Struggling to understand the rule of thumb for boat depreciation

[Britboater]

Depreciation has much to do with what you paid and what it was actually worth to someone else at the time. If you buy a boat for $100,000, and it was a “good buy”, Then spend $25,000 on making it up to your spec, and subsequently sell it because of a changing market for $150,000, then all is good unless the changing market has made your replacement boat a bad buy because of over inflated prices. It’s too complicated to have a rule of thumb.

Don’t worry about depreciation. Worry about if you feel you’ve bought what you wanted at a reasonable price and how much enjoyment out of it you will have in the future. When the time comes to sell you will be wanting out so depreciation then just becomes the true cost of owning a boat.

[Mickeyrouse]

A common mistake for new boaters is to see a boat as an investment. It is not, except for those who seek to derive income from charter fees or providing transportation, in which case depreciation rules used in conventional accounting apply- the amortization in some manner of the initial cost across its reasonably anticipated service life. Just about every sailboat ever built has been produced in extremely small production runs through a number of years, so that compared to the automobile industry they can almost all be considered “one off”, statistically speaking. So considering disparity in age, configuration, geographical dispersion, use, care, etc. etc. so-called “ buyers guides” are just about useless. As previously observed in other postings, a boat is worth what someone is willing to pay at a given time and place. Or, as seen in various phases of the real estate market, the result of a search for a “ greater fool.”

[Paul_Carroll]

Originally Posted by rmhutch59

The one rule you can always count on is; when buying new, they loose 25% of their value the day you take delivery.

Apply this same to any refurbishments done. The equip that was put in 10 years ago is decreases in value the moment installed. Say he spent $100K then, well if he sold it the next day he could really only expect to get $75K plus-up for his upgrades. After that, think about the lifetime of the items being depreciated. If they are electronics, I would say they go to something like 10% of their new value in 10 years. Something like a mast? Maybe it never really depreciates. Standing rigging? 20-years at best. Then decide whether in your mind you want to depreciate it straight line or do something like it looses 10% of its remaining value each year.

Ultimately, there is no one way to think about depreciation. If you are trying to negotiate a price you will pay, then you are going to think about it one way, if you are the seller, another. Then you dicker...

[Tronoe]

The depreciation is mostly wrung out of it already. It’s old.

[mglonnro]

Originally Posted by Mickeyrouse

A common mistake for new boaters is to see a boat as an investment. It is not, except for those who seek to derive income from charter fees or providing transportation, in which case depreciation rules used in conventional accounting apply- the amortization in some manner of the initial cost across its reasonably anticipated service life. Just about every sailboat ever built has been produced in extremely small production runs through a number of years, so that compared to the automobile industry they can almost all be considered “one off”, statistically speaking. So considering disparity in age, configuration, geographical dispersion, use, care, etc. etc. so-called “ buyers guides” are just about useless. As previously observed in other postings, a boat is worth what someone is willing to pay at a given time and place. Or, as seen in various phases of the real estate market, the result of a search for a “ greater fool.”

It's somewhat also a lack-of-information problem.

Certainly, if I sell my boat for USD 200k, and if between the contract of sale and the handover I happen to accidentally break the newly installed Zeus3 12" display, it's easy to estimate the depreciation of the boat, and what would make the buyer happy: replacing the broken Zeus3 12" with the exact same new one, including the installation costs.

So, having a good record of components along with their technical life and replacement cost estimates (and of course service logs) would perhaps benefit both buyers (=better insight into how much it would cost to bring the boat 'back to new') and sellers (=better appreciation of the actual value of whatever components there are in the boat).

How do professionally maintained helicopters depreciate? I don't know but I think they have much better service logs and component records than we boaters keep?

[marshmat]

Originally Posted by Rohan

Depreciation on boats is not like a car or a house. There isn't really a Kelly Blue Book listings of prices for used boats, because boats are much more customized. And it's not like a house where no matter how bad the house is, it's at least worth it's land value. The value of a boat can drop to zero - or even negative, as someone might even pay to get rid of it.

Basically, like anything new, a new boat depreciates in value quickly after you buy it, but after a certain age the prices level off and don't really go lower as long as it's maintained and seaworthy. In fact, an old boat from the 1970s can significantly go up in value if it's been restored well and electronics are updated.

Reminds me of a listing I saw in Vancouver a couple of years ago. No joke: "Burned-out pile of rubble. Rats and tax lien included. Zoned low-rise residential. $4m." I think it sold in 10 days.

The best "rule of thumb" for depreciation I've found is that (after the 20-30% hit of the first year or two after leaving the factory is eaten) a well-built boat, well-maintained, is likely to be worth about the same, in current dollars, when you sell her as when you bought her, assuming the economic climate is similar and the currency is stable.

In other words, everything you put into refitting, upgrading, and maintaining her is pure sunk cost. And you're going to lose in constant-dollar terms, after inflation. But if you pay $50,000 for your boat now, and the economy's in a similar point of the cycle in ten years as it is now, and the boat's in similar or better condition to when you bought her, she'll probably sell for something around $50,000.

She'll never be worth $80,000 no matter what you do. She could be worth $20,000, though, if you've neglected maintenance for those ten years. Or if she was poorly built to start with and is now suffering from structural issues.

