Borrowing from Life Insurance for purchase

[Lake-Effect]

Originally Posted by poseidon2027

I have enough cash to buy it now if I want to, but that doesn't make financial sense. I will already be using cash (from the sale of my homes) to pay for 60-75% of it. Taking money out of my investments to buy a depreciating item will lower my principle, thus lowering my compounding interest and lowering income. It is the absolute last thing I want to do.

... selling homeS that that will only cover 60% of the planned cat purchase? Question... when the cat days are over, or some catastrophe strikes, where are you planning to live?

[poseidon2027]

Originally Posted by Lake-Effect

... selling homeS that that will only cover 60% of the planned cat purchase? Question... when the cat days are over, or some catastrophe strikes, where are you planning to live?

Good question. Sell the boat, take the hit on depreciation and use that money as a down payment or entire payment of a house, or rent. I dont know, way too far in the future but those are the most likely scenarious.

[dawsonlong]

Originally Posted by poseidon2027

I know my title says borrowing from life insurance but this may be more about the generalities of acquiring the funds for a catamaran purchase. I was just wondering what some options are that people use for getting the monies. For examples, the Wynn's (from Gone with the Wyn) said they borrowed from their life insurance policy. Im really hoping someone could shed some light on this as I had never heard of doing this before.

Then, Seth from the Sailing Family, said he borrowed against his portfolio. I've done a little research into this and am also looking at this option.

Finally, I found a little information on a boat loan. This seems like the worst ides because of interest rates.

So basically, I was just hoping you more experience sailors could give me a little information on borrowing from life insurance or other ideas I may not know about.

Thanks for all the help!

You should cancel the life insurance, and pull out the savings portion. If you do not have any family who would suffer financially, you do not need life insurance. The asset to transfer if you died would be the boat. You will save money enough to pay for docking fees. Sail on my friend.

[waterman46]

Originally Posted by flyingw

However, boats in general have gone up 10/20/30% or more in the past few years. So borrowing at even 6% or 8% to buy would have been actually cheaper.

Every year is different and everybody's finances are different. Blanket statements don't always or even seldomly apply.

That reasoning is nonsense. A new boat cannot be re-sold as a NEW boat again. It will be sold as a USED boat, at a high depreciation rate. That's a blanket statement that has always been true.

As previous posters have said, don't borrow for a boat. OP wants a catamaran that he can't afford to buy with cash. You don't need a catamaran. Get a less expensive monohull with whatever cash you can come up with. If not enough for your needs, start saving.

Above all, keep in mind that the fun in cruising is not about how much you have paid. Much more important than the size or age of the boat is your peace of mind - knowing that you own it outright and can spend whatever you would have paid in interest, for maintenance and upgrades.

[goboatingnow]

I don’t agree with the absolute stipulation against borrowing for a boat. It all depends on your particular circumstances. In reality all you really want is to fund the depreciation over the period you own the boat. There is retained value.

Equally if you have reasonable future expectations of income it can make sense to borrow.

It’s irelevant whether it’s a wasting asset or not. You are borrowing for a purpose.

In several cases I borrowed ( marine chattel mortgage ) secured solely against the asset itself. It made perfect sense financially

[poseidon2027]

Originally Posted by dawsonlong

You should cancel the life insurance, and pull out the savings portion. If you do not have any family who would suffer financially, you do not need life insurance. The asset to transfer if you died would be the boat. You will save money enough to pay for docking fees. Sail on my friend.

Luckily I dont have life insurance. I was asking these questions to see if its worth getting it. Looks like for what I am trying to do its not ideal, so I dont think I'm going to get it. Thanks and sail on to you too!

Originally Posted by waterman46

That reasoning is nonsense. A new boat cannot be re-sold as a NEW boat again. It will be sold as a USED boat, at a high depreciation rate. That's a blanket statement that has always been true.

As previous posters have said, don't borrow for a boat. OP wants a catamaran that he can't afford to buy with cash. You don't need a catamaran. Get a less expensive monohull with whatever cash you can come up with. If not enough for your needs, start saving.

Above all, keep in mind that the fun in cruising is not about how much you have paid. Much more important than the size or age of the boat is your peace of mind - knowing that you own it outright and can spend whatever you would have paid in interest, for maintenance and upgrades.

SMH, please read what I've written...or take some basic finance classes.

[goboatingnow]

As previous posters have said, don't borrow for a boat. OP wants a catamaran that he can't afford to buy with cash. You don't need a catamaran. Get a less expensive monohull with whatever cash you can come up with. If not enough for your needs, start saving.

