5 year Charter Company Contracts good deal or not ?

[Zai]

It might help to look at it like this:
The charter company knows that a new boat shouldn't have any issues with it (at least for the first 4-5 years).
By selling the "charter agreement" they just have secured a buyer for the boat at the end of the 5 year period.
It is like if a used car lot could sell their used cars before they bought them.
No brainer if you ask me.

[ausaviator]

Originally Posted by PhiSig1071

It may not be bad business for them to own their fleet, it may just be better business not to.

Exactly! Post of the week!

There are also limits to the amount that a bank will loan to a small company. A fleet of a dozen catamarans at a retail of $500-$600k is a LOT of capital for potentially a husband and wife company or a group of small investors with limited capital.

I know a guy that runs a fleet of Robinson 44 helicopters here that cost him around $500-$600k each. Whilst the business is quite profitable he finds it far easier to use someone else's helicopter and only keep a couple of his own. At least then he can ship them off when not needed or bring on more at the drop of a hat. Whilst the business is solid, the bank has a limit for small businesses that don't have bricks and mortar.

[PhiSig1071]

Originally Posted by ol1970

Well I guess we will agree to disagree on this subject. I do agree with you that there are more that one reason why charter companies don't buy their own boats. I just come from a background of owning, operating successfully, and selling businesses. It just bothers me to see poor personal financial advice given to people on the internet(not your comment phisig). Like others have said, do your own due diligence and go in with eyes wide open, good news for the OP is that it is a boat and you will have fun along the way!

I'm not necessarily disagreeing with your overall point, I don't think owning a boat in charter is a good investment. The only thing charter ownership is good for, in my opinion, is giving you the ability to sail a charter anywhere in the world at a greatly reduced rate. I don't think it's a good investment, and I think there's too much wear and tear on the boat after chartering for five years to justify the end price.

But think about it, even if they could, Moorings would be stupid to do it any other way. They're essentially sub-letting the boat from you, at a greatly reduced rate, and making a profit off the front end, usage, and maybe even the back end (if you use their brokerage to sell your boat). And they don't have to worry about overhead or getting rid of old inventory. The amount they pay isn't indicative of the amount they make off the boat, it's the bare minimum they can get away with paying someone to use their boat.

[CarlF]

I owned a Moorings boat 15 years ago. It wasn't the smartest financial move I ever made - nor was it the stupidest. Of course, nothing to do with boats is ever a truly smart financial move.

My conclusion was:

This is a great deal if you really are able to use a lot of the free weeks - at least four weeks a year. We only got to four weeks on two of the years. Kids schedules and other things got in the way. And remember, you have to buy plane tickest to the boat and back. Still, these were great times with the family and the kids remember them fondly.

We had Moorings sell our boat after five years. It sold for about 50% of the purchase price and that let me pay off the loan and make about a 2% annual return on the down payment (this was when you got 6% in a money market). I didn't keep my Moorings boat because sailing it had taught me about what boat I really wanted. Which I bought. That too was very a valuable benefit.

What this program didn't do was to get me a boat cheap. I would have done just as well buying a five year old Moorings boat coming off charter from someone like me.

[valhalla360]

Originally Posted by yeloya

I see many comment questionning why the charter companies don't buy boats for themselves. Well, I have 4 boats and if I had more money, I would have bought more. The big charter companies have 100 to 1.000 boats in their fleet, it simply impossible to finance them.


Good luck


Yeloya

If the numbers worked, they would have no problem financing 100 or 1000 boats in their fleet. Or more realistically after 30-40yrs in business, moorings would be able to pay outright for new boats with no financing costs.

Chartering is not a new business where banks shy away because it's a new business and they don't trust the numbers.

It's a fact that if it was profitable, charter companies would buy their own boats instead of give some of the profits to a guy looking to buy a boat. Arguments that charter companies simply "don't want" to own the boats are silly. If it's profitable to own the boat, they will own the boat.

If you can really commit to chartering 8-10weeks per year, it might come out close to a wash but the contracts are written so you take all the risk.

[valhalla360]

Originally Posted by ausaviator

Exactly! Post of the week!

There are also limits to the amount that a bank will loan to a small company. A fleet of a dozen catamarans at a retail of $500-$600k is a LOT of capital for potentially a husband and wife company or a group of small investors with limited capital.

I know a guy that runs a fleet of Robinson 44 helicopters here that cost him around $500-$600k each. Whilst the business is quite profitable he finds it far easier to use someone else's helicopter and only keep a couple of his own. At least then he can ship them off when not needed or bring on more at the drop of a hat. Whilst the business is solid, the bank has a limit for small businesses that don't have bricks and mortar.

So your comparison is a guy who rents a chopper when he needs it and doesn't rent them when he doesn't need it.

As the guy buying a new chopper, what happens if it doesn't rent as much as he was told it would? That's where these deals fall down. Moorings isn't the one going to be left holding the bag, so they either don't guarantee or if they guarantee, they are taking the extra profit to cover themselves if it doesn't rent out as much.

We are talking about an industry that has been around for a number of decades. If it was profitable to own, they would have transitioned to full ownership by now. The idea they can't get a loan doesn't hold water.

[PhiSig1071]

Originally Posted by valhalla360

It's a fact that if it was profitable, charter companies would buy their own boats instead of give some of the profits to a guy looking to buy a boat. Arguments that charter companies simply "don't want" to own the boats are silly. If it's profitable to own the boat, they will own the boat.

