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Old 23-10-2021, 13:37   #1
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Buying a boat from a non-profit. Charter agreement?

Greetings!

I've been looking at a Crealock 37 here in the SF Bay Area for a few weeks now. I'm keen to get the boat but there is a weird charter agreement that the seller has sent me that seems a bit weird.

The boat was donated to the Boy Scouts a year ago and apparently for the person donating the boat to get their tax credit the boat has to be registered to the non-profit (the scouts) for three years. It appears that in order to "sell" the boat they are chartering it to the buyer for two years with an agreement to take ownership of the boat after two years (totaling the 3yrs needed for the non-profit to own it). This seems like it could be ok but the worries I have is whether or not a marina will allow a boat in a slip if the person renting the berth isn't the "registered owner".

Part of me wants to walk away from the situation but the other part is realizing that it's a very low priced boat for what it is. I've gone through a good amount of the boat's systems and the Yanmar in it runs well (recent repower), bilge is pretty clean and dry, the decks don't feel spongy, and overall aesthetic is fine for the $39k they're looking for. My main question here is whether or not anyone has purchased a boat with such an agreement. Any issues with that?
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Old 23-10-2021, 15:29   #2
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Re: Buying a boat from a non-profit. Charter agreement?

It’s not clear who the seller is.
You say that it has been donated to the Boy Scouts but somehow the original owner is involved in the sale?

I’d be very wary and probably walk away.
There’s always another boat.
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Old 23-10-2021, 15:40   #3
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Re: Buying a boat from a non-profit. Charter agreement?

This is related to US tax law. Donor claims it’s worth $200k but if it sells in under three years then he has to “give back”’the difference he saved in taxes. And of course there are government monkeys paid to track this stuff.


So the new owners are going to lease it for two years first. That way it’s gone, they get cash now, and donor gets his full claimed amount.



$37k for a crealock is pretty good. I’d still get a survey. I’d worry about getting insurance on a leased “chartered” boat. If you find it good. As far as the marina, keep in mind that 50% of boats are owned by the bank.
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Old 23-10-2021, 15:49   #4
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Re: Buying a boat from a non-profit. Charter agreement?

I have 35yr of history with a student club where we did took donations. We always held onto the boats for the required time period before selling outright.

If the secondary issues can be squared away and you don't mind being tied to the bay area until the "lease" matures to purchase, then you are getting a good deal.
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Old 23-10-2021, 16:22   #5
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Re: Buying a boat from a non-profit. Charter agreement?

Quote:
Originally Posted by ChrisJHC View Post
It’s not clear who the seller is.
You say that it has been donated to the Boy Scouts but somehow the original owner is involved in the sale?

I’d be very wary and probably walk away.
There’s always another boat.
Original owner is not involved in the sale. The seller is a guy handling the boat for the non-profit.
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Old 23-10-2021, 16:24   #6
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Re: Buying a boat from a non-profit. Charter agreement?

Quote:
Originally Posted by Tetepare View Post
This is related to US tax law. Donor claims it’s worth $200k but if it sells in under three years then he has to “give back”’the difference he saved in taxes. And of course there are government monkeys paid to track this stuff.


So the new owners are going to lease it for two years first. That way it’s gone, they get cash now, and donor gets his full claimed amount.



$37k for a crealock is pretty good. I’d still get a survey. I’d worry about getting insurance on a leased “chartered” boat. If you find it good. As far as the marina, keep in mind that 50% of boats are owned by the bank.
Yeah. That sums it up pretty concisely. Really want to get that survey sorted but the seller is being a real PITA about it. The charter agreement says no sea trial or survey is to be done. That's the main part I find fishy. But $39k for this boat with all the systems working is a pretty sweet deal. Assuming no huge gremlins found in a survey.
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Old 23-10-2021, 17:26   #7
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Re: Buying a boat from a non-profit. Charter agreement?

I gave my first boat to the scouts when I bought the new one. Back then, they only had to hold on for two years, which they did. Another worry might be that you probably can’t buy insurance on a boat you don’t own. I’d get the opinion of a really good tax accountant to make sure that this can’t come back and bite you.
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Old 23-10-2021, 19:25   #8
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Re: Buying a boat from a non-profit. Charter agreement?

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Originally Posted by brentonodon View Post
The charter agreement says no sea trial or survey is to be done. That's the main part I find fishy.
This is your gut telling you something.... why would an organization that try’s my to sell a boat (that you won’t actually own for two years. )Not allow a sea trial or a survey....

Would you buy a used car with out test drive? Would you buy a used vehicle if seller told you that you cannot have someone look at the car for potential defects?
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Old 24-10-2021, 08:58   #9
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Re: Buying a boat from a non-profit. Charter agreement?

