Converting a Charter Boat into Personal Use

[Iaangus]

Originally Posted by scarlet

You nailed that!! after 5-7 years in charter, you will NEED a major refit. those boats get beat to ****!!

Why not buy a 5 year old privately owned boat, that was well maintained. Hundreds of thousands of dollars saved, and most likely wouldn't need a major refit...

Seems like an outrageous amount of money to lose for a 2 year sabbatical...

I’m thinking you haven’t priced a 5 year old Lagoon 450, they seem to have held up in value pretty good. I don’t think you will find a 5 year old under $450,000. What were they new 600,000 - $650,000 out the door? It looks to me a ten year old is getting close to 50% selling price. Correct me if i’m wrong. Remember, a Lagoon 450 in 2008 was less expensive than a 2018 450.

[jmschmidt]

My former partner on our Raiatea based Moorings boat recently bought a brand new one in that location and gets $4,500 net guaranteed monthly income for 62 months. That's $279,000 with no maintenance, mooring or insurance costs over that period. Plus more owners time that anyone can use at less that $1,000 a week for a $11,000 a week charter boat. When coming out of charter if the owner is diligent with his survey, sea trial and personal inspection, Moorings will fix or replace any significant issues or pay the owner in cash to have his own work done. Boats coming out of charter are not "trashed" for obvious reasons as some with no experience seem to think. They need to be in good shape for the charter operator to make money. Most are way better maintained than just about any privately owned used boat I've ever seen.

[scarlet]

Originally Posted by Iaangus

I’m thinking you haven’t priced a 5 year old Lagoon 450, they seem to have held up in value pretty good. I don’t think you will find a 5 year old under $450,000. What were they new 600,000 - $650,000 out the door? It looks to me a ten year old is getting close to 50% selling price. Correct me if i’m wrong. Remember, a Lagoon 450 in 2008 was less expensive than a 2018 450.

Your pricing is way off... Here is a current listing on Yachtworld.. for a 2018.. in Singapore... for over a Million..

https://www.yachtworld.com/boats/201.../#.W3S2DS2ZODU

I know the 450 was over $600,000 when we priced it a year ago... so, for a 50? I think the one listed above is pretty normal...

[valhalla360]

Originally Posted by jmschmidt

My former partner on our Raiatea based Moorings boat recently bought a brand new one in that location and gets $4,500 net guaranteed monthly income for 62 months. That's $279,000 with no maintenance, mooring or insurance costs over that period. Plus more owners time that anyone can use at less that $1,000 a week for a $11,000 a week charter boat. When coming out of charter if the owner is diligent with his survey, sea trial and personal inspection, Moorings will fix or replace any significant issues or pay the owner in cash to have his own work done. Boats coming out of charter are not "trashed" for obvious reasons as some with no experience seem to think. They need to be in good shape for the charter operator to make money. Most are way better maintained than just about any privately owned used boat I've ever seen.

Do you work for them on the boat show circuit? You are repeating the sales pitch perfectly but not providing the full start to finish analysis....just random unsubstantiated profits, gross, savings...

We got excited about it at one point at a boat show but when we started pinning them down on numbers, it wasn't nearly so good when you took in all the costs and benefits.

Bottom line, if it was half as profitable as they claim, the charter companies would simply buy the boats, take all the profits and then sell them at the end...they don't and they don't for a reason.

[studioH]

For all of the people wondering why i want to purchase now to use 5 years from now...
1. it give myself and my family 5 years of cruising the Caribbean to get used to OUR boat, to work out any issues with OUR boat, and to note what needs to be upgraded/replaced with OUR boat. 2. there are some wonderful tax implications that come with owning a boat in the right type of charter. not all are able to take advantage of this benefit, but if you can, it can save you HUGE amounts of money off the price of a boat. 3. it's OUR boat, so we can do what we want with it, when we want to. if we want to go early, we can. if we want to keep it in charter for an additional year (earning us revenue the entire time) we can. We are treating this like a vacation home that we will use a few weeks a year and rent out the rest of the time.

i do appreciate everyone's advice regarding the systems and upgrades. thanks.

[scarlet]

Studio.. I understand your reasons for doing this... And I didn't mean to overstep my bounds, I was just trying to pass along the experience multiple friends, along with discussions from dozens of people at boat shows who have shared their sob stories. None of them were happy, and their experiences have not been good.

I have a great suggestion. I think it would be very worth your while to take some time and go look at a few boats that are 5-7 years in charter. If you think they are in a shape that you feel good about, then go ahead and do it. Best that can happen? You confirm your opinion, and have more confidence going in. (a good thing, right?) Worst thing that happens is that you see something you don't like, and decided to seek another path. either way it is a win win.

Again, didn't mean to overstep, or insult. I only want the best for you, and I would feel bad if you ended up unhappy with the decision, and I hadn't offered my experience and opinion.

