Does it pay to put a boat in charter?

[Seafari]

Hello All,

Having been a regular reader of this wonderful discussion board I'm making my first post.

Having owned power boats from 5m to 11m for most of my adult life I'm a longtime boater with decent amount of sports fishing and power boating experience.

I'm relatively new to big boat sailing and have enjoyed a few day trips out of the local yacht club on a fellow members sailing catamaran and now the catamaran cruising bug has bitten and it's bitten hard.

The plan is that our next few holidays will most definitely be angled towards a charter to get my feet wet and experience the different cruising grounds (considering Med, BVI, Whitsundays and possibly Mauritius/Seychelles) which raised a question regarding charter companies and boat ownership.

Is it worthwhile buying a boat and putting it into charter (say 38-45ft sailing cat) with one of the bigger charter operators? How does t work, does it work and is anyone willing to share their experience in this field.

thanks
Dave

[GordMay]

Greetings and welcome aboard the CF, Dave.

➥ http://www.cruisersforum.com/forums/...ter-20364.html

[belizesailor]

Short answer to title question is "No" financially, but it can have other benefits.

For more detailed answers see the thread Gordy linked above and the many others like it here...this horse has been beat to a bloody pulp...several times over here.

[maytrix]

You'll get lots of different answers. At the end of the day, I think it all depends on what you are looking to get out of it. As long as you have the right expectations and know all the details, it can be great.

For us, we own a boat in charter currently and its been great - we've only used our boat once and simply make use of our ability to upgrade very inexpensively to larger boats. The cost of the boats we've upgraded to adds up to a LOT over time so we've made it work for us very well.

Our program ends in another year and we'll be keeping our boat. We still owe money on it and will be putting it into another charter company to offset the costs until we are ready to use it full time ourselves.

Only thing I'd change if we were to do it over again would be to put more money down and reduce the length of the loan, making it a larger payment. In our case the payment was guarantee by the program. Had we made it larger, we simply would have paid some each month ourselves which would have been fine and we would owe less at the end. Like I said though, we're still happy with where we are though as its where we expected to be. There shouldn't be any surprises as you will know what your loan will be at the end of the program - only unknown is what you can sell the boat for at that time.

[Seafari]

Thanks Gents,

I had a feeling that this topic would have been bashed to death. I'll read up on the links provided.

Thanks again,
Dave

[2kr]

I had a boat in charter with Island Yachts in St Thomas for 5 years. I knew that I would sell it at the end of the charter. They are great folks. I wouldn't do it with a large company, but they don't do cats. I got a boat, and lots of chances to sail in the VI. You can't make any money. I broke even when I sold it, as I accumulated all the losses, sold it, and posted the losses in one year against my income from working. If you have a good income year in your real job, then it is a great to post the losses against it in a single year. Its the only way, I think, to make it worth it. Sell it at the end of the charter period, take the loss, then buy another boat. i also wrote off the price of the airline tickets to go to the boat, which is also legal, as the boat is a business. I got to sail a lot, learned a lot, and bought a bigger boat. I sold my house and have been living on the bigger one for a few years, now in Panama.

[wcrosby]

There are other ways to do this tha the way the large companies do. I formed a LLC, and it owns my boat -- I have it in the Bluenose Program in Warwick, RI. I find that it pays about 80% o the bills, including dockage, mortgage, and increased insurance. There are also some tax advantages in the US.

[jmschmidt]

Charter companies have ingenious ways with their proforma to make you think it’s a financial bonanza. For example they credit you with all the owner’s time as if you would have chartered the same boat from them at full rack rates. Who has twelve weeks a year to go chartering anyway? Not me. Even if you do there are discounts galore in the industry all the time. It’s generally not necessary to pay full rack rates. I just got an email from the Moorings offering me 15% off world-wide.
Bottom line, on a new boat you typically will get half your boat paid for on a 60-month charter contract from the guaranteed rental income if you pay cash for the boat. If you finance it your return will be something less than half as determined by your down payment and the loan interest you must pay.
If you run it as a real business, meaning you set up and LLC to hold title, keep a proper set of books and depreciate it as a business assets, you may come out substantially better. Get the booklet titled “Taxes (or Finances) for Yachtsmen” or something like that. I can’t find my copy to give you the exact title. If you do run it like a business you can write off a lot of air travel, meals and hotels “visiting” your “business”. You must set up a depreciation schedule and write down the boat’s value during its useful life as determined by the IRS and you may also write off any operating expenses not covered by the charter company. If the whole operation shows a net loss at the end of the year this loss may become a write-off on your personal tax return.
The rules say you can use your own boat (like if you owned mountain vacation rental cabin) up to two weeks a year without declaring the fair market value of the two weeks as income. In this case you can’t have free use of all the owner’s time that is typically available. However, after you’ve used up your two weeks you might be able to negotiate a significant discount on one of the charter company’s other idle boats at the same or different location without running afoul of the “two-week” limitation. I have a friend who has done this for almost twelve years, rolling from one boat to another, and always keeping them in or available for charter. Some contracts allow you to sub-charter your unused owner’s time to other people at whatever rate the market will bear and keep the money in addition to the regular charter income. Anyone who wants to go to this effort will probably come out a lot better than the standard program of buying a brand new boat sold by the charter company and then just use the owner’s time and collect the guaranteed rental income.
Good luck and don’t even think about cheating the IRS. I understand they are looking for nice boats.

