Financing Older vs Newer Boat - Eventual Depreciation

[swabbmob]

Need your help with a logical evaluation.

Our plan is to live on a boat for 3-5 years while I work. My wife may work eventually as well. Suffice to say that our income will be sufficient to cover a loan. At the end of the 3-5 years it is likely that we would sell the boat and move back to the midwest and lake sail again.
My wife and I are getting a good feel for the type of boat we need for our live aboard adventure. One alternative scenario is to find a boat with more comforts - size, which will cause us to potentially need to finance a portion of the purchase price. The mind set to finance opens up many options.

Would we potentially be better off purchasing an older boat such as a 1990 Catalina Morgan 50 or a Beneteau 50 for around 150k to 160k or a newer 2002 Beneteau 473 for around 200k? I would need to borrow 20k to 30k for the older boat, and obviously an additional 40k to 50k to get into the newer boat.

At the end of the 5 year period and assuming we have maintained the vessel in good or excellent condition, what difference in depreciation might we expect between older vs. newer?

What important aspect of this decision am I forgetting?

[Vasco]

I don't understand your purpose in buying a boat. If it's not to go cruising or sailing but just to live on, what's the point? If it is so you can go sailing it's been my experience that folks that live on a boat and work ashore seldom leave the dock. And the bigger the boat the less likely it'll leave the dock. If it's just for living it would be a waste of a good boat. Get a condo instead. Most new boats you'd take a hit selling it after five years. A friend of mine just sold his well equipped 423 after four years and took a hit of about 50K after brokerage on a boat that cost 230K. You might be luckier buying a five year old boat but most production boats will continue to depreciate, albeit at a lesser rate. Again, why are you doing this?

[swabbmob]

Vasco,
Great questions - we want to sail the Long Island and New England area, while working. I have a good job and need to keep it for a few more years. We haven't worked out all the details yet, and I can tell you I don't want to pay 600k to 800k for a house in the NY area that is comparable to the one I have in the midwest. I also have a fascination with living aboard, which is another topic altogether.

This is about as close to cruising as I can get for now. Of course, I would love to head for the Bahamas for the next 10 years, but I don't think that is going to happen.

But your response also provides a good dose of sobriety. The best eventual scenario may turn out to be purchasing a much less expensive boat, and no financing. But I am just following an alternative scenario through to its end.

[Dreaming Yachtsman]

Swabbmob,
One other important factor to consider is how much time and money you are willing to spend on maintenance. In general, an older boat will requier more of both than a newer boat. What condition you are willing to accept at purchase, the upgrades/repairs you want to make while living aboard, and the condition of the boat when you sell should be considered.

In our case, I did not want to spend a lot of time "fixing-up" so we bought new and financed a large part of the purchase price. Fortunately, my U.S. Navy retirement income covers the mortgage and insurance. Even a new boat requires maintenance but we have not yet had a breakdown prevent us from sailing when we wanted to.

[Ex-Calif]

If it's just 5 years buy the cheapest boat you can. More investment = more risk and more loss. For you it seems like it should hold value but it is a luxury item. It will be worth what the economy thinks it's worth.

There are so many factors that affect resale I don't think this can be answered intelligently. The primary impact will be condition of the boat. Even the "new" benneteau is gonna be a 10-11 year old boat when you sell it.

Completely different tack - I know you didn't ask for this advice but...

If you are taking equity from your midwest home, investing it in a boat and financing some more and think this is sound financially, I would disagree.

Keep your house - rent it out and rent an apartment in NY or environs. Join a sailing club.

If you follow your idea you will pay boat broker fees, you will pay for maintenance on the boat, you will pay marina fees, you will pay finance charges on the boat loan and you will lose money on the boat when you sell it. You will pay broker fees to sell your house and lose on the appreciation. Depending on where you are midwest properties are probably a safe 4% year over year investment.

[Boracay]

My rule of thumb for costs is that you are looking at about 25% of the value of the boat each year plus mooring, docking and slipping.

So if you are thinking about a $200k boat then you are going to be up for around $50k + $12k + $6k = $68k each year.

Given that a 50' boat has about the interior space of a small apartment you could buy a 36'(say $48k) older boat and be spending about $12k + $3k + $4k = $19k and have $49k to play with for rent each year.

The smaller boat would be far more useable.

Are rents in your area really that high?

[swabbmob]

Ex-Calif, Unfortunately, our homes association prohibits rental properties or we would seriously consider the option of keeping the house. On the other hand, my company will pay the commission on the sale of the house. Another variable in my plan is that I am highly motivated to experience the liveaboard lifestyle. I have done the American dream thing long enough and want to try a different path...but we are straying from the financial focus of the thread. I think your advice to buy the least expensive boat we can find may be the path we take in the end. I realize that there is a financial price to pay for this idea, but my income should be sufficient to cover that to some extent, and in my mind, the potential non-financial rewards will far outweigh the financial penalties. I would love to pay cash and not have to make the decision to sell the boat at the end of the 5 year period. Maybe we can be part-time cruisers and leave the boat on the hard for portions of the year.

