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Doodles · 15-02-2013, 04:37

Quote:

Originally Posted by Tomm0

If you bought an old boat whose depreciation had plateaued then invested some effort in improving it, and some limited dollars, you may get back more than the input costs... Maybe.

IF you don't put any value on "your time" improving it, and IF you can then sell it.

**Dockhead** · 15-02-2013, 05:30

Quote:

Originally Posted by Tomm0

If you bought an old boat whose depreciation had plateaued then invested some effort in improving it, and some limited dollars, you may get back more than the input costs... Maybe.

Let me explain in financial terms why this is different from the situation with houses.

The value of a house or apartment in a good location will usually be more land than building, or at least, a significant proportion of land. Land doesn't depreciate; it's not "used up". Then you have the structure, which has a very long useful life, probably 100 years. So the parts of the house which are "used up" and have to be replaced often make up a relatively small part of the value. And over the long term, the land -- the location -- goes up in value, the replacement cost of the structure usually goes up faster than the very slow depreciation rate.

For that reason, if you buy a house and leverage it using a mortgage, you usually win over the long term, and never see the depreciation other than the cost of redecorating, paint, a roof every 20 years, kitchens and baths every 15 or 20 years, plumbing every 30 years, etc. You can usually even cover the cost of the redecoration, kitchens, baths, etc. out of the appreciation by refinancing.

A boat is a very, very different thing. There's no land, no location, so nothing to go up in value. The hull has a long useful life, but that's a small part of the value. Most of the value of a boat is made up of things which have a short useful life. So you are constantly plowing and plowing and plowing money into them, but this does not increase their value. It takes a ton of sweat equity -- that is, free labor, to create a significant increase in the value of a boat by fixing it up. You are more likely to make money by simply buying cheap from a fire sale situation, and arbitraging on that, than you are to actually increase the value by improving the condition. Almost always, in the case of boats, the value goes up less than the cost of the improvements.

So depreciation NEVER "plateaus". Stuff continues to wear out at every stage. If you reconcile yourself to living in a shabby, rickety, declining boat then you can let things go and spend less for a while, but it's not like buying a 3-year old car where you can expect three more years of use without significant repairs or improvements, and the value is already going down much more slowly than a new car. Boats are very different. I am actually convinced now that financially speaking, a brand new boat actually makes sense in many cases, talking about higher end non-production boats. Over 5 years, you have a huge depreciation of components, not too much reflected in the difference in price compared to a new boat. If I ever buy another boat, I will certainly concentrate on new boats, and boats which have just been through a very extensive refit.

hellosailor · 15-02-2013, 05:38

"Over 5 years, you have a huge depreciation of components, not too much reflected in the difference in price compared to a new boat."
That sounds, contrary to your point, like the components have lost value but the price of the boat has not been dropped to reflect that. ?? Components meaning sails, electronics, bolt-ons but not the engine? Or??

**Dockhead** · 15-02-2013, 05:39

Quote:

Originally Posted by Budawang

Well, sailing has been likened to standing in a cold shower ripping up hundred dollar bills. However, if you live on a boat then surely the financial equation is a lot different. Of course, you won't make money but you could end up spending less than you would living in a house. Here in Oz with our inflated house prices, a run of the mill suburban bungalow can easily cost $500K. The total cost of home ownership could easily run to $30,000 per year. A ten year old boat, past its peak depreciation period, could cost a lot less than that. Of course, the lifestyle provided by each form of habitation is so different it's apples and oranges.

The reality is that neither a house nor a boat can usually be considered investments, except in periods of asset price inflation.

Long term, houses in good locations actually do go up in value, and not just because of asset price inflation. The key is location, which is what creates land value. Commodity suburban housing in easily replaceable locations, or in cities with stagnant or declining economies, are a different case, of course.

As to living on board: it is easy to calculate the benefit. Just figure the rent on an apartment of the same size and/or functionality, and that's how much you saved by living just on your boat, compared to maintaining a land residence besides your boat. You are using your boat more intensively and so more efficiently, so of course you will save some money. But you will lose the appreciation in value of a house in a good location, and you will lose the very significant investment value of acquiring an appreciating asset using other people's money, that is, a mortgage.

I'm the fool that maintains not only a land residence, but two of them, besides my boat, a large lake house besides a city apartment. I rationalize it by remembering that I have no mortgages (not on either residence, nor on the boat). It means I don't see the real cost of living like that, but it's not an efficient way to live.

belizesailor · 15-02-2013, 07:34

I've been involved in the charter/sailing school industry since 1994 and I've owned boats in charter. A boat is NOT an "investment".

Ask yourself a simple question: if a boat is such a great "investment" as pitched by some charter companies...then why do they not buy them? Companies like Moorings/Sunsail do not own a single boat for a reason. It is because they know that owning a boat is a certain and effective way to lose money ultimately.

The ownership programs developed by charter companies are however a brilliant business idea -- get someone else to capitalize your business and then dump the depreciated asset on them. Selling the potential owner this deal is easy, because what you are really selling is a dream, so they are already receptive to your sales pitch.

