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

[dennisail]

I have been trying to figure out how I can afford to go cruising. Boats in Australia are hugely overpriced. I am 29 and have equity in my house but here in Australia the real estate market is good, so I want to pay the house right off eventually and use the rent to fund future cruising.

But for now I still want to go cruising for a year or 2. I was thinking that if I purchased a yacht overseas then sold it back in Australia at the end of my cruise, the money I might make would pay for the trip and make it possible without going further into debt. I owe about 120K on my house and its worth about 340K. So I could get about 200K from the bank. I would have mates rent the house out while I am gone.

Is my idea of buying a production boat overseas and cruising it home with a friend fraught with danger financially? (I will leave seamanship etc for another thread). I am looking at reasonably new (after 2000) prod boats such as a Beneteau 361 393 or Bavaria 36. There seems to be many cheap boats of this type in the Med specially in Croatia. The cost of these is about 2 to 3 times less than the same boat here in Australia. If I could sell a 100K boat in Australia for 200K that would surely pay for taxes, cruising costs, interest on the loan and extra gear would it not?

Am I dreaming? I also will have 6 months paid leave but probably wont have a job to return to but I am not worried about being able to find work again. I just want to get out there and do it in such a way that I don't set back the 100% ownership of my house too much.

[Pete7]

Two thoughts, what is the import duty into Oz when you have finished? and be careful of the rules for VAT in Europe. European boats will either be VAT paid, or if its an ex charter boat then could have VAT due on sale, which you could avoid if your careful and play by the rules. VAT varies between countries but UK will be 20% from Jan 2011.

Factor these in to the equation to see if it makes sence. Also watch the Euro exchange rate, southern European countries are having a hard time of it at the moment, Greece in dire financial situation, you could make a killing if the Euro drops against world currencies.

Pete

[dennisail]

As far as I can tell from the importing boat thread, the import duty will be 10% + 5% plus about $1500 of fixed fees. The percentages will go off the price I paid for the boat calculated by the exchange rate on the day I leave my last foreign country (not the day I actually buy the boat) Do I have this right guys?

As for the VAT. Can you tell me more on this? Some boats say tax paid some don't? How exactly does this effect me as a foreign buyer?

[Tempest245]

Sell the house, fly to florida buy a boat, sail to the caribbean, South American, through the canal to hawaii...etc etc and then home...At that point, you'll keep going, or sell the boat and get another job and another house and start again...

[dennisail]

I don't need to sell my house to have 200K to spend, however I will need to pay that money back somehow.

[Dockhead]

That's quite a lot of arbitrage. If the price differences were so huge, surely everybody would be doing it. You should be extremely careful that you are comparing like-to-like in terms of condition, equipment, etc., and that you have calculated your taxes correctly.

Don't forget also that sailing halfway around the world will require (a) a considerable investment into equipping and upgrading the boat before departure; and (b) considerable wear and thus depreciation which will reduce the price when you get to Oz. Maybe if you factor those things in you'll find your profit margin is reduced by quite a lot.

Still, if the numbers add up, do it. I remember the time a few decades ago when it was possible to buy high-end German cars in Europe and ship them to the US for a big profit. It was the result of a sudden decline in the value of the German Mark and other European currencies which made them cheap for a buyer with dollars. The makers did not adjust the retail prices in the US fast enough to eliminate the arbitrage value. But pretty soon the market was flooded with "gray market" imports and that arbitrage value disappeared. So windows of opportunity like that might not last for very long, if they are open at all.

[dennisail]

You raise a good point regarding the disappearance of the difference in value. If that happens this idea will fail. Sailing 2/3 around the world isn't really that easy or desirable for most people here that want to bay sail their production boat. However importing a car is easy and cheap. Importing a yacht is a bigger deal and not really that cheap since it involves so much labour (months of sailing). By the time you factor in this cost most of the profit is gone. But for me the trip will not be a burden or an expense to be paid to a skipper. The trip is the main point of the adventure.

Your point regarding cost to equip the boat is also true. But the same would apply if I buy a boat here and want to sail oceans. The only difference is everything here costs twice as much. I would try and buy an example that needs the least extra spent on it. I should really ask MarkJ what extra he spent on his 393. I know he didn't use a water maker or fit extra tankage other than jerry cans. I didn't see a windvane on Sea Life either. I wonder what he done for drogues storm sails etc? I hope he sees this thread and replies.

