remote workers financing a live aboard

[valhalla360]

Originally Posted by BlackHeron

Cash is an asset...

If you are clarifying that that you are intended to include non-physical assets, then your comment makes no sense as they clearly must have at least $100k in cash if they can afford 20% down payment on a $500k boat. So a reasonable presumption that you were referring to physical assets.

I could easily get by on $100k for 2-3 yrs if things went sideways. Not having substantial physical assets would actually increase the time we could stretch out the cash.

[BlackHeron]

100k is chicken feed if they make $300k/year. Try again...

[Mook1e]

Originally Posted by dwedeking2

Yep, moved from California to Hawaii, and got a 6% increase in income (due to lower taxes), then set up residency in Nevada before moving to Mexico so I wouldn't have any state income tax when I left the country. First thing a "nomad" would do is structure their taxes so that it is less.



I lived this way for a while (working remotely) and was the perfect lifestyle. Unfortunately the company I worked for when under so I had to go find a more traditional job arrangement.

Seriously no judgment to the OP's friends, but I really do recommend they set up residence somewhere else and live true digital nomad style. I'm not sure what being nomads but "having a base" and paying taxes in one of the highest taxed states means.
Still, if they like sailing and believe they have the time to both work as true digital nomads and handle liveaboard lifestyle requirements, they should have at it. Finance as well, if they don't want to tie up their money in the yacht. It depends on interest rates, probably.

[valhalla360]

Originally Posted by BlackHeron

100k is chicken feed if they make $300k/year. Try again...

Sure, it's a lot less than they are used to but with no overhead from physical assets, you can almost immediately scale back spending and get 2-3yrs out of it.

On the other hand someone who has a $500k mortgage, a couple of new cars with loans, could be looking at $6k per month just to service the loans and taxes. Add in utilities, food, insurance...they might be lucky to get a year out of $100k in cash because selling is likely not to be an option today (at least without taking a 30-50% haircut on the value if you need to liquidate quickly).

Also, that's the bare minimum they have in cash. They may have another $100k in cash kicking around just not prepared to spend it as part of a boat purchase and have no emergency fund.

[BlackHeron]

A heavily-mortgaged home or other property is not an asset either, or not much of one -especially if there is enough debt to be close to being under water. With the coming recession and imenent lending crisis many will be under water soon as property values drop.

There are two kinds of people -net earners, and net lenders. Income is nice, but it is like a bilge pump on a sinking ship if there is significant debt and/or frivolous spending. The minute the bilge pump stops pumping the boat is rapidly sinking again.

Basic finance. Some get it, most don't.

[JimmyDarci]

Two questions: How does rent compare to boat mortgage? Probably a lot more per month to pay a $400,000 boat mortgage but there are deductions for interest on a primary residence.
2. this leads me to second question - are your friends willing to be creative about a second stream of income that also allows 100% deductions for equipment purchased or financed?— the boat? If so, this could be a complimentary method for the sailing lifestyle and it has worked for others: get Six-pac/USCG OUPV license then both live aboard (as described in your post) AND run a legit day or overnight charter business. Current tax code allows for 100% deduction of “operating equipment” for up to $2 Million. (Sceptics please go read the tax code). The key is it must be a legitimate charter business not a hobby or scam. To do this, see an accountant and make a legit business plan. Anybody that has a nomadic computer-style, work from home type business has a flexible enough schedule to do this. Is this extra work? Sure it is but if sailing is fun and you are willing to share the joy, then a charter business is fun and complimentary to the work from home business. Take a look at the tax code, speak with an experienced CPA and get the OUPV licensing classes in your area. Worst that happens is you take a really useful class and learn a ton of helpful stuff. Five members of our family are OUPV certifies and we all say the class was great for cementing knowledge about boating.

Good luck to your friends. Perhaps they had family or medical needs that sucked up spare income until now. Either way, Can’t take the money with you and sailing years are short - as is life. If they take the risk, they may find other ways of adapting. If they do nothing, they will always have the smaller daysailing boat.

Good luck

[Broadside]

If anything is going to derail this project, it's going to be finding a live aboard slip in California. Last time I looked the waiting list was at least 2 to 3 years if you were lucky. Don't forget about the Property Taxes you have to pay on that slip based on the value of the boat. I know, you rent the slip, you still pay.