Either way.. how exciting for you on your future.. the goals, and the wonderful experience. I'm right there with you!!! wish you the very best in your journey!

[ssmoot]

Originally Posted by scarlet

Your pricing is way off... Here is a current listing on Yachtworld.. for a 2018.. in Singapore... for over a Million..

https://www.yachtworld.com/boats/201.../#.W3S2DS2ZODU

I know the 450 was over $600,000 when we priced it a year ago... so, for a 50? I think the one listed above is pretty normal...

They were pricing the 450 in their comment.

But yeah, the 50 looks like a 1M dollar boat.

Let's do the Dream Yacht Charter 35/25 payments. So to put a 50 in charter today: That's $350,000. Five years from now you need to come up with $250,000 to pay it off. This is effectively an interest-free loan. Now you've got a refit to worry about. Let's say $200,000.

So you got to charter "free" for 5 years, you have an upgraded boat at the end of it, and you've spent $800,000, locking in today's strong dollar against the euro, and the 2018 pricing.

Now we'll skip the charter. For the next five years you'll charter a comparable boat at $10,000/week for three weeks a year. That's $150,000 out of pocket. Then at the end of it you buy a $1M dollar boat.

Now now one can predict the future, but I'd bet we see the dollar weaken against the euro in the next five years. You'll also be looking at 2023 pricing, so I'd bet the boat is closer to $1.1M to $1.2M. Even if the dollar held it's own, you're looking at a $400,000 disadvantage.

Ok. But what about used? Well, a five year old Lagoon 52 can be had for about 30% off the original price. So you could pick up a five year old 50 for $700K probably. Unless it goes the way of the 39 (I don't see why it would), it's doubtful it's going to be replaced in 5 years, so you're going to be looking at a boat that has held it's value pretty well.

Keep in mind you still need to pay for a refit. But maybe half the charter refit. So $100,000. And you've spent $150,000 on charters during those five years so your TCO is closer to $950,000.

In the current strong-dollar, low-inflation, low-interest-rate, guaranteed income charter programs market, I think the odds are you save a significant amount of cash buying today and putting a boat in charter. To get a better deal buying outright the Euro would need to take a significant dive, rates would have to drop charter companies would have to stop making deals tomorrow (which is unlikely, especially on this particular boat), inflation would have to drop to nothing, and the stock market would have to go bonkers (which, good luck at that if you've looked at your returns this year. ;-) ).

I'm not saying that makes charter a sure thing. You might not get the deal you want with the boat configured the way you want (they might force a charter layout instead of an owners for example). You've made a five-year contractual commitment to this thing so you better be damn sure it's really what you want to do. And then there's the chance that the charter company doesn't maintain your boat properly and the refit costs a lot more than you anticipated (though I imagine $200K is generous, who knows?).

But setting risks of either of the three strategies aside (charter, used, new), from a purely financial perspective it seems the charter strategy is the best by a solid 10 to 20% margin. If you're actually going to be able to get away a few weeks a year to your charter that is. The picture changes if you're not paying for your own charters over the next five years, but not necessarily as much as you might think.

The only real question with the charter strategy is the condition of your boat at the end of it. Some due diligence definitely required there I think.

So if it's such a great deal, why don't the charter companies just buy the boats?

I can only guess, but I would say that getting new boats every five years, not having to worry about what to do with them as a liability after five years, and getting to extract as much money as you can from usage over that time, for only 40% of the price of the boat new... That doesn't seem like a bad business to be in right? If you told me that for $400,000 you'd give me a Lagoon 50 for five years, but I have to maintain it and give it back at the end, I think I'd be very tempted as well!

[billknny]

Originally Posted by valhalla360

Do you work for them on the boat show circuit? You are repeating the sales pitch perfectly but not providing the full start to finish analysis....just random unsubstantiated profits, gross, savings...

We got excited about it at one point at a boat show but when we started pinning them down on numbers, it wasn't nearly so good when you took in all the costs and benefits.

Bottom line, if it was half as profitable as they claim, the charter companies would simply buy the boats, take all the profits and then sell them at the end...they don't and they don't for a reason.

There are lots of REALLY good reasons that charter companies want to use YOUR capital to buy boats instead of their own, and even more reasons why there are NOT lots of independent investors lined up to put boats into charter service to make cash money.

The one thing that so many people forget to include in the analysis is that you don't "pull your boat" out of charter service after ~5 years. Rather the boat is thrown out of the fleet. You have to find a place for it, or sell it. If at that exact point in time you WANT to own a 5 year old charter boat... that MIGHT be a good idea.

It's a complicated and emotional topic.

Having worked for a charter company, and having chartered boats, I have to say I am glad there are people who chose to finance charter boats. But I could never quite make out how it made sense from a financial standpoint for the typical investor. Of course there might be "atypical" boat buyers for whom the numbers might work out splendidly...

