I am being told that Liveaboard Boats loans are now impossible

[IdoraKeeper]

You know, your better off than my friend who moved his money into Iraqi Dinars. You still have your retirement accounts and your boat. Perhaps you could move the money into an offshore trust and have the administrator convert the trust into the boat.

[valhalla360]

- Why is $10,000 in a CD or interest bearing checking account a "better quality asset" than the same $10,000 in a mutual fund growing at 12% a year tax free?

First, CD's & checking accounts don't go down in value. While mutual funds invested int he market are good long term investments, they are known to have down years and in those down years, people often make the mistake of liquidating them, so they are simply taking the conservative assumption that they could go down in value at the same time they are trying to reposes them.

More importantly, you are trying to gloss over the protections a retirment account provides. That makes them of no use as collateral.

As far as the suggestion to rent an apartment...that's not the bank suggesting you work the system. That's a rogue employee suggesting a way to short circuit the purpose of requiring a residence. The idea is that you have roots in the community and are less likely to just up and leave. By openly stating you are planning to up and leave, they can't credit you with that assumption. The typical borrower of a $500k boat also has a house, likely in the $500k+ range along with more assets. Your description is a situation where you have none of those roots.

[Hudson Force]

Originally Posted by TacomaSailor

.........................
Why is $10,000 in a CD or interest bearing checking account a "better quality asset" than the same $10,000 in a mutual fund growing at 12% a year tax free?

Isn't this tax deferred and not tax free?

[BandB]

Originally Posted by TacomaSailor

"You have an income you claim is over $150,000. But in spite of that you don't have the available cash nor do you have other assets for collateral to support the boat loan. Given that then you're wanting to borrow money based on repaying from future earnings and, at the same time, you're talking about taking the boat out of the US for five years at a time. So, leaving the lender with basically no easily recoverable collateral. They must depend on your future income and depend on you using it to pay them. All because you say you will. They can't and shouldn't be able to do that. If I was a shareholder in that bank, I'd sure not want them doing things like that. "

I hope I did not claim to have a $150,000 income. The IRS would feel I have been mis-leading them all these years. Our mutual funds, inside an IRA, do grow enough that our total income, including that tax free amount, might reach $150k but our taxable and spendable income is way less than HALF that amount.

The highlighted statement above emphasizes the puzzling aspect of this issue.

The loan amount was initially approved by two lenders. So, it appears that they have no problem with our income, our credit history, or our collateral.

Only when they determined that our physical address was in a marina and our mailing address was a PO Box did they begin to question the loan.

They then told us to go rent a place for six-months and show us the rent payment receipts and utility receipts and the loan would be approved.

HOW does us renting a place provide any security at all to the bank? As others have suggested - we could move out of the rental property the day after signing the loan documents.

And, the issue of a boat being a mobile collateral object is EXACTLY the same for any boat. We took our boat, with a mortgage on it, out of the US many times for extended periods when we owned a huge house that we had lived in for decades. That house was worth many times the value of the boat but provided no security at all to the lender. Primary residences in most states are not subject to seizure in a bankruptcy so if I wanted to 'disappear" the boat and declare bankruptcy I would be home free!

The highlighted statement above is a valid argument for lenders never making a loan for any boat big enough to be transported outside the US. That would be any fishing boat or day sailor on a trailer, 25' sailboats in Florida or California or almost any boat on the Great Lakes.

The statement about borrowing against future earnings is valid and another issue I do not understand.

We live on our fixed incomes (pension and social security) and an occasional small withdrawal from one of our IRAs. We manage our expenses so we seldom have to touch our IRAs which, therefore, have grown to be significant assets.

The potential lenders want us to show a "history of regular withdrawals" from those IRAs.

My questions are:
-Why would we show a history of regular withdrawals if we do not need the money?
-What are we supposed to do with the withdrawn money if we don't have expenses?
- Why is $10,000 in a CD or interest bearing checking account a "better quality asset" than the same $10,000 in a mutual fund growing at 12% a year tax free?

I realize now you were only saying making those withdrawals would push you over $150,000.

As to why $10,000 in a CD is a better asset, because it's an asset that a judgement can go against whereas the retirement fund is not.

Yes, there is a difference between having a rental home vs. none. Presence. Residency in their mind. And, no it's not the same as all boats. All boatowners don't take off never to return, leaving nothing of value behind.

