If you can pay cash, why did you finance?

[barnakiel]

Originally Posted by Shenandoah52

I had a business partner for 7 years back in the day that lived by that rule. He used to chide me saying, "Stretch is the name of the game." It worked really well for him. Until it didn't and he lost everything. Turns out he had a... wait for it... a Minsky Moment. I've watched that several times with close friends in my almost 70 years.

Leverage is powerful, no doubt about it. The problem is it cares not which side it is on.

OK but note that we are talking about different ideas.


I talk about buying stuff with lender's money while your own money makes more % than you pay for the borrowed money.


I do not talk about borrowing money and then investing it into speculative options like derivatives, volatile stocks or Bitcoins.


We tend to watch the Wolf of the Wall Street too much and educate ourselves on lending / borrowing and plain vanilla investment rules.



Borrowing is not an obligation, it is an option. At times it is a good option while at other times it may seem the only options (e.g. mortgage on a house).


At times it is a bad option (mortgage your fully paid up home at 20%, buy BTC bullish derivatives then forget where you stored then ;-)



Nothing wrong with borrowing or, how the hypocrites like to say, 'financing'.


b.

[Rubicon King]

Of course, and an obvious joke...

Originally Posted by taxwizz

Are you married?

[Sailor 99]

Originally Posted by a64pilot

Let me sort of restate that, if your 30 yrs old and can afford to start over cause you have many, many years of working life left, then take a chance, finance the thing.
But if your Retirement age and can’t afford to start over, maybe it’s time to be more cautious.

This. .. ^^^^^^^^.



Starting over usually means starting with nothing and makes it tough to get back to where you were. At my house the only debt we have is the current credit card debt and the bill is paid in full every month.


If the phone company wants to finance my phone for free thats okay. But we are not about to finance anything major that requires monthly payments. A boat is a definite no on. The only asset that depreciates faster than a boat is a car.



We have been very successful this way.

[OS2Dude]

One reason here in the states is that you can write off the loan interest just like a mortgage if you can cook, sleep and go potty on board and you stay aboard at least two weeks a year. (I.E. the same requirements as a vacation home.) Not sure if that is an advantage anymore, but it used to be to some folks.

[benvanstaveren]

Originally Posted by barnakiel

Hahaha.


Yes indeed it is fun to read this, while by present reports an average Joe owes some 40k per capita in personal debt while owing further 70k thru govt debt.


People who owe 110k and squeak about financing a boat or not ... ;-)


Take care,
b.

Well, you got me back in - the average American Joe owes that, perhaps - the average European Joe does not. In fact, most European countries set limits to how much you can owe in some form or other.



Take France for example; it's quite common here for people to buy new or recent (+/- 4 years old) boats under a lease-to-own scheme.



The rest of Europe may not have it, but plenty of Europeans buy their boats with financing. Mostly because unlike the US, getting any form of credit here means you have to prove not only that you have the financial means to pay for it, but any credit institution will either request your outstanding credits at a central data warehouse (such as the Dutch BKR), or you need to supply proof (in the form of bank statements) that you are not getting in over your head. Currently in France for example, you are allowed to "owe" (I believe) 15% of your net income in monthly payments. So if you make 30.000 per year, you can owe only 450 per month on finance repayments. Any more than that and you will be declined.


Furthermore... you also have mandatory insurance that covers most risks. Such as mandatory life insurance with the creditor as beneficiary, insurance that covers you losing your job (and they will then split payments with you based on a what-you-can-afford scheme), but also insurance that covers you becoming handicapped, and so on and so forth.

People who owe 110k and squeak about financing a boat or not ... ;-)

If you own a house I could argue something about stones and glass - if you don't, well, good for you.



Let people do what people do. Getting all up in their business when they are here asking for advice just makes everyone look so hilariously angry and unpleasant. Give your opinion, and leave it at that. No need to come in guns blazing.


Edited to add: you should try to refrain from calling people hypocrites for calling it financing. For example, English isn't my native language, and in my native language when translated literally it is indeed called "financing". If you need to put people down to win your argument, you pretty much lost it right then and there.


But whatever, this is going to turn into yet another 50+ page thread on who has the bigger "I paid cash" e-peen

[Shenandoah52]

Originally Posted by barnakiel

OK but note that we are talking about different ideas.

B, I hear where you're coming from. I realize there is merit in that position. My comment to your comment about leveraging as much as one can being a no-brainer if your present investments pay over the financing cost was about when your present investments or situation no longer pay over the financing cost but the financing costs still linger.

In other words, you take on debt based on a current situation but the current situation changes making your otherwise 'no-brainer strategy' a problem. That's the situation I watched unfold that I hinted at in that post. As a side not to my partners' dilemma, not that it matters to anyone, but he was sailing along quite elegantly until a major contract for his business got cancelled out of the blue and he had to lay off almost 160 people on a Friday. I was there right in the thick of it. It certainly wasn't anecdotal to me. I also was effected substantially.

