Challenge: Buy Yacht Overseas on House Equity and Come Out Better Off Financially

[VirtualVagabond]

Originally Posted by dennisail

I owe about 120K on my house and its worth about 340K. So I could get about 200K from the bank.

First hurdle:
Banks look at 2 things.
1) LVR = Loan to Valuation Ratio. They won't lend you more than 80% of their valuation of your property, unless you pay mortgage insurance, and you don't want to go down that road. So you're looking at 272k-120k = 152k max you could borrow, if they agree with your estimated value of 340k.
2) Your ability to service your total loan, and live. If you can't show them the likelyhood of a continuous income stream that can achieve the above, the deal is dead. If you've got a parent or someone who would stand guarantor you may have a ghost of a chance. No bank will lend to someone who plans to borrow the money, and dump their job.

Until you get this hurdle sorted, all the other stuff you're asking about is academic.

But don't give up on the dream, just find another way that works.

Vic

[lightstreetmike]

Great feedback and questions all. I would add that your production Beneteau or Bavaria is not the best bluewater boat (not trying to pick fights with those owners or fans just saying) and that if you equip it for the long passage to Oz you will first be testing it in possibly severe conditions and if you make it you will then have a 'bay' boat equipped for the ocean. Then you will be looking at stripping off the extras and selling them separately or trying to sell an ocean-going Beneteau to a bay sailor that doesn't see any value in the extra fuel capacity, the extra water capacity, the extra safety gear, etc.
FYI - I do sail on Beneteaus and love sailing them. I also know of one that lost its rudder and sank off Long Island a year or two ago. Fortunately the crew was rescued by the Coast Guard but the boat is on the bottom.
Has anyone following this thread actually bought a boat 'overseas' and then sold it in Oz for a big profit? I hear it's possible from time to time but then have never actually heard any first hand stories.

[dennisail]

Originally Posted by VirtualVagabond

First hurdle:
Banks look at 2 things.
1) LVR = Loan to Valuation Ratio. They won't lend you more than 80% of their valuation of your property, unless you pay mortgage insurance, and you don't want to go down that road. So you're looking at 272k-120k = 152k max you could borrow, if they agree with your estimated value of 340k.
2) Your ability to service your total loan, and live. If you can't show them the likelyhood of a continuous income stream that can achieve the above, the deal is dead. If you've got a parent or someone who would stand guarantor you may have a ghost of a chance. No bank will lend to someone who plans to borrow the money, and dump their job.

Until you get this hurdle sorted, all the other stuff you're asking about is academic.

But don't give up on the dream, just find another way that works.

Vic

Why would I tell the bank I am going to quit my job when getting the loan? Getting the loan is no prob and my mate will have 35K to put in too.

[osirissail]

I have met 4 Aussies in the last four years who did exactly what is being talked about. Flew to Florida, bought a new or nearly new Bene or Catalina in the 40 ft range and sailed them back to Australia via the Caribbean loop to Panama and Coconut run across the Pacific. Minimum time for the whole trip was two years and maximum was 4 years. They had a blast and all sold their boats when they got back to Australia.

[Sabbatical II]

Originally Posted by dennisail

Thanks heaps for all the replies.

Since I would be selling the boat when I get back here. My whole reasoning is to "Do it for the fun, and if you end up with a profit at the end, then it’s all gravy". So if I have to pay capital gains tax I guess that means I am making some profit and I have succeeded in my goal right?

I'm sure all this can be done, but I suggest you thoroughly check out what tax is payable on enterring Australia. My understanding is that the ATO charges as follows:

The value of the boat + the inport duty [I think 5%] + the price of transporting the boat to Australia X 10% GST.

The value of the boat is the greater of:
A) The amount on the purchase receipt or if the ATO suspects that the purchase price is way under the Australian market value:
B) the market value of the vessel in Australia.

The price of transporting the boat to Australia is one of the following:
A) The cost of shipping it on a commercial freighter or

B) if you sailed it here, the ATO's calculation of what it would cost in food, boat repairs, fuel and the price to hire a professional skipper deliver it which can often be more than option A.

Once all this is added up, 10% is added to the total of the above amounts. Annecdotally I have heard that they usually accept the purchase price as the value of the vessel, but they don't have to.

Like I said, I'm sure it can be done, but know the real costs before you go.

Greg

[VirtualVagabond]

Originally Posted by Eleebana

B) if you sailed it here, the ATO's calculation of what it would cost in food, boat repairs, fuel and the price to hire a professional skipper deliver it which can often be more than option A.

This hasn't been the experience of others who have already done it.
The transport cost has been accepted as the actual cost from the last foreign port, eg Noumea to Bundaberg, Qld. A bit of food, a little diesel. Well under $1000, so GST of under $100 for that part.
There is a comprehensive thread on importing a boat into Australia in the Multihulls section, with details from cruisers who have actually done it.

[Pete7]

Originally Posted by lightstreetmike

Great feedback and questions all. I would add that your production Beneteau or Bavaria is not the best bluewater boat (not trying to pick fights with those owners or fans just saying) and that if you equip it for the long passage to Oz you will first be testing it in possibly severe conditions and if you make it you will then have a 'bay' boat equipped for the ocean. Then you will be looking at stripping off the extras and selling them separately or trying to sell an ocean-going Beneteau to a bay sailor that doesn't see any value in the extra fuel capacity, the extra water capacity, the extra safety gear, etc.
.

By the same token the Beneteau could be a good choice then, as a known make and a likely market in Oz rather than some old tub built like a battleship but 40 years out of date.

Pete

[VirtualVagabond]

Originally Posted by dennisail

Why would I tell the bank I am going to quit my job when getting the loan? Getting the loan is no prob and my mate will have 35K to put in too.