As to regular withdrawals, I imagine they were looking at income and cash flow.

While I appreciate your frustration, I also see their reluctance. As to it initially being approved, there is no such thing as approved until loan documents are signed and the money given. Understand those who might initially give indications are salesmen in essence and not the decision makers. It's often, "I see no reason we can't do that" or "Everything looks good" but then the decision makers look at it. The first person wants it to happen as they typically are either on commission or on a bonus system based on production.

And I will say this too. On expensive boats, the loan is seldom made on the basis simply of the boat. It's based on other assets, based on income, based on ties to the community and then based on the boat itself. There are two components. First, is the likelihood you'll pay. Second, is the ability to get their money back if you don't pay which starts with the boat but then includes other assets.

As to saying primary residences are not generally subject to seizure in a bankruptcy, that is true. But they are subject to judgments without a bankruptcy. And in the case of a bankruptcy payments still must be made so not a free ride. So, let's say you don't make payments on the boat and I can't recover it. I can take you to court and get a judgment, then perfect it by attaching property including your home. The only way then you could prevent your home being subject to potential sale is to file bankruptcy. To do that though you'd have to show your total income and assets, you'd have to be present, action could then be taken against you for not presenting the boat and at the very least you'd have to say where it is.

I will also say that I doubt any of the things they were telling you would help, would have really done so. Again, sales talk and wishful thinking. I don't believe renting an apartment would have made the difference. While it might have looked better on paper, I think someone would have considered it questionable as well.

One of the big problems of most loans and many other financial transactions is that you are not actually dealing with a decision maker. You're dealing either with a broker or an in-house sales person. Unfortunately, what they tell you is simply "talk." And with the changes taking place in mortgages, they are even less in touch with reality.

[BandB]

Originally Posted by Hudson Force

Isn't this tax deferred and not tax free?

Yes, it is tax deferred and not tax free.

[oldragbaggers]

Originally Posted by TacomaSailor

"You have an income you claim is over $150,000. But in spite of that you don't have the available cash nor do you have other assets for collateral to support the boat loan. Given that then you're wanting to borrow money based on repaying from future earnings and, at the same time, you're talking about taking the boat out of the US for five years at a time. So, leaving the lender with basically no easily recoverable collateral. They must depend on your future income and depend on you using it to pay them. All because you say you will. They can't and shouldn't be able to do that. If I was a shareholder in that bank, I'd sure not want them doing things like that. "

I hope I did not claim to have a $150,000 income. The IRS would feel I have been mis-leading them all these years. Our mutual funds, inside an IRA, do grow enough that our total income, including that tax free amount, might reach $150k but our taxable and spendable income is way less than HALF that amount.

The highlighted statement above emphasizes the puzzling aspect of this issue.

The loan amount was initially approved by two lenders. So, it appears that they have no problem with our income, our credit history, or our collateral.

Only when they determined that our physical address was in a marina and our mailing address was a PO Box did they begin to question the loan.

They then told us to go rent a place for six-months and show us the rent payment receipts and utility receipts and the loan would be approved.

HOW does us renting a place provide any security at all to the bank? As others have suggested - we could move out of the rental property the day after signing the loan documents.

And, the issue of a boat being a mobile collateral object is EXACTLY the same for any boat. We took our boat, with a mortgage on it, out of the US many times for extended periods when we owned a huge house that we had lived in for decades. That house was worth many times the value of the boat but provided no security at all to the lender. Primary residences in most states are not subject to seizure in a bankruptcy so if I wanted to 'disappear" the boat and declare bankruptcy I would be home free!

The highlighted statement above is a valid argument for lenders never making a loan for any boat big enough to be transported outside the US. That would be any fishing boat or day sailor on a trailer, 25' sailboats in Florida or California or almost any boat on the Great Lakes.

The statement about borrowing against future earnings is valid and another issue I do not understand.

We live on our fixed incomes (pension and social security) and an occasional small withdrawal from one of our IRAs. We manage our expenses so we seldom have to touch our IRAs which, therefore, have grown to be significant assets.

The potential lenders want us to show a "history of regular withdrawals" from those IRAs.