And as far as "I do not talk about borrowing money and then investing it into speculative options like derivatives, volatile stocks or Bitcoins" you and I are on the same page to be sure.

[barnakiel]

Originally Posted by S/V Illusion

True about average debt, however, I suspect we both know that debt is accumulated in large part for buying food, clothes, education, a roof over their head, health insurance, medical bills, heat, etc.. rather than for toys they can’t afford.

This isn’t the place to seek or value financial advice.

Yep.


And a country where people take debt to buy food has a serious non sailing related problem.


b.

[barnakiel]

All true said. Very interesting thread indeed.


We bought our boat with cash. We also paid our sailing adventures (one of them was sailing rtw over 4 years) with cash.


But I see no reason why somebody else should not act, buy and borrow differently!


If I had such great investment options, I would buy stuff (boats too) with borrowed money. The point is, I do not have those excellent investment options. So I buy with cash.


10 years in banking and at the stock exchange taught me some simple things.


Cheers,
b.

[S/V Illusion]

Originally Posted by barnakiel

Yep.


And a country where people take debt to buy food has a serious non sailing related problem.


b.

How that is the fault of the country, particularly one in which opportunity abounds, is misplacing responsibility for that problem by ignoring personal responsibility but this isn’t the forum to debate that issue.

[Simi 60]

Originally Posted by S/V Illusion

How that is the fault of the country, particularly one in which opportunity abounds, is misplacing responsibility for that problem by ignoring personal responsibility but this isn’t the forum to debate that issue.

Not everyone can have the high paying job
Someone still needs to empty your bins, make sandwiches, clean dishes and countless other tasks that America refuses to pay a living wage for.

[TheRailRoader]

In 5 pages, I am sure it has been stated already. But another assumed vote in this direction...

My money, makes me more money, in other vehicles then the debt costs me. If at any point that becomes untrue, then I will change my situation.

But yeah, that's my vote.
RR

[valhalla360]

Originally Posted by Belezar

Some posters kept saying the bank had no risk. Totally incorrect. And some banks make nonrecourse loans on boats and planes. I personally think that’s dumb but they do.

Yes, the bank can go after other assets if it’s a recourse loan, which it usually is, but if a person is defaulting on a boat loan they are likely in trouble several places. They don’t have any security on other assets, so they have to fight like any creditor for their share.

Your idea that they aren’t likely to go belly up if they had cash to buy the boat is a little off, too, at least in the US. Medical debt accounts for about half of bankruptcies. Things come out of nowhere in business, too. It might be a decent bet for the bank but it’s still carries some risk.

If you are sitting on cash sufficient for a $250k boat...medical debt isn't likely to put you in bankruptcy.

If you have multiple debts well in excess of your cash reserves...you don't have enough to pay cash.

Also, not only can they go after the collateral (ie: the boat), they can go after your other bank accounts and assets (with certain limitations). On a $2500 credit card loan, they have the right but normally won't bother. On a $500k boat loan, it's worth their trouble to see what else is available from your assets. (this all ignores the ethical issue that if you really have sufficient assets, you should be paying. If you are a lair and thief, then the bank has a big risk but you likely won't walk away unscathed.)

[valhalla360]

Originally Posted by kev_rm

Stop casting dispersion, chief. I'm not trying to justify anything - I haven't taken a loan and the boat under contract right now has no financing contingency. I'm trying to learn from folks who are in a similar situation as myself, however rare.

I missed that you were the OP and hadn't took a loan out yet. Therefore, you don't fit into either category...at least at this point in time.

That said, the point still stands, just because someone says something on the internet, doesn't mean it's reality.

[valhalla360]

Originally Posted by benvanstaveren

The point was that you can finance a boat and not be on the hook for it if it sinks. That's what you pay the insurance premiums for. I wasn't saying the bank takes the risk, but it's very much possible to mitigate the risk of being expected to pay in full for a sunken boat.

The point is, if you take out insurance...it doesn't matter if it's financed or not. The insurance company takes the hit. In no way does that put the risk on the bank.

[valhalla360]

Originally Posted by benvanstaveren

And to add, I'm going to leave this thread alone. Some of you folks are positively rabid about not financing anything; if someone wants to, assume they're grown adults and have made their own judgement call on whether or not to do it. Raging all over someone because they make that choice is not exactly making you look friendly or welcoming.


That'll be all.

No one's saying you can't as an adult make a poor choice. It's a free country.

But if you ask advice, don't expect people to congratulate you on a poor choice and don't expect us to feel bad when you experience the results.