[MarkJ]

Originally Posted by Dockhead

. Maybe if you factor those things in you'll find your profit margin is reduced by quite a lot.

.

yes the figures are interesting. You neglect 15% gst and duty, and then CAPITAL GAINS TAX, the equipment needed, the loss of time at work, and the necessity to continue the mortgage repayments. Also it can't be done often enough (because of weather windows) to make it a worthwhile business in that you might end up working you ass off for a year, risking everything you've ever owned for the princely some of $10,000 or $20,000 before house payments...

But yes it can be done. The meat in the sandwich is most boats come to Australia on a ship. You are just undercutting that freight service.

Some other finance models might say to rent the house out to non-mates, camp on a mates floor and keep w=orking for an extra 2 years till you can aford both the boat and house fully paid off. Then the house rent pays your cruise for ever....

Between captial gains tax, GST and Duty it seems like you are just working as God's Gift to the ATO!

If you could run 3 boats per year back home you would be fine. Overworked, over stressed, underpaid, but fine. I looked at it and there is no way to do it safely. the actual number of boats per year for the whole cycle is less than one. It took us 3 months from buying to get the rego done and get out of the port we bought it. and we were quick - but we needed a visa extension. Half that was in US$60 per night dormatory accomodation... factor that and food in too!

Mark

[Pete7]

Originally Posted by dennisail

As for the VAT. Can you tell me more on this? Some boats say tax paid some don't? How exactly does this effect me as a foreign buyer?

Okay, quick lesson on VAT, let see if I have this right. So VAT is a European sales tax at all points of sale through the manufacturing process, only businesses pay VAT on purchases and claim back VAT at the point of sale to the next business, until the final point of sale to the customer. At the final point of sale VAT is paid but can't be claimed back by the customer in Europe.

However, if you run a charter boat bis, then you can buy the boat and must pay VAT. Then you claim the VAT back as you are not the final point of sale, because you are going to charter her out and will collect VAT on the hire fee and pay that to the countries government. When you come to dispose of the yacht you must then pay VAT on the secondhand value which you have collected from the buyer and pass on to the countries government. What actually happens is a business registered for VAT keeps debit and credit column in the accounts and pays the difference or claims it back, quarterly or annually.

But , if you sell a boat which has been used in a biz and the VAT claimed back to someone outside Europe, you are exporting the boat and therefore no VAT is due on export. So you could sell to someone from the USA or Oz and providing they export the boat out of Europe no VAT is due. Now the interesting bit, it is possible to import a non VAT paid yacht temporarily into Europe without paying VAT. So you could have a few months in Europe VAT free before needing to do a dash across the Med.

Please note:

1. The VAT rate and rules vary between countries.

2. Europe (EU) and the EEC are not the same thing. Not all European countries are in the EEC. The EEC seems to grow with counties joining each year. Its difficult to remember who is and who isn't in the club.

3. Some European countries also have a local tax (like Spain) if you stay too long and this is a real killer because you have to register your boat as a local one, pay the tax, equip it to that counties regulations and you have to have a licence to drive it. Not many would pass a Dutch boat licencing exam which has to be taken in .......... Dutch.

4. For those living in Europe there is always a temptation to buy items when travelling abroad and bring them home tax free, hoping customs are busy chasing the bad guys. Alternatively anyone equiping a yacht to travel outside Europe could do well to claim the cost of sails or engines back on export and then offer to pay VAT on the second hand value if the boat returns.

Final point, it is possible for a VAT paid yacht from Europe to loose its VAT paid status. If a anyone sells a VAT paid boat outside Europe and that boat is re-imported back into Europe, VAT is again due on arrival in the first European country. There is also something about exporting a boat outside Europe for over 3 years which looses its VAT paid status.

The UK rules:

HM Revenue & Customs

Pete

[MarkJ]

Originally Posted by dennisail

what extra he spent on his 393. I know he didn't use a water maker or fit extra tankage other than jerry cans. I didn't see a windvane on Sea Life either. I wonder what he done for drogues storm sails etc? I hope he sees this thread and replies.