My questions are:
-Why would we show a history of regular withdrawals if we do not need the money?
-What are we supposed to do with the withdrawn money if we don't have expenses?
- Why is $10,000 in a CD or interest bearing checking account a "better quality asset" than the same $10,000 in a mutual fund growing at 12% a year tax free?

This last post left me more confounded than before.

Assuming you really and truly want this bigger boat, and as you are saying you have assets in a retirement account that could fund it, and on top of that you apparently don't need those assets for any other purpose because you don't withdraw them and have no idea what to spend them on if you did....then what the heck are you waiting for? It would be one thing if you were dependent on this account for monthly living expenses and were protecting it to assure it lasts the rest of your life, but you're saying you don't need to withdraw from it which says the other income you have is plenty for you to live on.

To my way of thinking money (excess above what you need to pay your living expenses) that for whatever reason cannot provide you with what you want in life is pretty useless. Unless there's another back story, like a disabled child you want to leave it to or something, then basically you're saying you would rather have that money (that you don't need) sitting in an account while you go without the one thing in life you say you want just because you don't want to pay taxes on it.

I hate taxes as much as the next guy, I think our tax system is highway robbery, but that's cutting off your nose to spite your face in my way of thinking. You didn't pay the taxes on it when you earned it because it went into a tax deferred account, and it's been building wealth for you ever since, right? But now it's just numbers on a statement unless it provides you with something you need or want. Pay the taxes, buy the boat, go enjoy your life. Or don't...... I'm sure looking at that nice statement of account every month will feel every bit as good as sailing....

[deluxe68]

IMHO the banks are holding onto their money until interest rates start climbing back up. I tried to pre-qualify for a new boat last year and got run thru the ringer, I gave up after 3 months. Cannot remember the lender.

[TacomaSailor]

The last set of comments and observations have been very interesting and have made us look more closely at our concerns and financial planning assumptions.

Your comments have led us to realize the following:

- we do not want to put our assets, which show double digit growth every year, into a boat that will only depreciate

- having ever growing assets in our retirement account will give us more peace of mind than will a boat that is probably too big for us

- we do want to borrow money at a fixed rate and repay it with depreciated dollars

- we do not want to pay double our "normal" tax rate just to pay cash for a boat

- we do not want to go to the trouble of renting a shore side residence on the chance that it might help a marine lender lend us money

- our current boat is very nice and serves us well

- we should head south after hurricane season and stop thinking about shiny new, bigger, boats

- We need to start working on a plan to move some of our IRA money into a more accessible account while paying our "normal" tax rate

- The marine lending world has really changed since the last time we took out a boat mortgage in the prior century

Thanks for all the helpful comments

[Ex-Calif]

Originally Posted by TacomaSailor

The last set of comments and observations have been very interesting and have made us look more closely at our concerns and financial planning assumptions.

Your comments have led us to realize the following:

- we do not want to put our assets, which show double digit growth every year, into a boat that will only depreciate

- having ever growing assets in our retirement account will give us more peace of mind than will a boat that is probably too big for us

- we do want to borrow money at a fixed rate and repay it with depreciated dollars

- we do not want to pay double our "normal" tax rate just to pay cash for a boat

- we do not want to go to the trouble of renting a shore side residence on the chance that it might help a marine lender lend us money

- our current boat is very nice and serves us well

- we should head south after hurricane season and stop thinking about shiny new, bigger, boats

- We need to start working on a plan to move some of our IRA money into a more accessible account while paying our "normal" tax rate

- The marine lending world has really changed since the last time we took out a boat mortgage in the prior century

Thanks for all the helpful comments

Well you have summarized that perfectly!

Not aimed at you in particular but aimed at all of us...

Part of the strategy of tax deferred savings and pre-tax savings is to move and withdraw that money after retirement when one is "presumably" in a lower tax bracket.

This is a good reason to see a retirement planner or better a retirement planner who is also a tax expert who can help plan the strategy of moving the money to an accessible place with minimal impact.

If part of the "7" year, "5" year or whatever plan is to buy an expensive boat part of that plan may include moving the "right balance" of money out of retirement savings each year to minimize the tax effects.

Retirement plans were never designed to be tax free, just tax deferred and having a significant part of one's worth tied up in these plans can be problematic if a significant portion of it is needed at any one time.

Thanks for your thread as painful as it is for you as it has alerted me to some things.