[studioH]

The additional factor right now is the recent changes to the tax laws that allow for a 100% right-off of the value of a boat if it is used for business (aka charter) purposes. If you are in the 35% income tax bracket and purchase a $1,000,000 boat, then you are able right off the full value of the yacht off the top of your taxes. (FYI, i'm not an accountant nor pretend to be one). But that's a $350,000 check right off the top of the purchase price... That is the one deciding factor that is going to let us do this. That being said, no everyone pays enough in taxes to need a $1,000,000 right-off over the span of 5 years...

[ssmoot]

Originally Posted by billknny

even more reasons why there are NOT lots of independent investors lined up to put boats into charter service to make cash money

If you want to charter and eventually own, then a TCO of $800K, with 65% provided as a no-interest loan vs buying with the same down payment and financing the other $350K, paying for a $100K refit and chartering in the interim at $150K that puts your TCO at closer to $1M makes sense.

If you're treating it as an investment, then you skip the refit on the charter, and skip the charter hours. So maybe you get an extra 10% on the deal and have a TCO of $500K. Now you need to sell your ex-charter boat in a market of (presumably better equipped) non-charter boats selling for $700K. If you manage to compete with those boats and get $700K, then great. You've made 40% in 5 years less transaction fees and repair/refit accommodations. So maybe 30% profit. So on it's face a pretty poor investment in the best case scenario.

But realistically you've got a charter boat, with heavier than average usage and you don't care much about the boat itself. You're not going to be selling mid-market I assume. If you get $620K instead, you've made more like 25% or less.

And like you mentioned, the minute it's out of charter, you're losing money on it because your only interest at that point is getting your money back out, as quickly as possible. So maybe you sacrifice another 10% and walk away with 15% net after 5 years.

All that to say that it can be true that putting a boat into charter can be a terrible investment, and at the same time make a lot of sense for someone who understands it's not an investment. If you're buying boats or cars as investments, then you must be seeing something I don't because that looks like a losing proposition to me.

To me charter only makes sense if you care about your charter vacation weeks, and actually have an interest in owning the boat at the end of it.

If you're only using it for the charter weeks, it doesn't make sense. For the $350K down-payment, you could've stuck it in an investment account and used it to pay for the bulk of, if not all, your charter weeks. And you can do that effectively indefinitely with no risk. By putting a boat into charter instead you forgo that investment income, are tied into a contract, and have a huge liability at the end of five years that you hope you can get most of your money back out of. If you're one-in-a-million lucky then maybe you break even.

[studioH]

this is NOT a thread about financing or making money... this IS a thread about the difference between charter boats and owner live-aboard boats how to best transition from one to the other... let's try to stick to that.

[ssmoot]

Originally Posted by studioH

this is NOT a thread about financing or making money... this IS a thread about the difference between charter boats and owner live-aboard boats how to best transition from one to the other... let's try to stick to that.

No worries. It's definitely interesting to see what's going in to your decision making.

Have you spoke with charter companies to see what options they require? Anything that sticks out as a sore point for your long term plans? It sounds like you're able to come to terms on the layout at least?

[studioH]

Most of the companies that i've spoken with seem to be ok with putting a new L50 into their fleet with a 4 stateroom layout. we know it won't rent for quite as much as a 5 stateroom layout, but will rent out for more than a typical 4 stateroom L42 or L450. that's something we are willing to come to terms with. aircon and a generator seems to be required, as is internet capability. icemakers and washer/dryers seem to lean towards a "no" but maybe we will just install hookups at the start and put the actual equipment in during the refit. watermakers seem to be a hit/miss. some want and some didn't care. same with solar.

I'm leaning towards installing as much gear or hookups at the factory as possible and refitting/expanding them later. put on 300 watts of solar panels now but add another 700 later. put in the washer/dryer/icemaker hook ups now, but at the equipment later. add in smaller water makers now but upgrade them later. bigger engines up front though. and bigger generator too. since those can both be serviced and not replaced at 5 years. Go with cheaper sails and get nicer ones during the refit. same with a tender. smaller/cheaper is better as the renters are likely to bang it up.

[bison65]

Just be sure to charter with a reputable company. DO NOT charter with TMM! (Ripped us off for thousands of $$$)

[Jon Hacking]

Studio, we bought Ocelot from Sunsail (St. Martin) in 2001, & paid ~30% of the new cost. The sails were shot, but otherwise she was in good condition. We spent ~$40K converting her from a charter boat to a cruising boat (solar panels, change fridge from engine to 12v, dinghy, watermaker, SSB, radar, storm anchor, etc, etc). Many of the frills you mention (washer/dryer, watermaker, dinghy, icemaker, etc) will be used to death by the charterers (or not maintained properly), so better to get what charters well (which may mean you have to go with the charter layout, not the owners layout), & then put your own stuff on when you go cruising. Many charter companies don't want fancy but delicate equipment on board. And, of course, go with a reputable charter company (Moorings, Sunsail). If you want details, or have more questions, PM me.

And good on you for following up your dreams!