This is not good advice without knowing the specifics of the person involved , future earning potential etc. Nothing wrong in borrowing if approached with the right mindset and the borrowing risk is acceptable and the finance criteria can be met.

Cash is best used for productive investment where collateral is hard to produce. Borrowing to buy a wasting asset is essentially financing the depreciation.

[Narfi]

If you have the money, but want to keep it, you have the house and will want a house again down the road, why sell it?

How about this?
Refinance the house for the lowest interest cash out you can.
Take the cash you got from the house as the downpayment for the lowest interest rate you can on a boat loan.
Your money stays invested, you are paying 4% ?? on the house and 5-6% ??? on the boat and you kept all of your money invested.
Of course that requires you are able to make the payments until your retirement adventures are over and you sell the boat and pay back your house loan, accepting the losses of depreciation over the years and the interest paid. (probably still less than your investments earned)

You have had your fun, you still have your house (and it could have earned a lot of rental income in the meantime and be worth more than when you left)

[poseidon2027]

Originally Posted by Narfi

If you have the money, but want to keep it, you have the house and will want a house again down the road, why sell it?

How about this?
Refinance the house for the lowest interest cash out you can.
Take the cash you got from the house as the downpayment for the lowest interest rate you can on a boat loan.
Your money stays invested, you are paying 4% ?? on the house and 5-6% ??? on the boat and you kept all of your money invested.
Of course that requires you are able to make the payments until your retirement adventures are over and you sell the boat and pay back your house loan, accepting the losses of depreciation over the years and the interest paid. (probably still less than your investments earned)

You have had your fun, you still have your house (and it could have earned a lot of rental income in the meantime and be worth more than when you left)

That’s the type of information/advice I was looking for. The house will most likely be paid off or close to it by then tho. But a HELOC or maybe something similar I am not familiar with (will research) could work. Rent alone would cover any payments so this could actually work.

[valhalla360]

Originally Posted by Narfi

If you have the money, but want to keep it, you have the house and will want a house again down the road, why sell it?

How about this?
Refinance the house for the lowest interest cash out you can.
Take the cash you got from the house as the downpayment for the lowest interest rate you can on a boat loan.
Your money stays invested, you are paying 4% ?? on the house and 5-6% ??? on the boat and you kept all of your money invested.
Of course that requires you are able to make the payments until your retirement adventures are over and you sell the boat and pay back your house loan, accepting the losses of depreciation over the years and the interest paid. (probably still less than your investments earned)

You have had your fun, you still have your house (and it could have earned a lot of rental income in the meantime and be worth more than when you left)

Because houses have carrying costs:
- Property tax
- Maintenance
- Repairs
- Insurance
- Etc...

Depends on where you are but that can easily add up to 5-10% per year...and then there is the question that if you come back from cruising in 7-10yrs, will you still want to live in the same location.

Being a landlord can be an excellent way to make money...doing it with your primary home, long distance, with no experience is a great way to lose money and wind up with a trashed house.

[sesmith]

Not sure what boat you're considering but buy 20-40% less boat, then you won't have a cash problem, from what I'm reading.

That said, paying cash for something like a boat makes the most sense financially (this really is finance 101). To do that, the cash must come from savings that you don't need. That's your problem in a nutshell.

Financing works great if you have an investment to borrow against that makes more than the interest charged for the loan. I've done that with our last 3 cars and still have the original amount. Last car financed was at 0% with no incentive to pay cash, so a no-brainer of a loan. Still paid half of it up front with cash from the sale of the previous car. It's doubtful you will find a loan for a boat that has a low enough interest rate to make this an option, though. Financing play toys makes terrible financial sense but lots of people do it.

On renting out your home. I did that for 5 years. I saved all the rent for repairs and work on the house as we planned on moving into it after that 5 year period. The mortgage and taxes came out of my pocket for that period. We moved down and found the last renter trashed the place (and I did have a property manager). Cost me way more than I saved to remodel (and I did the work myself). I'll never rent out another house again. Don't know how people come out ahead or even break even on rentals.

[S/V Illusion]

Originally Posted by poseidon2027

.



Have you been reading anything I write? I have enough cash to buy it now if I want to, but that doesn't make financial sense. I will already be using cash (from the sale of my homes) to pay for 60-75% of it. Taking money out of my investments to buy a depreciating item will lower my principle, thus lowering my compounding interest and lowering income. It is the absolute last thing I want to do. Not sure what makes this sound like a "wild scheme", but maybe you should get out of your appropriately named vessel and do some finance research.