- If I finance buy the boat in the last year or two of working to secure the loan.
- After retirement get busy moving my money into accessible accounts
- After retirement use as much of that money as possible to retire the boat loan

Enjoy the cruising life...

[weavis]

One of the good things about Cruisersforum, is that a person can start out with a fixed idea or set of assumptions, and after a round of exchanges, can see completely different facets of the situation from others peoples viewpoints.

It doesnt mean we have to change our stance, it just fills in the blanks and allows us to be more flexible in approach.

Since Ive come on the site, I have changed my anchoring technique, my dock approach in certain wind conditions and I have completely different outlook on certain toilets

Great innit

[Sondor]

Damn, and I was just gonna offer to "help" you by letting you pay my utilities and mortgage for six months to make your bankers happy!

[oldragbaggers]

Originally Posted by TacomaSailor

The last set of comments and observations have been very interesting and have made us look more closely at our concerns and financial planning assumptions.

Your comments have led us to realize the following:

- we do not want to put our assets, which show double digit growth every year, into a boat that will only depreciate

- having ever growing assets in our retirement account will give us more peace of mind than will a boat that is probably too big for us

- we do want to borrow money at a fixed rate and repay it with depreciated dollars

- we do not want to pay double our "normal" tax rate just to pay cash for a boat

- we do not want to go to the trouble of renting a shore side residence on the chance that it might help a marine lender lend us money

- our current boat is very nice and serves us well

- we should head south after hurricane season and stop thinking about shiny new, bigger, boats

- We need to start working on a plan to move some of our IRA money into a more accessible account while paying our "normal" tax rate

- The marine lending world has really changed since the last time we took out a boat mortgage in the prior century

Thanks for all the helpful comments

Awesome!! So, even though the thread drove you just a little bit crazy for a bit, and you had to spin in the wind to get there, you have come to a good conclusion and, while your situation hasn't changed one bit, your perspective has. This is why there are some people of limited means out there on 27 footers having just a much, or more, fun than other people on 50 footers with ample resources. It's all a matter of attitude and perspective.

Which leads me back to my other post, #99.

Originally Posted by oldragbaggers

Tacoma, while it's unfortunate that you cannot seem to manage what you are trying to do in the exact way you want to do it, you are not in the world's worst situation. You could move into a shoreside residence and try it, but you don't want to. I don't blame you. But you have a 40 foot boat now so the world of cruising lays available to you. And you apparently have a nice retirement account sitting somewhere to give you the security to enjoy it. With time the lending situation could change. If there's one thing we can count on being constant, it's change. Enjoy your 40' boat, and your retirement account, and try again later when the financial environment is more favorable.

You just had to come to believe and appreciate it for yourself.

And what I said about your money being useless if it doesn't buy you something you want or need, if that something is peace of mind then that's important too, especially if the not having it would take that peace of mind away. So now you have it all, a great 40' cruising boat, money and time to enjoy it, peace of mind about your financial future, and the perspective to appreciate it all.

Now go have fun.

[DSDman]

After reading all this, this is what I would do and I'm in the process now to some extent. Buy a house and finance that note...3.5 to 4.5% right now. Live in it for a few months and fix it up so it will be a good rental. Over the next few years take as much money out of your taxable accounts to keep your tax rate acceptable and pay off the house. You will also get a tax break on the mortgage interest. Then once the house is paid off take out an equity loan and buy your boat. Then that will also be a mortgage and tax deductible and you will still have the income off the rental. Or take a little break from sailing for two years and live in the house... Or just don't rent it still sail and if it was your primary residence you won't pay any capital gains tax up to 500k for a couple, if you just want to sell it and be done with it. Lots of ways to get and move money around legally but it does take planning.

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[Wotname]

TS, sounds like your thread provided a great outcome for you , more power to CF :.

[Cuttyhunk]

This thread is a good reminder to those of us in the US still putting money away for retirement of the advantages of Roth retirement accounts. You pay the taxes upfront, but then when you take it out at retirement, no tax. We have a mix of Roth and conventional IRA retirement money and will be able to manage our withdrawals with a lot of flexibility. I hope to keep our tax rate fairly low with planning. My spouse's 401(k) plan now allows for a Roth 401(k) as well as a conventional one, and we are taking advantage of that option.


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