Boracay, Wow the 25% cost figure seems high - is this expected cash out of pocket maintenance or value depreciation or a combination of both? Regarding a smaller boat - I already have a beautiful 37' boat, but am not convinced my wife and 3 kids could comfortably live aboard. I've seen some boats in the 43' to 45' range with prices around 100k to 110k that seemed like they would satisfy the comfort factor. The CT's and Mariners look great and have seen nice one's in the 60k to 80k range, but am worried about the maintenance.

Regarding renting or owning in the NYC area, I can rent a very fancy slip with lots of amenities for around $800/mo. Now that is a lot of money, but it pales in comparison to an apartment or mortgage in the area. Matter of fact, I couldn't touch the community where our favorite marina is. I would probably have 1 to 2 hour train ride if we were to purchase a home.

Please keep the ideas coming. This is extremely helpful, and it keeps us somewhat grounded in reality. This is supposed to be an adventure, and if I followed the advice of all my landlubber friends and family, I would sell the boat I have, buy a new lawn mower, flat screen tv, charcoal grill and join the fantasy football league.

[Morgan Paul]

Please keep the ideas coming. This is extremely helpful, and it keeps us somewhat grounded in reality. This is supposed to be an adventure, and if I followed the advice of all my landlubber friends and family, I would sell the boat I have, buy a new lawn mower, flat screen tv, charcoal grill and join the fantasy football league.

That is funny as well as probably true. I can not offer any advice. But I will say MORE POWER TO YOU.

[slomotion]

If you can get a year round liveaboard slip with amenities in the NYC area for $800/mo., I think you'd be crazy not to do it. Don't know anything about boat financing, but with a family of 5 on a boat that will probably not be sailing anywhere for more than half of the year, I think you would be wise to look for a large one - with a good heater.

[Boracay]

I expect 12% from well invested capital, 6% depreciation and 7% maintenance from a sound, older yacht.

Newer boats will have more depreciation etc. while older boats will have more maintenance.

Upgrades seem to value out at from 33% to 50% of the amount spent.

[cooper]

....good work in including the "invested capital" component boracay, it is often not included in the equation. On the flip side it is also important IMHO to not spend your whole life earning a inhertience for your kids...

[Pblais]

Your price for mooring and docking fees may largely be based on $/FT as would any other types of fees / estimates. Insurance fees also increase. At 50 ft finding boat slip in New england isn't a given either. You will be looking everyplace for a vacancy as well as a vacant slip in a marina that allows live aboards. The concept that a boat can be a cheaper place to live than a house is rapidly becoming a legend headed toward a myth. The smallest big boat you can easily afford is still the better route. The extra expenses are numerous.

You are going to require a storage facility for as much of your land stuff as possible. The problem living aboard brings is you don't have an attic, garage or basement to stow excess stuff. You'll find you need two modes of operation. Mode 1 is liveaboard mode where your stuff is accessible. Then mode 2 in sail mode where you tie everything down and make ready for sail. This process can take several days to switch back and forth. It's what leads Vasco to his earlier comments.

[Tropic Cat]

If I'm to understand that the point of this is to experience the livaboard lifestyle, then this could be the right boat for you. Comfortable, meets your goals and good resale value.

[swabbmob]

Rick,
What kind of sail rig does that vessel have? How would I reef it?

[mikereed100]

if I followed the advice of all my landlubber friends and family, I would sell the boat I have, buy a new lawn mower, flat screen tv, charcoal grill and join the fantasy football league.

Same advice I get, and financially they are right. Buying a boat, any boat, is a dumb idea but as you point out there are other non-financial benefits that must be factored in.
I am about to offer advice so let me warn you in advance. I am an idiot. Do not listen to me!
Since you will be sailing for only 5 years buy the cheapest boat you can find that would be acceptable to you and your family. Do not buy new sails, electronics, toys etc. Defer all non-structural maintenace. Keep the motor running and the mast up. Sail the bejeezus out of it and when you are done, sell. Even if you buy a boat in pristine condition maintain it impeccably and even upgrade it, you will lose money. By getting a cheaper boat and not putting money into it you will also lose money but probably much less and your goal will still have been accomplished.
Again let me emphasize, I am an idiot. Do not listen to me. Except this part; Do give the liveaboard thing a try and don't listen to your family. Life is too short!

Best of luck,
Mike