Financing your first Cat - Lessons Learned

[Ramsey.Slim]

Looking at purchasing a new cat (40-44' Lagoon/ FP / etc) for some extending open water sailing. While determining which exact make and model is still open, I am wondering what surprises might be lurking when it comes to financing. I know there are several tools to outline payments at say 20% down, but looking for awareness on additional line items that might not be expected on a mortgage for a house.

1) Is it near impossible to refinance a boat, if rates come down in 2 years?

2) Are their additional broker/agent/ commissions you might be on the hook for unlike in real estate where the seller covers most of the transactional costs?

3) Is it possible to get it in a fleet after using it for a few years when it's fresh and new? After the bluewater experience would want to try and minimize the cash burn.

Looking for your lessons learned. Appreciate your experience!

[Chotu]

The first lesson is you don’t live aboard. It’s just a boat you keep at your house there in Detroit. Anything else and you’re getting denied.

Second lesson is number three is backwards. You have that completely backwards. It has to go into charter first. Then you get it when it comes out of charter. That’s how they do it.

Otherwise it is a lot like a house.

[SailingHarmonie]

If you can not afford to buy the boat, you can’t afford it. 20% down on a depreciating asset? That’s nuts. Refinancing is almost never possible, because boat loans are almost always underwater for most of their term.

I’m curious what you expect your maintenance and carrying costs to be, above and beyond the mortgage on an $800k boat?

Charter companies are generally not interested in Used boats.

A boat is financially NOT AT ALL like a house. They never go up in value, and never go up in value.

When you are done using the boat, sell it. The idea that you can make money off it and continue to cover a mortgage and maintenance is a pipe dream.

[sw34]

If buying new beyond the purchase costs you will pay delivery and most likely import duties. There is also fees for commissioning once delivered. These fees should be spelled out in your build contracts, except the delivery fee is likely to be an estimate only.

Like homes the sellers pay the broker fees, buyers pay for inspections/surveys including haul outs if necessary. I would recommend a survey even on a new boat unless your very experienced boater. Boats are hand built and more complex than a home and car combined, lots of room for errors.

Unlike a home purchase you would also likely need to pay Sales Tax unless you can get it into an LLC, which comes with its own set of issues and fees. The other option is to not import it into the US, but again this also has complications.

Since it sounds like sailing/owning boats may be new to you I would also start checking with insurance companies to see what they will require and approximate costs. Expect at least 1% of hull value per year, much more if the boat will be within the hurricane zones in season.

It's rare that a boat straight from a factory (especially from one of the bigger production builders) will be close to being ready for liveaboard use. Adding watermakers, batteries, inverters, solar, safety gear, dinghies and other outfitting will add up fast. You could easily drop $100k on this.

As also mentioned although the first year or so maintenance may be lower but budgeting 5-7% of hull value per year for maintenance is wise. This does not include upgrades, this is for routine maintenance and wear and tear on sails and rigging.

There are some charter companies that would let you take a boat out of service for a sabbatical, but none of the larger ones would take in a used boat.

I don't subscribe to the "if you only have 20% you cant afford it" thinking as there are many reasons why people finance depreciating assets, but the sentiment is true. If the 20% down payment is about all you have you will quickly run out of money paying all the other items. In the current (possibly already past now) hot you would likely not be upside down soon but if the market crashes you could easily be with only %20 down.

Getting loans on liveabord boats I have heard is somewhere between hard and impossible.

[leecea]

The institution making the loan may have requirements for the insurance coverage, so that has to be sorted and could be more complicated to obtain than a typical home owners policy when buying a house.

[MicHughV]

In short...buying a boat is not unlike buying a car.

The second you drive it off the lot....it loses 20-25% value....it doesn't lose it per se....but that is the dealer profit......your boat's value is what you paid for it....less dealer profit.

Then you have to add in sales tax...usually a significant number, especially so for a large cat.

Then comes the annual slip fees, insurance, bottom jobs, and 101 things you'll add, change, modify, etc. None of these things adds to the value of your boat, which, like a car, depreciates year after year. You might think that solar panels, dink, radar, etc, that you'll add, adds value to the boat, but you will be sorely mistaken.

In the meantime you are still carrying the note from the original purchase price on a boat which is significantly depreciated.

When it does come time to sell, yours will not be the only boat on the market. This time you will be obligated to pay the broker's commission...usually 10% the value of the boat.
Realistically speaking, it's not uncommon for a boat to sit on the market for a year or more before it sells. You will off course, price it way to high initially to recoups some of your investment. While you wait, the dockage, insurance, maintenance keeps going and you'll find yourself knocking the price down hoping to attract a buyer.
While you wait, newer boats will come on the used boat market, while your becomes a year older.

It's not unusual for sellers to have to bring money to the table themselves to get out from underneath a boat mortgage. Talk about adding insult to injury, but it happens more often than you would think.

Finally, your location comes into play. If selling thru' a broker, and these days, most boats are, location is big thing. If a broker has to drive hours to your boat to show it to someone, their zeal quickly wears off. Broker income is commission driven. He may have to show your boat a dozen times, all on his own dime. He doesn't take home a check until the boat is sold.

All in all, think carefully before opening your checkbook.