Good Luck

[mgnm02]

Sounds like they are still figuring out how to live on land. I'd advise doing that first.

[Alawaiorion]

Well...17 years ago my husband and I did just what this couple wants to do. We put a down payment on a 48 Celestial Ketch. It had to be less than 20 years old to get financing and we got a 15 year mortgage. It was our goal to be liveaboards. FYI it took 6 years to get a liveaboard slip in Hawaii. It takes planning BUT even in Hawaii when we do all the math...add insurance, moorage, fees etc. It costs us more than renting here and it definitely costs us more than our condo mortgage was...AND our money goes into a depreciating asset that can be difficult to sell...
And we put thousands of dollars a year into repair and maintenance...
Don't do it if you think it will save you money or or be better than giving rent to a landlord. Do it because you can't imagine any other lifestyle.
Remember a boat is a hole you pour money into.
Everybody envies us drinking a mai tai on the aft deck watching a beautiful sunset...not so much when we're battening down the hatches in preparation for a hurricane.

[MrImprovement]

Interesting question... I did watch this over the weekend: Sailing Nahoa YT channel and the couple's discussion of their pre-purchase financial decisions:

https://www.youtube.com/watch?v=q3N_NqHApC4

Note that they got approved for lines of credit, BEFORE they quit their jobs and got on the boat...



They need to have a good talk with a savvy accountant/financial advisor.



First thing that comes to mind is that in certain cases you can borrow against your 401k/retirement plan and pay yourself back in interest, without penalties, which may or may not be the best thing to do, depending on circumstances.


Second thing is, they need to figure out how to make a lot of deductions/write-offs going forward. The law is so variable between different states and countries, I know for sure that I can't give accurate advice for their situation.

[valhalla360]

Originally Posted by MrImprovement

First thing that comes to mind is that in certain cases you can borrow against your 401k/retirement plan and pay yourself back in interest, without penalties, which may or may not be the best thing to do, depending on circumstances.

If they are independent contractors, they likely don't have a 401k available.

Also, 401k loans are dangerous. If you lose your job, the loan comes due in 60 days otherwise it's considered and early disbursement with full taxes and 10% penalty due. On a $400k loan, that could be a $200k tax bill. (most 401k loan limits aren't that high though)

[Mook1e]

According to the OP, they max out their 401k.

They should be fine as long as they keep their jobs and truly take advantage of being "digital nomads" as stated in the OP.
Currently, with "a base" and "taxes" in California, they aren't taking advantage.

[ArmyDaveNY]

There are a lot of good comments here, but we must remember that we are assuming ceteris parabis. While it is too soon to know what is going to happen with the economy, there is a real possibility that there will be deflation in the short term, followed by high inflation down the road.

If the economy continues its downward trend, it is possible that people will start to sell things they could only afford when things were going well, or really couldn't afford in the first place. There may be some real bargains within the next few months.

Given all of the crazy stimulus money being printed, there is a likelihood that there will be some serious inflation in at least some parts of the economy, so they'd be paying back any loans with inflated money. The low interest rates now available would be a bonus especially with high inflation.

Granted, the hard part is guessing which way things will go.

[letsgetsailing3]

Originally Posted by valhalla360

If they are independent contractors, they likely don't have a 401k available.

Also, 401k loans are dangerous. If you lose your job, the loan comes due in 60 days otherwise it's considered and early disbursement with full taxes and 10% penalty due. On a $400k loan, that could be a $200k tax bill. (most 401k loan limits aren't that high though)

The most anyone can borrow from a 401(k) plan is $50,000.

[letsgetsailing3]

Originally Posted by ArmyDaveNY

Given all of the crazy stimulus money being printed, there is a likelihood that there will be some serious inflation in at least some parts of the economy, so they'd be paying back any loans with inflated money. The low interest rates now available would be a bonus especially with high inflation.

Inflation means PRICES get inflated, not money. But there's an awful lot going on in the economy right now, so some of the conventional wisdom is going to be a little off. Tread carefully with the major financial decisions.