Looking at my own boat's history, this has held true from her original launch in 1974; as far as I can tell, she's never gone outside of a roughly 30% window around her original purchase price for any significant length of time. And her sisterships (of which there are about 350) all clump together within about a +/- 30% spread, regardless of fit-out or condition or recent refits.

[Sutton Scnr 68]

Be sure to check with the insurance companies before you buy, many do not insure boats older than 1990.

[double u]

somewhere in this thread:
"...On the other-hand... I've never had a boat I didn't sell for more than I paid for it 10 years later...."
please elucidate...!

[Nibiruwayne]

Originally Posted by Katapult Mike

Here's a handy rule of thumb:

A BOAT IS A HOLE IN THE WATER INTO WHICH YOU THROW MONEY!

The market is inherently inefficient. That is a good thing if you are patient and smart. Shop around, find boats that have been well maintained and have most of the gear you want, and "engage in a course of price discovery," as they say in Econ 101, by making offers.

With luck, you will get a "good deal" on which you will proceed to spend a lot more money than you thought you would, and with some more luck, you will eventually sell it for close to what you paid originally (but never close to what you paid originally + upgrades).

At some point in a boats life, the gear, electronics, systems , etc. etc.have a greater value than the Hull, if you were to buy all the electronics, pumps, auto pilot etc etc.
A brand new boat generally comes with the basics. So a quality build with a lot of gear, parts and tools - amd a good seller can be worth as much or more than new in my humble opinion.

[AuroraGH]

Originally Posted by kmd314

I am struggling to understand how the value is ascertained...

There is no reliable "blue book" for cruising boats.

You can find two boats built the same year at substantially the same level of maintenance with hugely different prices and a lot of that difference is going to be based on included equipment.

It takes a mountain of $ to outfit a boat to go voyaging so things that can figure heavily are sail wear and tear, electronics age and level of sophistication, goodies like water makers, navigation, marine sanitation device MSD (toilets) setup, etc, engine hours, engine type, prop types (folding fancy vs fixed old school), windlass - powered or not.

To evaluate a prospect, you need a survey and a complete equipment list and then you want to assess how much you have to do/spend to it to make it the boat you ultimately want to take off in.

That's where the differences go. When someone says "Hans Christian 38" all you know so far is hull and rig. But that's not where money went nor where all the value is. You have to dig into the details.

I will also say this, spend more to get the boat as close to ready as possible because whatever you figure to outfit the boat in time and money, you're likely gonna spend 3-4 times more money and time.

[SteveSadler]

In real estate, appraisers use past sales as a price guide. That info for boats is mysteriously unavailable. However, boat brokers may have a good idea based on their experience and personal knowledge. I'd start with the age of the listing.Some boats are always on the market, for years! Asking too much? Then I hear of others hit the market and gone next day for 2/3 of first boat.Asking too little? My current Jeanneau 49 came down 35% from asking to buying because it had to go, the new boat was here, no room for the old one. Aesthetics also play a big part, shiny topsides, varnish, perfect everything will entice the emotional buyer. Clutter, scratched paint and grungy brightwork will scare people away, thinking project boat, when it just needs some love. Also where is the boat, Trinidad? Not many will fly there to even consider it, so the price could be very negotiable.

[MartinF]

The reason that a boat requiring maintenance or replacements may be worth very little is that the ongoing cost of ownership is very high. As you are "new to sailing" I wonder if you know what you are getting into with the purchase of a large old boat. Do you know how much she will cost you even when she is sitting unused at the dock? Get an estimate for a new sail. It may open your eyes. Find out the price of 3 gallons of anti-fouling paint (a regular requirement). You will not be able to handle this boat alone in the foreseeable future; have you got a crew in mind? The yacht may be "blue water" but the owner will not be so for a number of years.

A novice thinking of buying his dream boat needs instead to buy two boats. Learn your sailing, collide with the dock, run aground and so on in a 25ft 20,000$ boat. When you can handle that, then buy the dream boat. You will be far better able to choose a suitable boat at a fair price. Buying two boats would be much cheaper and more effective than buying one.
Good Luck!
M

[mglonnro]

Originally Posted by rmhutch59

The one rule you can always count on is; when buying new, they loose 25% of their value the day you take delivery.

Well, no!

[Martkimwat]

A well-maintained boat will obviously hold its value better than a not so well maintained version of the same or very similar boat, but there are also certain brands of boats that will hold their value better than others. It's a crapshoot really and you just have to do your research and use due diligence to ascertain whether a boat is worth what is being asked, and as others have said, see what other examples of the same boat are going for and if possible have a look at those boats and see if the conditions are similar. If you are quite Handy mechanically, practically minded and don't mind a bit of graft, you can sometimes pick up a quality boat that has been left to seed, for a song and just needs some time and TLC to get them up to scratch again. If you are not sure, get a surveyor involved to tell you what needs doing and then decide if you can do the majority yourself and pay for the rest. As others have said on here, there really is no rule of thumb, unlike property and even with property, locations can make a huge difference.

[Hesti]

Rule of thumb on popular designs used to be, that an older but still popular design in excellent condition could obtain roughly 1/3 of what a comparable sized and capable boat would cost new today.

Beyond that, there is market - is it a buyers or a sellers market ...

As fixing up a run down fixer upper can easily cost more than the above 1/3 of a comparable sized current new boat, the value of fixer uppers is much lower. If they are recognized for what they are.