How to Finance a One-off Custom Boat?

[TacomaSailor]

We are interested in purchasing one of several larger one-of-a-kind boats. We are having trouble finding a lender who will provide a mortgage due to there being no comparable sales which can be used to establish boat value.

This will be our only home where we will liveaboard full time.

All the lenders would be glad to lend us the same amount on a production boat but says they can not loan any amount on a boat with no comps.

Essex Credit says they need at least four other sales of comparable boats in the last two years to value the boat and determine the loan amount. They said that a liveaboard boat purchase now has to meet all the same lending guidelines and regulations as a normal residential shore side purchase.

Two marine mortgage brokers here in San Diego told me the same thing.

I offered to put up to 40% of the sale price as a down payment but was told that the lenders cannot establish a boat value with no comparables.

The lenders said that even a value assigned by a NAMS or SAMS surveyor would be of no use because that surveyor would have no comps on which to base the value.

How does one find comparable sales for a custom boat?

Has anyone found a recent lender who can handle this situation?

Just to clarify a detail - every lender would gladly make an 80% loan for us on a production boat sold for the list price of the boats we are considering.

[reefhunter]

Line up a number of investors and give them equal number of weeks aboard the boat. This eliminates the need for a mortgage and a bank.

[IdoraKeeper]

Call it something else, a highly modified whachamajig .

[Neeltje]

Sounds like getting a loan on a one-off is just about as hard as getting insurance for one. In that case, my pessimistic side would say, "You're in deep doodoo", while it's optimistic counterpart would suggest asking the seller if he/she can hold the note (with a substantial down-payment, of course). After all, unless the seller finds a cash buyer, they're going to have the same issues with other potential purchasers.

Even if that scenario solves the purchase part, you'll probably still have to insure the boat (if only to protect the seller), so I strongly suggest you get a firm commitment from an insurer before you close the deal. There too, the major players only want to insure boats that fall into their make/model/year grid, but I'm hoping that someone else here can help you find one that doesn't.

I was lucky with my "one-off" in that respect. Yes, I had to pay cash for the boat, but I made the purchase contingent on my ability to procure proper insurance for it. Since one of the sellers was also the local representative of a prominent insurance company, they managed to bend the rules a bit, but that doesn't mean they can't cancel me down the road...

Aside from the obvious lean holder requirements, many marinas (in Florida at least) theoretically require proof of liability insurance before you can dock or moor in their facilities. I say "theoretically" because to date, no one has asked me for such proof.

In any case, I wish you the best in your endeavor, and many years of smooth sailing once you get it sorted out.

Jacques

[olaf hart]

Could you get a lender to agree to the surveyor setting market value?

That is essentially what the banks do for properties in rural areas around here.

What is the advantage of using credit to buy a boat in the US? Are there some tax issues?

Buying a boat on credit is not generally considered here in Oz, unless it is in a business arrangement like charter or something like that.

[barnakiel]

If your credit rating is fine you can simply borrow the amount in cash. This is going to be an expensive but in some cases the only option.

Possibly, if an initial value of the craft is known, and after allowing for its depreciation, an estimate from a very well established market entity (say a well established major boat brokerage) would let you get an insurance quote from another entity which in turn could let your bank lend you a small, but helpful amount of the quote.

b.

[TacomaSailor]

"What is the advantage of using credit to buy a boat in the US? Are there some tax issues?"

I do not want to start another finance and investment thread but:

Our investments (where all are cash lives) make about 10% - 15% per year, compounded and that growth is tax free.

If I take cash out of those accounts to buy the boat I have to give Uncle Sam (Federal IRS ordinary income tax) 28% on part of it and 33% on another part which has the effect of raising the boat price by that percentage. Additionally, I would have to pay California another 1.5% on the lump sum I take out of my tax free investments to buy the boat.

If I can borrow money at 5% and leave the cash in an account making 10% I am then making 5% more than I would by using cash to buy the boat.

And, 1.25% (our marginal tax rate is 25%) of the 5% I pay to the finance company is tax deductible so my effective loan rate is 3.75% compared to the 10% my money, which I leave invested makes.

If I use a 15 year loan period (amortization schedule) I can keep the investment withdrawals at a level where I only have to pay 25% Federal Income Tax and 1% California tax on the annual boat payments.

