat doesn't mean you have to forgo pleasures right now - but you need to be smart about doing it.

You have a house that (I am assuming) you are able to make payments on. Don't lose that.

The two of you would like to live on a boat. That is possible.

I get the impression that the two of you have never lived on a boat while holding down full-time jobs before - trust me - there's a big difference between living ashore and living aboard.

If you sell your house now, you will walk away with no equity.

So - here's my suggestion.

Rent the house for a year. Lease a boat for a year. it may not be exactly the boat you want, but trust me, the same boats will be for sale again in a year or two, maybe a little cheaper, maybe a little more expensive - but they will be there.

Learn firsthand what it is like to try to get to a business meeting looking clean and pressed and not smelling like mildew. Get an idea of the incredible amount of maintenance a boat requires. Learn whether or not you can actually enjoy living without a lot of the things that you currently take for granted.

If, in 12 months time, you still want to do it, then you can reassess and examine your options. You may find that your house is worth more and your mortgage is a little lower...

[Ex-Calif]

"If you sell your house now, you will walk away with no equity."

Not only no equity but their initial deposit from a year ago is gone and they may have to pay up a month's pay to get out of the note. Even if they only put 10% down this is looking like a 30k loss.

I don't disagree with their strategy. It's a classic case of cutting your losses. The advantage they have is their youth. Make a few bad financial decisions in your 20's and you will have a happy and prosperous 30's and 40's and....

Old bull, young bull...

[starfish62]

I made it through page two before I felt the need to jump to the end and post. We live in Jupiter, near West Palm Beach, FL. Their are some very, very knowledgeable people on this board and they have helped me out numerous times but...a very careful but....many seem to better financed than most of us. Probably we don't have time to post.

I met my husband when we were both 40. He was in the midst of a circumnavigation he was doing 6 months on, 6 months off. I was working and a single mom of teens. Both of us are boat people and I joined him on the last two summers of his trip from French Polynesia to Australia. We got married in Fiji last summer. My youngest will be in college in two years. We recently found our future home. A 44' Gulfstar (1983) which is on the hard with us working hard on her. We got her for only 44K ,which is stupid!! Good deals are out there. Be patient. We didn't have your issue on financing as I had enought equity to buy it with a home equity line of credit, but we need to sell our place to by the time my son goes to college and the market sucks.

Our life right now is work, boatyard and more work, home, bed, work, boatyard .... ok you get it. BUT in a few years we will have our retirement home/boat and be free to travel and re-travel to anywhere!!! We would be going sooner if not for my son but life is what it is. He went with us the last two summers and will join us every chance he gets. Not too many teens have spent there high school summers cruising the South Pacific.

Bye the way, we don't have insurance. We have a mooring ball and don't want to spend the money on insurance that would exceed fixing any damage. Losing the boat wouldn't bankrupt us, break our hearts perhaps. It would put a serious delay on plans. Three 7' helix screws and we should be ok. South Florida and cruising don't make insurers happy.

[Reality Check]

I'll pass on the boat comments but may have some useful insight on the house... I am a Florida Real Estate Broker and do the majority of my business in investment real estate and with working with lenders and Asset Management companies, Relocation companies and follow the market state wide on a daily basis.

As the President of the National Association of Builders said recently at the organizations Orlando conferance... " I don't want to get too technical on the status of the real estate market so I'll just say It Sucks"

This is true for almost all of the nation and specifically for Florida and even more so for Central Florida. Inventories of homes for sale continue to grow faster than homes sold and those that expire unsold... and it will continue. Ask you agent what the DOM (Days on Market) is for your specific location and type house... it will probably be in excess of 9 months and probably more than one year if all the Days on Market are actually added. Some brokerages attempt to hide the Days on Market by expiring or unlisting and relisting and setting the clock to 0 but most MLS's now counter this with true DOM.

Several people have advised to attempt to sell it yourself to save money. While this is possible it is extremely unlikely in this market. With the massive inventory, most agents will not show clients FSBO (For Sale By Owner) properties which reduces your potential buyer base by 70% or more. Most buyers looking at FSBO's will know your attempting to "save" money... that is why they are also looking at FSBO's and they want to "save" that same money.. both can't do that. FSBO has many potential problems particularly in Florida. Florida has many required forms and addenda that sellers must comply with or a sale can and are far too frequently overturned... even after "closing", when disputes arise.

