Sail Cruising - Finance or Own Boat?

[FlyMeAway]

Originally Posted by Doodles

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.

Originally Posted by Doodles

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).

[Doodles]

Originally Posted by FlyMeAway

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

[valhalla360]

Originally Posted by FlyMeAway

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.

[barnakiel]

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.

b.

[Saleen411]

Ive been giving this a lot of thought lately.

i have the cash on hand to buy what I want HOWEVER, I'm seriously thinking of financing.

Reasons?......

I have good income to qualify for a loan that I will not have when i retire in a couple of years.

I can deduct the interest which MAY make the loan cheaper than withdrawing a butt load of money from my investments and losing the interest income from that....a la Tacoma Sailor. FlyMeWay makes a lot of sense too.

The BIG question..... can I actually invest at a better rate than I can borrow? Some here obviously can. I'm not smart enough to know for SURE.

This is all pretty humorous actually......attempting to find the cheapest way of blowing a ton of hard earned money on a severely depreciating asset.

[theDangerz]

Originally Posted by cvick76

The biggest downfall being the continued monthly payments vs. no payments.
Would the interest rates eat us up?

Given the research we did here, yes...the interest will eat you alive!
The interest rates were horrible, and the lender requirements were even worse. The only way we would be able to afford to finance a boat was to take another job (whereas I'm pretty sure the goal is to leave the one you have).

Wasn't exactly part of your question... but I would suggest trying to sell everything else, keep the house and rent it out/pull the biggest equity line you can to fund your trip.
Than the house keeps appreciating while you're away (and while someone else is paying your mortgage for you)... best case scenario with inflation it eventually sends you a check every month after the mortgage payment to help turn your trip into an even longer one.

More importantly- if you happen to be one of the MANY who try this lifestyle on for sizer and realize they don't like it as much as they thought... you still have the home to go back to and aren't suddenly tying to reinvest in a market you just got out of and likely timing both the sale and purchase poorly because you simply need to.
Im not saying this will happen to you, just that we've only been on the water a few months and have already experienced several for whom it has happened... and backup plans never hurt (especially when they're good financial investments too).

Good luck, go make it happen... we'll be watching for you in the islands!!