[belizesailor]

Originally Posted by wcrosby

There are other ways to do this tha the way the large companies do. I formed a LLC, and it owns my boat -- I have it in the Bluenose Program in Warwick, RI. I find that it pays about 80% o the bills, including dockage, mortgage, and increased insurance. There are also some tax advantages in the US.

Forming a corp entity, having it own the boat, and running all related revenue and expenses thru that entity has a few advantages.

Liability. If a legally liability occurs then it is normally limited to just the assets of the entity and your other personal assets are protected.

Clarity. A corporate owned boat managed by a charter company clearly is a business. This is advantageous from a tax & legal perspective should tax or other regulatory entities come sniffing for a bogus claim of the boat being in charter. Also makes it cleaner for accounting and tax preparation.

Placing it in a non-USA entity also discourages legal action from litigation rife USA plantifs because the laws of most other countries are less condusive to attornies making money off you. Depending upon the country this can significantly limit your liability should someone decide to pursue legal action. Always draft contracts using the corporate entity, never yourself personally, and sign on behalf of the corporate entity so you don't carelessly create a hole in the corporate veil.

Good legal and accounting advise is key to setting this up right. The few hundred dollars this should cost you in fees is well worth it.

It is very important to keep the corporate entity in good standing, allowing it to lapse or be administratively dissolved (due to lack of filing reports or paying annual fees) leaves all of this in limbo.

[belizesailor]

Originally Posted by 2kr

I had a boat in charter with Island Yachts in St Thomas for 5 years. I knew that I would sell it at the end of the charter. They are great folks. I wouldn't do it with a large company, but they don't do cats. I got a boat, and lots of chances to sail in the VI. You can't make any money. I broke even when I sold it, as I accumulated all the losses, sold it, and posted the losses in one year against my income from working. If you have a good income year in your real job, then it is a great to post the losses against it in a single year. Its the only way, I think, to make it worth it. Sell it at the end of the charter period, take the loss, then buy another boat. i also wrote off the price of the airline tickets to go to the boat, which is also legal, as the boat is a business. I got to sail a lot, learned a lot, and bought a bigger boat. I sold my house and have been living on the bigger one for a few years, now in Panama.

As a business asset the boat can also be depreciated. This can have a nice positive impact on your personal taxes.

[GordMay]

"Tax Guide for Business Yachtsmen"
➥ https://books.google.ca/books/about/...PQAACAAJ&hl=en
➥ https://docs.google.com/document/d/1...a8U/edit?pli=1

See also ➥ Mike Kimball, CPA - Yachts Tax Advisor

[OldFrog75]

I've never known anyone who makes a profit chartering their boat. From a cash flow standpoint it seems fees, principal + interest, and maintenance always exceed revenues. The tax benefits for losses due to depreciation are only worth about 30-40 cents on the dollar.

I've looked at a couple of boats and I could never make the numbers work out. Seems to me it's always cheaper to just charter a boat when I want to sail than it is to buy a boat, charter it, and sail for "free".

[belizesailor]

Originally Posted by OldFrog75

I've never known anyone who makes a profit chartering their boat. From a cash flow standpoint it seems fees, principal + interest, and maintenance always exceed revenues. The tax benefits for losses due to depreciation are only worth about 30-40 cents on the dollar.
...

At best having a boat in charter can reduce the cost of ownership, but It would be exceptionally rare for an owner to actually make a profit on revenue or come out financially ahead on the end.

I've had boats in charter for many years and have cleared small positive cash flow numbers a few years, but I was operationally involved in the charter companies that managed them, ran most of the charters on them myself, and handled most of my own maintenance. So, I faired better than the typical absentee owner.

In the end owning a boat in charter is not profitable, but can have other benefits.