Drogue and para anchor we bought in Australia before we left ($2,000)
Survey $1,000 (USD) Rego $800
2x solar = $2,000
mainsail $2,000 Needs new Genoa
Lift&drop&paint $2,000 (needs redoing)
Panama canal $2,000 (incl expenses)
2 x New computer laptops one before we left Aus and 1 in singapore $2,500 (incl periferals)
Charts ENC $500
EPIRB $600
Costs of the little crap = thousands..

We need a new stove/oven $1,200-1,500
Need new dink $3,000

we have used every last cent we had and ran out before we left the caribbean. Our spare hose clamps were not even Stainless steel, just galvanised...

We spend almost all our monthly budget on the boat but I'm stuffed if I know where it all goes!!!!!

Of course, as she is our permanent home a lot of the things we have done wouldnt need to be done new coushion covers, new benchtops, new curtains etc etc etc

[Burls]

Having looked at this option, it seems to me that buying a boat overseas and sailing it back to Australia only seems to make sense if the ‘cruising to Aus’ is part of your adventure, and you’ve got the time. There are so many cost variables involved in the process that any potential profit could be quickly eroded due to unforeseen circumstances. Do it for the fun, and if you end up with a profit at the end, then it’s all gravy.
Watching the exchange rates can make a big difference in price when buying a boat overseas. The general strengthening of the Aus dollar against the Euro this year was actually one of the triggers for us to go ahead with our boat.

[Boracay]

Landlords' Rule #1 : Never, repeat never, rent to your mates.

If you do you will receive less rent, you'll be expected to fix everything (and if you don't your property will deteriorate), you'll probably get stiffed on the rent, your friends will almost certainly resent you as a dastardly landlord, the friendships will start to vanish, you might have to have them evicted and the whole thing will probably end in tears.

If you do rent out your property ask around to find the best local agent who knows how to qualify potential tenants and to manage rental properties. They'll find some nice people with good long term jobs and excellent rental references and tie them in with a cast iron lease. The tenants will know that if they so much as look at your property the wrong way they will be black banned from renting anywhere in the world forever.

You don't say how old you are. If you are still young enough to come back and start another career I'd consider selling the house and buying a creampuff. You're only young once.

[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" Mark, I don't intend to run this as a business. 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 just want it as a way to get me out there sooner if just for a while. With my averageish wage, it would take me until I am over 40 (29 now) to fully pay off my house and 100K boat and have the money and reserve cash to set out for a longer period. But this is something I am working to for sure! Also mark, do you carry upgraded/multiple anchoring systems and spare/storm sails what about radar? Thanks for the list of gear. Also how old was sea life when you purchased her?

Boracy. I rent my house to mates already. I live with a guy who pays me a good rent and he is an excellent house mate. If I didnt already know this I wouldn't try a "suck it and see" approach to an unproven "mate" in this circumstance.

Pete. Holy crap! Thats a lot of info on VAT. I think I will need to read it again when I haven't had a few beers. Cheers for that

[SaucySailoress]

Go for it!! If you want to do a long cruise, and you can arrange for rental to pay for your house, and you can make money back on your boat when you get home, then just DO IT!!!! You're clearly not trying to make a killing, but to support your dream trip. And we are all here to support you as you bring your cruising dreams to fruition.

Happy Cruising, and well done for finding a way to get some of your money back!

[David_Old_Jersey]

Commercially viable? no. But you've already covered that Profitable? I wouldn't bet the farm on that. But "better off financially"?, maybe if the comparison is as you say. and exchange rates stay in your favour. and nothing too majorly unexpected happens enroute. maybe. Worth a punt? in your shoes and if sailing back to Oz is something you would like to do then I'd be very tempted.

The key to selling well is..........buying well Not neccessarily cheapest, but also what will sell. As you indicate Beneteaus already have a good market in Australia I would stick to that sort of known mass market name (no point buying a "WTF is that?" if the goal is to sell - even if actually better) - a speedy sale is a good sale (especially of boats - which still eat cash when standing still).

As an Aussie genuinely based in Australia and genuinely exporting the boat to Australia the VAT free buying and a bit of European travel will be doable (probably ex charter - but not neccessarily a bad thing, a known quantity will be important when planning from a distance). Some good VAT stuff on here, plus plenty on Mr Google.

Registration may (or may not) be an issue - dunno if Oz requires a boat to be imported and taxed to get registration, even if nowhere near Oz. Something else to add to the Google list

But I'd also have a few plan B's (physically - you and boat, and also financially) if a return to Oz later becomes unfeasible.