You don’t need to be insulting. That is a voluntary behavior or character trait.

As to your post, no, I didn’t bother reading most of it as it makes no sense for the reasons I described previously. . If you have the cash, this is a non-issue. Just use it. If you are using investment income, that too is a simple choice of on what you choose to spend it on. If you borrow against a fluctuating market investment, it’s ludicrous to simply assume it will always earn. And more fundamental, it’s nonsensical to ever borrow against anything to buy a depreciating toy.

I was an investment banker. Your expertise is the questionable background here but regardless, rest assured I won’t bother writing advice to you henceforth. You clearly think you know the answer to your own question.

[poseidon2027]

Originally Posted by S/V Illusion

You don’t need to be insulting. That is a voluntary behavior or character trait.

As to your post, no, I didn’t bother reading most of it as it makes no sense for the reasons I described previously. . If you have the cash, this is a non-issue. Just use it. If you are using investment income, that too is a simple choice of on what you choose to spend it on. If you borrow against a fluctuating market investment, it’s ludicrous to simply assume it will always earn. And more fundamental, it’s nonsensical to ever borrow against anything to buy a depreciating toy.

I was an investment banker. Your expertise is the questionable background here but regardless, rest assured I won’t bother writing advice to you henceforth. You clearly think you know the answer to your own question.

"This all sounds more like a wild scheme to fund a dream without any practical forethought."

Pot calling the kettle black or something something or other.....Investment banker equals personal finance it does not.

Point is, I thought CF had more financially savvy people who have built up generous nest eggs and can afford more expensive hobbies like cruising, boating etc. Guess I was wrong. I went to a finance forum and got all the answers I needed without the "if you cant pay cash you cant afford it" dribble that most here said.

[MNGator]

You don't need to pay cash, that isn't always the best financial advice. I will be taking out a loan to pay for the boat and there are several good options.

Get a loan that is less than your investment returns. If you are getting a busy loan at 5% and are making 7% on your retirement portfolio, you keep your principal. And while the boat is a depreciating asset, you should have equity in the boat at the end of 10 years so can recoup some gains. Not to mention that a boat loan is a mortgage and the interest is tax deductible if you qualify.

Another option is to firm an LLC and do boat as a business. I have a rental property business and plan to put my primary residence and boat into it when I retire. While there are some risks, you can mitigate by doing airbnb and such for rentals depending on your location. There are a lot of good companies that manse this abs Sui a great job. Aibnb, vrbo etc provide you additional insurance against damages. On the boat side, you accept an airbnb guest to rent a cabin a couple times a year and your boat expenses become deductible.

Talk to a good financial planner and tell them your plan. With 6-7 years to go, they should be able to put you in a good position to realize your dreams.

[Kd9truck]

Originally Posted by poseidon2027

"This all sounds more like a wild scheme to fund a dream without any practical forethought."

Pot calling the kettle black or something something or other.....Investment banker equals personal finance it does not.

Point is, I thought CF had more financially savvy people who have built up generous nest eggs and can afford more expensive hobbies like cruising, boating etc. Guess I was wrong. I went to a finance forum and got all the answers I needed without the "if you cant pay cash you cant afford it" dribble that most here said.

If you received an answer from another source that makes sense to you “good on ya mate”.
Why don’t you share it mate?

You came to this forum it I’d not solicit you

The “dribble” posters have vessels or are saving to buy the ones they can afford.

I have a beautiful 12 year old 44 S/V ft that is completely paid for, my annual expenses are upgrades and more importantly upkeep. None of my investments are tied to another. I pay no interest on borrowing anything my credit card balance is zero, I am 57 and have been “retired” for 5 years, all my investments, all untethered and earning. I am also saving every month, yes saving for retirement in retirement.

What am I doing wrong?

My nest-egg is flush “Poseidon” but please elaborate on this advice you got from the finance forum? I am legitimately intrigued.

I accumulated the above by working hard (blue collar ) it’s the only way I could guarantee my dream to reality, I bet against myself. It’s the only way this dribbler could realize my dream, sometimes, most times it sucked, grinding away days, weeks, years, on end. I did not have access to a finance forum Back in my teens and twenties when I pondered past my working life at retirement, I reluctantly bought that BS I was sold by the dribblers.

I am sorry the advice you asked and the answers you received insulted you.

I truly hope your dream with your family comes true, get term life insurance it’s untaxed on payout.

Fair winds mate.