On average a FSBO sale will be between 12 to 17% less than if the same property were listed in the Open MLS for an area... in Florida that is Conservative. Statistically non broker sales of real estate have about a 3x possibility of not closing than brokered sales. Most frequently due poor buyer screening.. even those with letters of Pre-Qualification which anyone can get and mean nothing.

Quick sales require incentives for other agent to bring clients to view your property. You must draw them.... This is typically financial but other factors are also important. Commissions must be near the average or above.... otherwise an agent with a good buyer will show all the other competing properties that will yield more for the brokerage.. they don't work for free and will not "waste" a buyer on a low commission property when hundreds of others exist. A large advantage can be gained by offering a Bonus to the agent that brings an acceptable buyer.. often between 1 and 3% of sale price... this gets everyones attention and you will typically be flooded with showing in a short time.. hopefully a matching buyer will be among them.

Another critical point is availability and ease of showing... if it is not easy to show.. it will not be shown. Other assist are to de clutter the home, make it clean and open as possible.

Your "best" market window is from about May until August. The largest percent of homes are sold in this time because that is when the buyers are looking. Winter sales, even in Florida drop significantly and stay low until after income tax time.

Just some inputs you may want to consider on the land side of your problem. Markets are not anticipated to significantly improve for 12 to 18 months and then only to have low to moderate appreciations. Until then very flat to negative value movements should be anticipated after the summer season ends.

Good luck... you are not alone.... thousands of fellow home owners are in the same "boat" if you will allow the pun.

[hellosailor]

Starfish-
"Bye the way, we don't have insurance. We have a mooring ball and don't want to spend the money on insurance that would exceed fixing any damage. Losing the boat wouldn't bankrupt us, break our hearts perhaps."

You may have missed the whole point of liability insurance here. If your boat breaks free and torpedos a Deerfoot and a Hinckley while en route to sinking and discharging fuels...You may be looking at a million dollar liability and pollution cleanup and salvage claims. You can, and will, find that your HOUSE is also seived to satisfy the judgement. And, 10% of all your future wages will be garnished if they haven't collected enough to pay all the bills by then.

So the boat insurance isn't just there to protect or replace the boat--but to protect all of your joint assets from being taken away during a judgement arising from the boat.

Something to think about, depending on what everything else is worth. Umbrella liability insurance is often cheaper than you would think.

[GDFL]

thanks for the advice. We sold our first house fsbo because it was in the right market conditions. We ended up paying a realtor 1k to do the closing and contract on our behalf. That was part of the deal as she was the builder's agent for the house we were having built. I'll definitely use a realtor this time due to the crappy condtions. My job is managing a cast stone production company so I can cheaply and easily (and tastefully) add thousands of dollars of "curb appeal" to our mediterranean home. We specifically bought in our neighborhood because it isn't cookie cutter like most of central florida. It's a mediterranean influenced gated community on the St. Johns river St. Johns River in Central Florida - Mediterranean inspired gated community. . There have been a couple builder spec houses sitting around for quite some time and most will have a better dollar per square foot ratio than we can offer, but I hope to make up for that with my added architectural details and the fact that my home's floorplan feels pretty large for it's size. It'll also be the cheapest house on the market in the neighborhood. I'm hoping it all works out. As far as the showing of houses goes....we have two dogs that stay inside. We would have to get 30 minutes notice before showing to get them out. It wasn't a problem when selling our last house, but I could see it being a problem in this market.

I know I'm not in the perfect situation, but we did buy our house looking at how it could sell someday. What are current commission rates in central florida? Is 5% still reasonable for 300k or is 6% necessary? Either way, I'll feel robbed.
Garrett

Originally Posted by Reality Check

I'll pass on the boat comments but may have some useful insight on the house... I am a Florida Real Estate Broker and do the majority of my business in investment real estate and with working with lenders and Asset Management companies, Relocation companies and follow the market state wide on a daily basis.