I never use my own money to buy anything when I can rent someone else's money to accomplish the same purpose. I try to keep my money working hard in tax free investments. I only let that money come out to play when my alternate investment pays more than my tax free investment pays.

"If your credit rating is fine you can simply borrow the amount in cash."

Who would make an unsecured loan on a very expensive asset that can easily be moved out of the country, repainted, and disappeared?

The folks that would do those loans are not the folks I want to associate with.

[brantleychuck]

Ok. Just spent a couple of days on retirement planning. We are within a year or two. I figured a 3% gain on all investments. How are u getting 10 to 15% ?


Sent from my iPad using Cruisers Sailing Forum

[cattar]

Might consider using a bank as a brokerage house for a while.
Then you could have a line-of-credit backed by your securities.
Interest could be under 6.5% for an indefinite period.

The question would be what the bank brokerage would consider as eligible securities.
401k funds wouldn't count.

[Scot McPherson]

Investing is about beating the market...if you are gaining only 3% then you need to change your investment strategy from securities to deposits (cd's).

My guess is you are investing in funds which are more designed to protect your money rather than grow it aggressively.

[Scot McPherson]

To the OP. The banks are trying to kindly say we don't want to lend you this money for this purchase. Boats depreciate, and are significant liabilities to lenders. If you got your 4 CMAs they'll find another excuse. If you have 40% down, strike a deal with the builder and see if he'll hold the note. If you have 40% of something like this then you don't want to buy this because it's too much...for boat as you describe you have the cash or you don't. Banks don't want to touch such a large single liability without any hedge (I.e.sharing the load across several borrowers).

Get someone to buy interest in the boat. Two other people to buy the other two 30%s

[BandB]

Originally Posted by TacomaSailor

We are interested in purchasing one of several larger one-of-a-kind boats. We are having trouble finding a lender who will provide a mortgage due to there being no comparable sales which can be used to establish boat value.

This will be our only home where we will liveaboard full time.

All the lenders would be glad to lend us the same amount on a production boat but says they can not loan any amount on a boat with no comps.

Essex Credit says they need at least four other sales of comparable boats in the last two years to value the boat and determine the loan amount. They said that a liveaboard boat purchase now has to meet all the same lending guidelines and regulations as a normal residential shore side purchase.

Two marine mortgage brokers here in San Diego told me the same thing.

I offered to put up to 40% of the sale price as a down payment but was told that the lenders cannot establish a boat value with no comparables.

The lenders said that even a value assigned by a NAMS or SAMS surveyor would be of no use because that surveyor would have no comps on which to base the value.

How does one find comparable sales for a custom boat?

Has anyone found a recent lender who can handle this situation?

Just to clarify a detail - every lender would gladly make an 80% loan for us on a production boat sold for the list price of the boats we are considering.

The big missing details are the builder, their financial stability, their history, their reputation and experience in building such a boat. Are they closer to Feadship or Northern? I can only assume that you're going to need them to make progress payments if you need them to finance the final boat and that is in many ways riskier than the finished product. Who designed the boat? So many unknowns.

The other question is what are you getting in this boat that you can't get in a stock or semi-custom or something similar to previous builds?

[skipmac]

TacomaSailor

I'm a bit confused here.

Is this a one off, one of a kind boat from a company that never built another boat? Surely the builder make more than one boat?

[TacomaSailor]

The boat was designed in France

The boat, the last of four, was built in Belgium in 2003

The yard that built the boat went bankrupt after building a lot of other boats. The yard did have a good reputation but, apparently, were not good business people.

The boat was fitted out in the US

Only one of the four boats (identical hulls and cabin but each has a custom rig and interior) has been resold - therefore ESSEX and the other lenders claim their are no comps available

We like the boat because of it's sailing and motoring performance, galley, and well designed and installed systems.

[monte]

I think the person suggesting borrowing cash meant to secure the loan against another asset, ie increase an existing loan or take a line of credit. Rates should be similar to existing mortgage rates and the bank doesn't care what you spend it on, so long as they can repossess 'something'
My only suggestion to get it to work might be getting loan approval for a production yacht of similar value, then trying to insert yacht 'x' for the funds transfer...