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Old 23-10-2020, 04:30   #1
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depreciation and the "gap" with boat prices

Hi everybody

something keeps me awake at night

When I lease my car, the leasing company calculates about 50% depreciation in the first 3 years. From that value damages, which are worse than "normal use" are beeing deducted. And thats what the car is worth after 3 years. That is what I have to pay, if I want to buy it after the leasing period is over.

If I do this with production mashinery they do the same with 30% in the first year and than 5% every year.

I hear that for boats insurance companies and courts calculate 70% in the first 10 years and than 5%.
If there are major refits, repairs and addons the calculation is the same beginning with the first day of use or installation.

If I check with the prices I did realize when selling boats in the family, this roughly fits in the end.

BUT if you look at asking prices online for ships this is often vastly off. And if you trust what is told about discounts, it is still vastly off in many cases.

Are some actors in this market not telling the truth to protect it, or is it simply a very very inefficient market?
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Old 23-10-2020, 05:36   #2
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Re: depreciation and the "gap" with boat prices

Car leases set the assumed depreciation to benefit the company. It's kind of like doing a trade in vs selling to private party...there is a big difference in pricing. The 50% depreciation may have very little to do with the true underlying value.

Boats are a bit different. If you go out and buy an F150, there were a million sold last year, the market is well known and estimates of used prices are pretty reliable. A very popular 35ft cruising boat might have 100 units sold last year. They get modified and maintained wildly differently, so the used market is not nearly as well understood.

Then you have the emotional side. Most people selling an F150 look up the blue book and go from there. Lots of boat owners have a deep emotional tie and won't believe what is a realistic price, so you see prices all over the place.

Particularly when you get over 10yrs old, you also get a different phenomenon. By the time you get to 15-20yrs old, depreciation largely is done. The value now represents the underlying value. We had a 1979 Silverton, that sold new for $18k. We bought it in 1995 for $25k and sold it 8yrs later for $20k. If you ignore inflation, depreciation was negative...of course over 30-40yrs, inflation throws those assumptions all out of wack.

In the end, nothing you can really do about it other than research as best you can to get a feel for what a particular model of a particular age is selling for and decide if you are OK with that.
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Old 23-10-2020, 05:36   #3
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Re: depreciation and the "gap" with boat prices

Quote:
Originally Posted by Ibetitsthisway View Post
Hi everybody

something keeps me awake at night

When I lease my car, the leasing company calculates about 50% depreciation in the first 3 years. From that value damages, which are worse than "normal use" are beeing deducted. And thats what the car is worth after 3 years. That is what I have to pay, if I want to buy it after the leasing period is over.

If I do this with production mashinery they do the same with 30% in the first year and than 5% every year.

I hear that for boats insurance companies and courts calculate 70% in the first 10 years and than 5%.
If there are major refits, repairs and addons the calculation is the same beginning with the first day of use or installation.

If I check with the prices I did realize when selling boats in the family, this roughly fits in the end.

BUT if you look at asking prices online for ships this is often vastly off. And if you trust what is told about discounts, it is still vastly off in many cases.

Are some actors in this market not telling the truth to protect it, or is it simply a very very inefficient market?
It certainly is a very inefficient market. But I think the bigger factor is the idiosyncratic nature of boat maintenance and upkeep which means there is a far greater dispersion of actual physical condition after X years for a given boat model versus a given car model. This effect is made greater by the fact you're comparing a 10 year period for boats versus a 3 year period for boats or machinery. At the end of 3 years, the vast majority of Toyota Corollas with a given mileage are going to have a similar amount of wear and tear and physical degradation. Probably the same for a stamping machine or CNC machine. On the other hand, there will be vast differences in the condition of a given boat model that was kept in fresh water, hauled every year and spent winter on the hard, and received regular maintenance, vs one that spent all that time in the tropics in the water and had the same number of hours on it but spent the last 5 years mouldering at the slip. Even a neglected 3 year old car will be in similar shape to a perfectly maintained one. Not at all the case for 10 year old boats!
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Old 23-10-2020, 05:47   #4
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Re: depreciation and the "gap" with boat prices

I like to use the depreciation curve to my favor when I can. To your question- the used boat prices (assuming you're talking about used pleasure craft and not commercial ships) are set by individual sellers (perhaps with input from a broker), so you can't really say it's an industry trying to preserve itself or mislead buyers. Sellers will want what they think they can get.