If the seller does not want YOU to do a survey, have THEM do a survey from a professional surveyor as ANY BUYER will need that to obtain insurance and the seller should know this. As the the Lease to Own arrangement, as has been said, this is to comply with IRS regulations. You will receive the benefit of getting the boat ultimately at a GREAT VALUE if you can comply with the charter requirements for the first 2 to 3 years. With the valid charter agreement in hand you should have no problems with the insurance and the lessor will require you to list them as an additional named insured on the policy anyway until the lease term is up.
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Old 24-10-2021, 08:58   #10
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Re: Buying a boat from a non-profit. Charter agreement?

We bought our boat from AMI kids under this arrangement and it was fantastic!

AMIKids has a history of over 6,000 yachts handles this way.
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Old 24-10-2021, 09:09   #11
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Re: Buying a boat from a non-profit. Charter agreement?

Not necessarily your problem, but tax law in the U.S. doesn't allow one to claim a value of $200,000 for a thing that the market says is worth $37,000. A nonprofit holding it for 3 years doesn't magically allow for a grossly inflated value like that. The IRS is woefully underfunded so chances are it isn't ever audited, but if it is the original owner is going to get hit hard on what is just tax fraud, plain and simple. You won't be culpable for anything necessarily, but I'm guessing you would be partially caught up in the investigation and have to ask yourself if it's worth the hassle.
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Old 24-10-2021, 10:06   #12
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Re: Buying a boat from a non-profit. Charter agreement?

Brent:

The OP should have talked to a tax accountant before making the donation, but I don't see that there are tax implications for you.

Canadian tax law is closely aligned with US tax law for very obvious reasons.

Canada Revenue Agency specifies that while donations in kind to Registered Charitable Organizations may be used as an offset against Accrued Capital Gains (i.e. they are treated as a Realized Capital Loss, but they are NOT a deduction from Net Income in determining Income tor Taxation Purposes!), the "offset" must be at Fair Market Value. CRA has the prerogative of determining what FMV is.

The IRS may get after the donor, "adjust" the FMV of the donation and possibly invoke penalties on him. That won't affect the RCO or you.

The RCO is not subject to Income Tax, so the "loss" to it has no tax implications, i.e. IRS won't be losing Tax Revenue, so no action will be taken against the RCO.

You bought would be buying a boat in good faith with After Tax Income, so you are in the clear. You merely exchanged on kind of capital - money - for another kind - a boat.

The stipulation that there is to be no sea-trial would not be acceptable to me, nor to any other reasonably prudent buyer. Staff at RCOs (being volunteers very often) is rarely conversant with the applicable laws nor with normal commercial practice, let alone Generally Accepted Accounting Principles. There is no reason that you cannot write a nice letter to the RCO saying "our negotiations can continue upon your permitting, and my having performed, a sea trial, as well as your permitting a professional survey at my expense. I await your early and favourable reply"

Doing so will only cost you a few minutes of effort and a postage stamp.

And you never know how desperate the RCO is for cashflow :-)!

Cheers

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Old 24-10-2021, 11:35   #13
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Re: Buying a boat from a non-profit. Charter agreement?

I bought my boat from Block Island Maritime. It was donated. I paid them 1/3 up front. 1/3 over 3 years interest free and 1/3 at the end of the lease. Worked out well.
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Old 24-10-2021, 12:15   #14
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Re: Buying a boat from a non-profit. Charter agreement?

My first and current boat, a 30 foot Islander, was a Boy Scout donation boat in the SF Bay area as well. The broker lived on his sailboat in Sausalito. Might be the same guy. I was told that due to insurance reasons I couldn't do a sea trial and almost walked away. Everything I ever read said a sea trial was a must. Nonetheless, the boat seemed very sound, and was a great price (much less than you would be spending). I got it inspected, rolled the dice and bought it. I have owned her now for 14 years and it has been a great boat for me. I know it was a big risk but it worked out for me, but again, it was not much of a financial risk as it was so cheap. Hope that helps.

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Old 24-10-2021, 13:58   #15
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Re: Buying a boat from a non-profit. Charter agreement?

A different perspective:

I’ve donated 2 different vessels over the years. From a donor perspective it’s a clean deal and financially easier than selling the boat outright

As a seller I had to find the survey before the charity would take it. This also established the value.

The charity then looks for a 3 year lease with option to buy the lesser gets a great deal and has 3 years to see if they want to exercise the option.

I have no idea why the charity would refuse a survey or sea trial. But remember that it’s low risk as long as you enter into a lease with OPTION to buy.
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