What Should I Budget For Depreciation And Transaction Costs

[meshach]

My wife and are are looking at a 1 year cruise before kids. What should i budget for the "cost" of a 30-40' boat?
1. Is there a way to rent/lease a boat for this length of time?
2. If i look to buy in the Sept-Nov range of 09 and look to sell the end of 2010, what is a reasonable budget for depreciation loss and transaction costs on both the buy/sell ends?
3. I presume that the initial depreciation on a new boat will be huge (like a car) and thus I'm assuming that a used boat will be more realistic for us, is this correct?

If you think i should be asking additional questions, please advise.
Thanks.

[Boracay]

For an estimate of the ongoing cost of a boat I have used a working figure of 25%p.a. of the value, if it were in sound condition, and have not been disappointed.

Thus for a $400,000 boat one would expect to pay $125k for a year's charter. Very few takers. Most charter boats look to be subsidised by their owners and sometimes by the tax system.

For a nice $160k boat I would expect to be up for a $40k loss. With no maintenance I would not be surprised to find it selling for $120k, with the broker taking his/her cut. In reality expect maintenance and a higher selling price.

All boats may need some work to get them into cruising condition. A new boat may need to have the bugs ironed out and equipment installed, older ones may need extensive work.

[Evan]

You won't be able to charter/lease for a year economically. Best bet is find a run down (bad cosmetic shape) boat that you can buy cheaply with a low offer; fix up and sail for a year and then re-sell. Done right you won't lose money on the transaction. However if the drepressionTM lasts for another year you will have a hard time selling.

[maxingout]

If I was going to do a one year cruise and then dispose of the yacht, I would find a boat that is coming off a major cruise, and that has all the required yacht gear on board. The gear would have to be in good shape so that the boat would be ready to go with minimal modifications.

I would select a size of yacht consistent with my budget, pull the trigger, do the cruise, and them sell the yacht.

Because your time frame is short, you need to buy well so that you can sell well. This might be easier with the present economic environment because there are lots of yachts on the market. If you buy well, you will have a good chance to sell well. If you overpay, you will lose money.

[nautical62]

I think your buy/sell will depend on how new it is as you suggested, the market for the boat when you go sell and whether or not you hire a broker. Add around 10% if you do.

My first two cruising boats were older boats. One I had for 8 years and sold for 80% of what I bought it for and the other I had for two years and sold for 110%, but more like 85% if you count the material upgrades. I now own two boats, one new one is depreciating very quickly. (but there are other reasons it will be a very good value in the end.)

I also picked up a used 88 Hunter, that I may likely spin in three years. I'll be sailing it for two 3-month cruises over the next two years and maybe a couple 1-month cruises My thoughts on that boat were to buy one that could be taken cruising with minimal work, didn't cost too much, so even if it depreciates at a higher % than I like, it won't add up to that much over the ownership period. Most all things that need to be addressed (like bottom pain, a few new pumps, etc) I can fix myself without too large a time commitment. Canvas and other items of curb appeal should still be in good shape in 3 years. My hope is a known model boat of that vintage will still have a reasonable market. I bought the boat for 27K in good condition and imagine I'll spend 3-4K on it physically. I image I'll be able t sell it for 25, but even if I only sell it at 20, 3-4K per year is worth it to me.

On my last boat search, I looked at many older used boats. The thing I noticed was the ones that had good curb appeal sold quickly. Those that looked worn were not selling at all, even if they could be sailed short term as is.

A few other costs I see for sailing in the Bahamas:

Insurance: about 1,500/year. Two people's food, fuel, etc fairly easy at $15-20/each per day. I most always anchor out, so minimum marina fees. Meals out of course can vary greatly from person to person. Communications are another area that can vary considerably. Cheap if you use free wifi and skype when you can get free wifi, very expensive if you desire to be connected all the time.

Again, my experience is based more on 3-month cruises than a year continually.

I hope some of my experiences and thoughts help you figure out what works for you.

- Dave S/V Aurora

[meshach]

I appreciate the quick and thorough responses.

Maxingout, you suggestion would be ideal, is there any particular place or method I should look (or surf) to find that kind of situation. I plan to spend considerable time the next few months engaging in the online cruising community (like this board) and perhaps I'll run across someone planning to end their long term cruise later this year i can make a deal with?

Other thoughts?

[nautical62]

Where you look will probably be a function of where you live and what your budget is. The larger the budget, the more sense it makes to look further away. Obviously, if you live in the midwest like me, you are not likely to purchase a boat locally.

I purchased my last boat in Florida because the sheer number of boats there affords more selection and helps keep the price down. It was also close to my likely cruising grounds. Related to something Maxingout said, is that most boats I looked at were not maintained from cruising - by far most on the used market I saw had been day sailed or let go since their cruising days. This probably relates in part to size as well. The Caribbean probably has a higher percent of boats that are cruise ready, but obviously traveling to the Caribbean to look at boats, hire a surveyor, etc. will have it's costs. If you are looking at budget boats, it may be cheaper and less headache to spend more on outfitting.

What you need to get a boat ready, is not just a function of money, but also of your time, so you need to consider that. A GPS charterplotter is an easy add on. Wiring upgrades may be simple if you do it yourself, but take much longer. What you need will also depend on where you intend to cruise and your own priorities.

For coastal cruising, you may be able to take a boat used mostly for day sailing, but in good shape and be ready to go with a few simple upgrades. Obviously most people will want more gear and a better reliance on boat systems for offshore work.

The thing I learned in my first two boats was that it's not just about what the boat has, but the conditon of the systems than can make the difference between day sailing and coastal cruising.

My first boat was a capable boat, but had only been used for day sailing.

I immediately added the following for coastal cruising: (Pocket cruiser sizes)

Autopilot,($700) Solar Cells ($400), Second anchor and rode, ($400) GPS ($150) increased water carrying capacity (5 gallon jugs), Added fuel tank ($80) Those things were fairly quick to add and the lack of them was reflected to some degree in the boat price. For about 2K I had added the gear to go crusing and doing so was fairly quick and easy.

What I had given less thought to at purchase was that many systems had been let go which did not matter so much for daysailing, but needed to be addressed for cruising:

Head tank back siphoning when holding tank filled. Wiring an absolute mess which I eventually completly tore out and replaced. Some plumbing not working well including 2 thru-hull replacments, stove not working right, awkward reefing system, storage needing to be modified for greater cruising gear needs and organization., new VHF antenna, bimnii repairs, anchor light, clanking wires in mast, painting, window leaks etc.

These items were present on a boat that had been day sailed, but not up to snuff. Identifying the issues and fixing them took a great deal of time, time that could take away from cruising time. Most fixes were not all that expensive, but added up.

Of course, that was just the first year....