I don't think you can draw a parallel between depreciation on cars and boats, but I do think aircraft and boat depreciation curves are similar. For better or worse, cars are almost disposable assets if you think about it. Not many people re-engine their car, or replace a rusted frame. Most people simply trade it in.

With aircraft, it can be difficult to find an original component because the components have life limits and must be replaced or overhauled after a period of time (calendar or flight time). It is not uncommon at all to re-power an aircraft, or replace any number of primary systems or equipment.

And as you pointed out in your OP, that has a direct, mitigating impact on depreciation. Same story with boats. As a system of systems, any number of things could have been replaced or overhauled over the years which is why you always see the comments about it "depending on the condition of the particular vessel" to determine worth after a certain age.


The boat and aircraft depreciation curves start off very steep, but they do tend to level out after a few years (how many years before they begin to flatten is a matter of subjectivity). I like to keep that in mind when boat shopping and do my best to pick a boat that's somewhere on its depreciation curve that I can live with. (The trick to that though is making sure you aren't buying a boat that's about to have all of its more expensive systems fall in the replacement window).
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Old 23-10-2020, 06:10   #5
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Re: depreciation and the "gap" with boat prices

An older article but still pertinent.
Boat Values ... A Crap Shoot
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Old 23-10-2020, 06:17   #6
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Re: depreciation and the "gap" with boat prices

ok - now you are absolutely right about the plane thing - but this is hwat I meant.
simple example:

boat new: 100000USD
After 1 year: 70000USD
after 10 years: 30000USD

after those 10 years a major refit of 25000USD is made

worth of the boat in year 11: 30000x0,95 + 25000x0,5 = 41000USD
in year 20 boat with refit worth: 25000USD if boat is in "ok" condition without major damages.

(calculated: 30% off 1st year boat / 10% off every year after 1st year and 5% off every year after 10th year. 50% off refit 1st year and 5% after that.)

when doing this calculation with offered boats (as long as the refit history is known), some fit within 20% (which after negotiation will be on point I guess) others are up 100% or even 200%.
Those extreme cases often wait to be sold for years. when asked about the discount afterwards the answer is often "15%". which I highly doubt.



interesting enough:
when calculating the extrem depreciation of refits costly maintenance and care (to avoid major refits) might still be the cheaper way to do it.
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Old 23-10-2020, 06:18   #7
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Re: depreciation and the "gap" with boat prices

Quote:
Originally Posted by boatpoker View Post
An older article but still pertinent.
Boat Values ... A Crap Shoot

yep - i know the article... but thats not what I mirror in online price settings.

buy the way.. check the table in the link - there is one alberg 30 in yachtworld for 35000 usd from 1965. thats what i meant .. LOL.
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Old 23-10-2020, 10:10   #8
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Re: depreciation and the "gap" with boat prices

You have a lot of good info here. However, there is really no effective way to factor in the following:
Used Automobiles have a steady, fairly predictable, demand which facilitates meaningful depreciation schedules which are freely available..
Used Boats, in general, are bought with what's called "disposable income". As such, the price and demand are more elastic and one must rely on obtaining recent resale of similar boats and a buyers' ability to negotiate effectively.
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Old 23-10-2020, 13:08   #9
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Re: depreciation and the "gap" with boat prices

As a data point, when Moorings does a lease on a boat an owner has purchased and put in the fleet, they estimate the boat will be worth 55% of original purchase price after 5 years. And yet, on an originally priced $800K boat, it would cost much less than the amount of the depreciation ($360K) to make a 5 year old boat look and run like new or close to it.
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Old 23-10-2020, 14:15   #10
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Re: depreciation and the "gap" with boat prices

Quote:
Originally Posted by Ibetitsthisway View Post
buy the way.. check the table in the link - there is one alberg 30 in yachtworld for 35000 usd from 1965. thats what i meant .. LOL.
This is where you are getting hung up. A 55 year old car is..., well normally it has already been in the junk yard for 30 years. Excepting collectible cars, 99.x% of cars don't make it 55 years.