Of course you wouldn't. But you still have to prove that your current income could service a loan of $272k as well as their estimate of your cost of living, and you may well be able to do that... $272k is not much of a loan when it comes to property. You're only looking at about $20k interest only, after tax income, or 30-35k before tax income, depending on your income.

You are also going to have to tell the bank what you want the loan for. A few years ago they didn't care too much, but it's a very different scene now. They would probably be more inclined to just give you a line of credit if you're a doctor, lawyer or accountant, but if not they are going to want to know what you want the money for, and boats are not a big turn on for them at the moment. If you're investing in another property, or improving your existing one, they are a lot more comfortable.

I'm really not trying to be a wet blanket here, just telling you in advance what you're going to have to deal with. I do have a bit of experience in this area... borrowed a fair bit for both investment properties and boats, and also was a mortgage broker in another life.
At least you'll be able to think through your approach first and give yourself your best shot.

Good luck, I'm actually in the 'go for it' camp.

[itchn2go]

We are considering doing the exact same thing. We live in Tassie and are looking at boats on the west coast of the US. Yachts (as well as houses) seem to be overpriced compared to elsewhere. We have some equity in our home and in planning stages to do this from next may and do the coconut run.

[SimonV]

It is doable, you may even break even. If you consider you will not be making a wage and you pay cash ......but this will will not work if you are borrowing the money.

[swagman]

Hi Denis,
We've got pals who last year purchased a 2 year old Hanse 470 in the UK for sub A$325,000.
They are spending a year or so sailing her home to E coast Australia where at current values if they choose to sell - they would list her for more than A$500,000.
For sure from that they'll pay import duty and local taxes - but do the sums yourself. Buy right, sell right, you could make money and see a lot of the world enjoying a great trip. Just maybe not on a ex charter 36 foot Bav though!
Cheers
JOHN

[VirtualVagabond]

Originally Posted by swagman

Hi Denis,
We've got pals who last year purchased a 2 year old Hanse 470 in the UK for sub A$325,000.
They are spending a year or so sailing her home to E coast Australia where at current values if they choose to sell - they would list her for more than A$500,000.
For sure from that they'll pay import duty and local taxes - but do the sums yourself. Cheers JOHN

Boats frequently sell for 25%+ less than their listring price. $500,000 less 25% gets you $375,000. By the time you've added Duty and GST to the $325,000 you've hit $375,000.
So, you'd hope they bought a lot 'sub', and could list for a lot 'more than'. Also, it could take a while to sell in the current market, so if they've borrowed against the house to buy, or any other source of funding that is costing interest, or forgoing interest they could be earning if they had the cash, they could be out of pocket very quickly.

I really hate sounding so negative on this thread... it's not my nature at all, but 'she'll be right, mate' approaches could mean broken dreams, and more cheap boats on the market again.

I totally agree with your buy well, sell well philosophy, but I really believe that taking advantage of this global market opportunity is an opportunity to have a great adventure, and probably break even. If you go in with that as your goal you'll probably be ok, and if you're really lucky, make a little...

[cat man do]

You have a house now
You plan on renting that house while cruising in the "New House"

IF, you set the new house up as your principle place of residence, it should be exempt from CGT in Australia I would think.

Is your home exempt from capital gains tax?
Overview
In general terms, you pay tax on any capital gain you make on your interest in property when you sell it, unless it is your home (main residence).
Is your home exempt from capital gains tax?

Is your home exempt from capital gains tax?

What is a dwelling?
A dwelling is anything that is used wholly or mainly for residential accommodation. Examples of a dwelling are:
a home or cottage
an apartment or flat
a strata title unit
a unit in a retirement village, and
a caravan, houseboat or other mobile home.
Last Modified: Tuesday, 29 June 2010
Is your home exempt from capital gains tax?

Something to think about

Any CG on your land based property (previous home) while you lived in it will still be CGT free, but while you have your boat named as main residence it will attract CGT for that period.


Or at least that's my interpretation of the rules.

[swagman]

Originally Posted by VirtualVagabond

I totally agree with your buy well, sell well philosophy, but I really believe that taking advantage of this global market opportunity is an opportunity to have a great adventure, and probably break even. If you go in with that as your goal you'll probably be ok, and if you're really lucky, make a little...

I guess I was worried that so many posts could be intepreted as a 'put down' to the plan, and I never thought anyone would actually expect to go sailing anywhere in normal times without a cost of some kind.

Sailing costs in kit, in repairs, in living.


The facts are circling the globe on the hugh seas is a huge adventure and not normally achieved without a cost of some kind.

I fully support the point made above but repeat that there are real people out there taking good advantage of recent and relatively drastic movements in currency values which along with localised recessions give reduced boat prices, and as a result achieving their cruising dream with minimal cost to the cruisers - compared to the normal situation.

So good luck with whatever you decide. If you did wish to take advantage then I do suggest the time is still right now.

JOHN

[VirtualVagabond]

Originally Posted by swagman

I guess I was worried that so many posts could be intepreted as a 'put down' to the plan.
I fully support the point made above but repeat that there are real people out there taking good advantage of recent and relatively drastic movements in currency values which along with localised recessions give reduced boat prices, and as a result achieving their cruising dream with minimal cost to the cruisers - compared to the normal situation.

So good luck with whatever you decide. If you did wish to take advantage then I do suggest the time is still right now.

JOHN

John,
You've summed it up well.
I've got the house on the market myself with a view to taking advantage of this opportunity. But it's more a case of getting as much boat for my limited budget as I can, to fulfill the cruising plan in slightly finer style than before. When our sea-gypsy days come to an end, we should be able to sell well if we buy well now, even if it is in 10 years or so.
So, I'm sure not trying to steal anybody's dream. Rather just trying to help create awareness of ALL the issues so chances of success are better.
Vic