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Old 25-09-2013, 18:07   #61
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Re: Sail Cruising - Finance or Own Boat?

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Originally Posted by Doodles View Post
And a lot of "very financially savvy people" have gone down in flames.
You may be thinking of a different kind of financially savvy person, or that I mean something else. I'm not talking about the "oh I can get 12% return forever because I'm smart!" kind, I'm talking about the "I take financial risk seriously, do not seek out aggressive financial positions, etc." Tends to be the "I built my own business" type and not the "I work in finance" type.


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The only way I see the bank taking any risk is if you are willing to walk away from the boat under some adverse condition, and the repercussions from that scenario are another risk that some would not take. You trade one risk for another.
I'm just completely at a loss for the risk you are suggesting. What risk does $400k cash on hand and $200k in a mortgage have that $200k cash on hand and a $200k asset does not? Like, I a specific risk? Because (while both situations have risks), I can come up with all sorts of specific risks for the second situation and zero additional risks for the first (other than comparable risks like someone steals your cash vs. someone steals your boat).
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Old 25-09-2013, 21:11   #62
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Re: Sail Cruising - Finance or Own Boat?

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Originally Posted by FlyMeAway View Post

I'm just completely at a loss for the risk you are suggesting. What risk does $400k cash on hand and $200k in a mortgage have that $200k cash on hand and a $200k asset does not? Like, I a specific risk? Because (while both situations have risks), I can come up with all sorts of specific risks for the second situation and zero additional risks for the first (other than comparable risks like someone steals your cash vs. someone steals your boat).
Obviously, your entire financial situation will dictate your risk exposure and if you're suggesting that since you have an extra $200k in your pocket you will be in a better position to deal with some unforeseen financial cash requirement then yes maybe you are better off. But if you're that short on cash then maybe you shouldn't own the boat to start with. As a depreciable asset I think financing a boat is a poor decision. Finance a home, a business or something that will give you a return not something that is costing you each month in terms of depreciation and maintenance. IMHO
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Old 26-09-2013, 04:56   #63
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Re: Sail Cruising - Finance or Own Boat?

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On the first point: if you read my post, the example I gave was having $400k in cash and buying a $300k boat. Even if you have $1M in cash and are buying a $300k boat, it still makes sense to finance -- and many very financially savvy people do just that.

On the second point, you are dead wrong. Financing almost always *decreases* your risk substantially. That is why you finance. Put another way: $400k in cash, a $200k loan, and a $200k boat is a lot less risky financial situation, by any objective measure of risk, than $200k in cash and a $200k boat debt-free.

The whole point of taking out a loan, generally, is that you are paying the bank money to share some of the risk. It is by its very definition less risky, which is why in the long run (assuming your cash does nothing) it is more expensive.
If your nest egg is $1million, tying up almost 1/3 of it in a boat is a bad idea. This goes to your second point. People don't register buying on credit the same as paying cash. So if financial advisors convince them that it's "smart" to take out loans, they may blindly assume it's a good idea to buy a boat far more expensive than they can really afford. If they have to pull cash out to pay, they are far more likely to back off and buy something more modest that they can actually afford.

To your general point of it reducing risk, you bought the boat, the risk of damage or loss with the boat is the same regardless of if you pay cash or take on debt. In addition, you owe the money with interest to the bank regardless of what happens to the boat. So you actually do take on more risk by taking on a loan. The only way your logic works is if you are buying more boat than you can afford or you are trying to do something nefarious.

As someone else mentioned, when you hear silly words like "savy" run away. Run away fast.
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Old 26-09-2013, 07:06   #64
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Re: Sail Cruising - Finance or Own Boat?

The problem with this thread is that some of us use the definition of risk as we use it in every day while others seem to be referring to risk the way the finance world defines it. These two are basically pretty far apart.

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