A 55 year old boat is a completely different matter. Some will have been junked but some will be in as good of shape as a 10 year old boat, maybe better. A 1965 Alberg may be a 1965 hull (solid fiberglass, perfectly good), some portion of interior woodwork that has been well taken care of since 1965, and then an assortment of gear that has been replaced one or more times, maybe recently. Could be relatively new sails, rigging, engine, electronics, refrigeration, paint, fabrics, etc. etc. There is more value in a boatload of new gear in a 50 year old hull than there is in a boatload of worn our gear in a 25 year old hull.
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Old 23-10-2020, 15:43   #11
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Re: depreciation and the "gap" with boat prices

Yes. All right. My mistake. If there Were major value Adding investments 35k could be a good value.
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Old 23-10-2020, 16:16   #12
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Re: depreciation and the "gap" with boat prices

Quote:
Originally Posted by Ibetitsthisway View Post
ok - now you are absolutely right about the plane thing - but this is hwat I meant.
simple example:

boat new: 100000USD
After 1 year: 70000USD
after 10 years: 30000USD

after those 10 years a major refit of 25000USD is made

worth of the boat in year 11: 30000x0,95 + 25000x0,5 = 41000USD
in year 20 boat with refit worth: 25000USD if boat is in "ok" condition without major damages.

(calculated: 30% off 1st year boat / 10% off every year after 1st year and 5% off every year after 10th year. 50% off refit 1st year and 5% after that.)

when doing this calculation with offered boats (as long as the refit history is known), some fit within 20% (which after negotiation will be on point I guess) others are up 100% or even 200%.
Those extreme cases often wait to be sold for years. when asked about the discount afterwards the answer is often "15%". which I highly doubt.



interesting enough:
when calculating the extrem depreciation of refits costly maintenance and care (to avoid major refits) might still be the cheaper way to do it.
I think you may not have looked at perhaps a sample of 10 boats of the same model and roughly the same age that are 8-12 years old living in different parts of the country? I was absolutely shocked when searching for my Mahe 36 at the range of conditions of exactly the same model of what at the time was a 6-8 year old boat. They ranged from mint condition to absolutely appalling. I, like you seem to be, had it in my head that a given model of boat was much more of a commodity with just some wear difference between them. How very wrong I was. Seriously, hop off the spreadsheets (I'm a geek like that as well so I say that with the best of intentions) and go start actually climbing around boats. Then, when you go back to the spreadsheets you'll have a whole lot more insight and it will make a whole lot more sense.
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Old 23-10-2020, 16:33   #13
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Re: depreciation and the "gap" with boat prices

Quote:
Originally Posted by Ibetitsthisway View Post
Hi everybody

something keeps me awake at night

When I lease my car, the leasing company calculates about 50% depreciation in the first 3 years. From that value damages, which are worse than "normal use" are beeing deducted. And thats what the car is worth after 3 years. That is what I have to pay, if I want to buy it after the leasing period is over.

If I do this with production mashinery they do the same with 30% in the first year and than 5% every year.

I hear that for boats insurance companies and courts calculate 70% in the first 10 years and than 5%.
If there are major refits, repairs and addons the calculation is the same beginning with the first day of use or installation.

If I check with the prices I did realize when selling boats in the family, this roughly fits in the end.

BUT if you look at asking prices online for ships this is often vastly off. And if you trust what is told about discounts, it is still vastly off in many cases.

Are some actors in this market not telling the truth to protect it, or is it simply a very very inefficient market?
If people maintained cruisers like most of the masses “maintain” their cars, most would be on the bottom of the ocean.

What you say does hold true for lower cost junk, jet skis, bass boats, pontoon party barges, etc.

You will also see that the depreciation (market price wise not tax wise) is very tied to the quality, price a 10yr old Toyota Tacoma vs a Kia or Mercedes
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Old 23-10-2020, 18:25   #14
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Re: depreciation and the "gap" with boat prices

The confusing thing is inflation.

Twenty years ago boat salesmen would assure you that you could buy a new cruising sailboat from them and sell it in 10 years for "what you paid for it". Anyone else remember those days?

Of course, inflation was running at 6%-10% year so this represented a 50%-70% "loss" on a 10 year old boat - but it sure felt good to get the same price.

Now with inflation running at 2%, you see the real loss in value.
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Old 23-10-2020, 19:28   #15
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Re: depreciation and the "gap" with boat prices

Base on nothing, it seems the sliding scales of types of use, Environmental exposure, and most important attention to maintenance, Drive the asking price.
when the price is set with in realistic limits. The vessel maker Has sway, and usually dictates the depreciation in most cases. A Hinkley retains its value much longer that a Morgan or an Oday.
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