Just because they don't own the boats doesn't automatically mean it's not profitable. It just means it's more profitable not to. Like I've said before, in my opinion, profitable or not, it makes no sense for them to own a fleet that size. By being a broker and charterer they make money selling the boat to you, chartering the boat for you, and selling the boat for you when it's all said and done. At effectively zero out of pocket costs to them! Why would they spend millions on owning boats when they can just pay people pennies on the dollar to use their boats? Hell, the proof is in the pudding! Most owners owe more than the boat is worth after five years, so Moorings is saving money by paying less than what they would lose on depreciation.

[valhalla360]

Originally Posted by PhiSig1071

Just because they don't own the boats doesn't automatically mean it's not profitable. It just means it's more profitable not to.

This statement only works if they are taking the "more" from the guy actually buying the boat.

I suspect it's a true statement but only because it takes all the profits from owning plus some.

[CarlF]

As we all painfully know, sailboats are not appreciating assets. Commercial marine operations always finance their boats. I'm sure having the owners provide the financing is cheaper than a bank - and certainly cheaper to shareholders than raising more equity. It's a very clever financial model that's been successful. Moorings was bought in 2005 for $127 million. It's now part of a large leisure conglomerate owned by private equity so it's pretty much impossible to judge it's operational profitability.

The system would be a terrible deal for the boat owners if it weren't for the "free" weeks that aren't quite free but close. This could easily save an owner $30,000/year or $150,000 over the life of the charter - but only if they use them. And Moorings pays all insurance, dockage, repairs and maintenance for the boat - another $15,000-$20,000 per year.

I expect that the average owner's use of free weeks falls well below what they imagine when buying -- but so does owner's use of most sailboats fall below their expectations. Sailboats may be a terrible financial investment but are almost always profitable for the soul.

[Saleen411]

Originally Posted by CarlF

As we all painfully know, sailboats are not appreciating assets. Commercial marine operations always finance their boats. I'm sure having the owners provide the financing is cheaper than a bank - and certainly cheaper to shareholders than raising more equity. It's a very clever financial model that's been successful. Moorings was bought in 2005 for $127 million. It's now part of a large leisure conglomerate owned by private equity so it's pretty much impossible to judge it's operational profitability.

The system would be a terrible deal for the boat owners if it weren't for the "free" weeks that aren't quite free but close. This could easily save an owner $30,000/year or $150,000 over the life of the charter - but only if they use them. And Moorings pays all insurance, dockage, repairs and maintenance for the boat - another $15,000-$20,000 per year.

I expect that the average owner's use of free weeks falls well below what they imagine when buying -- but so does owner's use of most sailboats fall below their expectations. Sailboats may be a terrible financial investment but are almost always profitable for the soul.

Interesting thread and some well thought out responses.

After looking hard at this issue and crunching a lot of numbers, we've pretty much decided to wait and buy slightly used when the time comes. The final deciding factor is that we wouldn't be able to take advantage of all the available owner's time.

As to why a company like Moorings doesn't buy their own yachts?...My personal belief is that they could if they chose to, but obviously it's more profitable for them not to. When I first started chartering with the Moorings some 30 odd years ago, they were a fraction of the size they are today. I just got back from the BVIs yesterday....they currently have over 600 yachts just in that one location. I was a bit shocked at that revelation.

Good luck with your decision.

[bacougle]

Hi Leszczynski, and everyone,

What about buying a used boat in Charter and keeping it in Charter? I was looking at a couple in Croatia in the 50,000 euro range, Bavaria 38's. They are proven in the charter fleet to rent and have the maintanence records, plus the contract is only a year, but you may keep the boat in longer. Doesn't seem like as much depreciation and you would have a guaranted berth in a marina and storage in the off season.

Does this option exist in the Caribbean? for Cats? For Monohuls?

Cheers,
Brad

[Leszczynski]

Hi Brad,

Did you by chance find any answers to this question?

I have been off line for a while and am just getting back to check this forum.

I have recently been looking back into keeping a cat in charter after the 5 year program.

The rep has provided me historical info on cats in the Med doing just that. I'm sure there are some in the Caribbean as well.

She said:
That cats out of the initial charter program have to go to another company for continued charter use.

The bottom line was that 42' 5yr old cats have yearly expenses to owners about 45k and income about 100k.

With a paid off boat at that time it seems like a decent investment.

I'm wondering what refit costs I would have to eat in order to set a 7 year old charter boat up for live aboard cruising?

[bacougle]

Hi, I'm still looking around. A 42' 5 year old Cat in Europe must be around $300k USD? I think the $100k income per year is before expenses and taxes, correct? The good news is the $45k service upkeep should keep the refit costs down. New sails, running rigging, not sure what else. If you do the refit just at the end of the charter contract I imagine you could write off the work/materials against the second year tax bill.

Anyhow. Let me know what company you are talking to.

For me at the moment I'm trying to figure out the best spot to spend my winters while chartering a Cat during the summer high season. Just need to find a spot that has a reasonably warm winter with that touristy high season. East caribbean seems to have expense operating costs, food, mooring.

cheers Brad

[belizesailor]

Lots of threads here on essentially the same subject...

Bottom line: the charter company is the house and owners dont win in the end.

(Been around the charter industry since the early 90s as boat owner/charter captain....there is no pot o gold at the end of that rainbow...I dont care what their pro forma spreadsheets show...remember these are developed to support the sales pitch).

[Mystic38]

if you are planning on sitting in a marina then not much, but if you are thinking of extended offshore sailing then..perhaps $100k?

a 7 yr old vessel used hard for 52wks a year is well worn.. so figure

engines, sails, generator, running rigging, standing rigging,
electronics refit/upgrade, mattresses, black water plumbing etc etc..

every time i look at 5yr old cats for offshore use the figure is always about $100k lol.

Originally Posted by Leszczynski

Hi Brad,

I'm wondering what refit costs I would have to eat in order to set a 7 year old charter boat up for live aboard cruising?