The way to make money with a boat (or anything else for that matter) is to generate revenue at every step of the deal: the initial sale, charter revenue, maintenance, decommissioning from charter, and selling the tired old charter boat through your own brokerage or moving it to your "B" fleet and continuing to earn money on the charter/maintenance revenue. This is how you make money on a boat you don't own and this is how larger charter companies do it.

zeehag · 15-02-2013, 07:42

boat as an investment????

rodlmao.

goood luck. doesnt often happen--can rarely happen, so i didnt say never....

btw--welcome to cf....

Kache Walk · 15-02-2013, 08:12

Thanks Dockhead, for a cogent analysis of land-based versus floating real estate.

Tbrad · 15-02-2013, 08:24

The proper term for putting your $$ in a boat should be; "Divestment".

hellosailor · 15-02-2013, 08:32

"land-based versus floating real estate"

No such thing. Real estate is real estate, and a boat is always chattel goods. Even a house boat, is just goods, like a car.

If you want to compare boats to something on land, the appropriate comparison is probably to RVs or mobile homes. And you can own shares in a trailer park the same way that you would in a dock-o-minium, or you can outright buy a plot of underwater property to park your boat on.

The "apples to apples" really are there.

CaptainMurph · 15-02-2013, 08:43

Quote:

Originally Posted by denverd0n

Fixed it for you, David.

If you are going to be spending many weeks (and therefore many thousands of dollars) every year chartering anyway, then you may end up money ahead to own a boat with a charter company. That's the only way that you can possibly rationalize it as an "investment."

This really hits it on the head and changes the formula completely. Most who "invest" in the bareboat charter ownership programs never come close to using the (usually) 6 weeks of personal time they have on their own or comparable boats in the fleet.

If you were going to consistently shell out 15K-20K for bareboat rental each of the three years your boat was in the program and deducted this from your whole investment, you might find a different result.

While it is easy to say "if ownership really worked, the charter companies would own all their boats" and have it appear to be wisdom, I'd keep the following in mind as well:

1. Having the liability of millions of dollars of boats on your balance sheet doesn't make good sense if you can get someone else to assume the liabilitiy.

2. People who put boats into charter service are not idiots and have likely run the numbers many times before they made a decision.

3. Ownership of a charter boat in a first tier operation and then placing in a second tier for 3-4 additional years does pay off for many - or they simply wouldn't do it.

Murph

David_Old_Jersey · 15-02-2013, 08:48

Quote:

Originally Posted by belizesailor

The ownership programs developed by charter companies are however a brilliant business idea -- get someone else to capitalize your business and then dump the depreciated asset on them. Selling the potential owner this deal is easy, because what you are really selling is a dream, so they are already receptive to your sales pitch.

Although I get the gist of what you are saying (including that they are selling a dream

), nonetheless I think "dump" is a bit harsh.......

......I simply see them using the fact that an item can genuinely have more than a single value, depending on who is valuing it and why.

Whether another boat is instead being professionally maintained abroad (from the Owner) and / or from the Owner instead commercially chartering another boat (for many weeks over many years) - those things all have a bigger cash value for the Owner than a Charter Company (and depending on how an Owner values their time possibly quite a large difference if the comparison is own yacht maintained abroad - even with a professional managing the boat will always be "stuff" to discuss / chase for and be a PITA....for some that will be part of the fun of ownership!, for others valued only at their working hourly rate - but others would pay extra not to have to bother!).

Having said that, they are also using the fact that a boat is seen as a recreational item and these are usually accepted as always costing money (rather than being a true investment) - the benefit of that is likely can get away with only selling the chance of being no worse off than if had chosen to carry on Chartering and the outside chance of getting all the money back (free holidays!). For a hobby not a bad deal - for an "investment" absolutely dire!

I think the question should really be "Is a Buy to Charter a good deal?" - and (in addition to the numbers for each deal) that answer primarily depends on the circumstances of each Owner, and likely for most the answer is no

....but the Charter companies do not want a million boats, so it doesn't have to be a good deal for the majority let alone everyone.

Lake-Effect · 15-02-2013, 09:29

I think I have found a boating 'investment' that has a potential to pay off: I'm investing a career in electronics, and some time acquiring ABYC and NMEA certification so that soon I can help relieve boat-owners of their surplus capital.

Invictus69 · 15-02-2013, 09:40

Quote:

Originally Posted by CaptainMurph

2. People who put boats into charter service are not idiots and have likely run the numbers many times before they made a decision.

Murph

I would not qualify them as idiots, however I am sure 99% of them didn't run the numbers properly (if at all) taking all variables and risk factors into consideration. Because, if they did, businesses such as time sharing, boat charters etc would not exist.

As to my personal view on any investments, I prefer liquidity and increasingly try to stay away from the 'ownership' concept. Being liquid makes you able to move around more easily and you are able to meet your current desires and not being stuck within the constraints of your past decisions and you are emotionally detached from all those 'things'.

I know this is a tough mental concept especially in a materialistic/ownership society but it is worth a consideration.

Cheers

hellosailor · 15-02-2013, 09:50

Some years ago I was given the statistic that 94% of all (non-professional) investors in the stock market lose money and only 6% make it. And then again, even if those numbes are wrong most funds and brokers run hot one year and cold the next, or shortly after.

So, without being idiots...it is possible for folks to simply make bad investments. Which may simply be good investments, locked in at the wrong time.

Of course then you've got all the folks who somehow have the money to attend "Make money in real estate!" seminars, who pushed prices up and helped hang themselves in the big mortgage crash just a few years ago.