NEED HELP WITH FUNDING...EXCELLENT CREDIT

[GILow]

Originally Posted by wanderlust42

I am an accountant, I've just never owned a boat.

Ha ha, you just got me thinking. I know dozens of accountants and they are all far too smart to own a boat. They buy family homes and own investment properties bought well before the Oz property boom. They drive slightly secondhand cars, mostly Japanese cars, and yes, they do wear cardigans. And when they feel the need for a sail, they get a ride with a mug like me who spends all his money on the darn boat. Usually it only costs them the bottle of wine they brought along.

I also know an actuary who built his own boat. It's absolutely beautifuly built and utterly un-seaworthy. I dread him inviting me out for a sail, but given how little he uses it, I suspect he knows it is not seaworthy also.

No help here... just reminiscing.

[RainDog]

Originally Posted by TwinkleD

I have excellent credit, make good money but the boat can't be found using NADA or BUCvalue and no one is willing to lend me money.

You might try a few credit unions. The sometimes have different practices than banks, especially if you are putting 30% down.

[laika]

Since you specified no pre-requisite knowledge of things financial here, my thinking is why in the hell buy a $500k boat on 80% financing? That sounds like a nightmare scenario to me, and a recipe for never really being able to cast the lines off. There are GREAT boats out there for a fraction of the cost.

And boat maintenance on a paid off boat sitting at the slip is expensive enough. Not to mention the realities of cruising.

I'm young and have no real experience with finances beyond saving money for the things I want to buy. I get lost in some of this financial-speak, which, to be honest, come off as rationalizations for buying things you ought not and can ill afford.

I have but a pinch of the financial wherewithal of others here, but my perception has always boiled down to the general absurdity of this: You take out a 10 year loan for a $200k boat; by the time you've paid it off, you've paid lets say $300k for something that's worth maybe $100k?

[belizesailor]

Financing a depreciating (or at least non-appreciating), non-income producing asset is fundamentally a bad financial decision.

Take the 20% and pay cash for a nice older mono, many good options on the market, and be free from debt.

And...interest rates in the USA are now starting to rise...they can't go anywhere but up.

[belizesailor]

Originally Posted by laika

Since you specified no pre-requisite knowledge of things financial here, my thinking is why in the hell buy a $500k boat on 80% financing? That sounds like a nightmare scenario to me, and a recipe for never really being able to cast the lines off. There are GREAT boats out there for a fraction of the cost.

And boat maintenance on a paid off boat sitting at the slip is expensive enough. Not to mention the realities of cruising.

I'm young and have no real experience with finances beyond saving money for the things I want to buy. I get lost in some of this financial-speak, which, to be honest, come off as rationalizations for buying things you ought not and can ill afford.

I have but a pinch of the financial wherewithal of others here, but my perception has always boiled down to the general absurdity of this: You take out a 10 year loan for a $200k boat; by the time you've paid it off, you've paid lets say $300k for something that's worth maybe $100k?

Yes, but you appear to have better than a pinch of common sense...which often gets lost in all the finance-speak. Stick with the common sense, it will serve you much better in the long haul, and help cut through the loads of BS which finance-speak is often used to hide. Most so called financial "experts" babbling finance-speak at you are still working for a living...and trying to sell you something to justify their next pay check (not refering to those posting on this thread).

One correction though. Boats don't typically depreciate quite so dramatically as your example. A new boat will depreciate a bit, but then reach a plateau where it can remain literally for decades, with just market variance, provided it is well maintained. You can typically get most of your initial purchase capital back out of a boat, but what ever you spend on maintenance and upgrades is gone.

My last boat for example, I held for almost 10 years and sold for $5K more than I paid for it. The slight increase in price was due to having spent many times that on upgrades.

[ctl411]

You can finance old boats. My last one is over 30 years old. 100% financed through my credit union. I have financed most of my boats. I always sell or pay off way before and of term. Also could pay off anytime except the the first couple I bought in my 20's. I use cash for the upgrades then pay off when I get the boat close to the way I want it. Not saying paying cash isn't the way to go. But getting financed is not a problem. To each their own.

[Dave Lochner]

A few months ago I financed a 21 year old boat, 20% down at 4.85% for 15 years. My funds, mostly in tax advantaged accounts are earning more than that and I would have to pay income tax on the those funds at exceptionally high rates to pay off the loan or purchase the boat debt free. So from a tax planning perspective, it makes sense to withdraw the money slowly, a few K a year, pay the interest and tax on the withdrawals (at a much lower rate), and take a tax deduction on the interest payments.

Another factor to consider is your income while you are out sailing. If you have enough income to cover the cost of the loan and expenses without touching your capital, it may again make sense to take out a loan.

Over the course of owning my (new to me) boat, I expect to take a 10 to 20% loss when it is sold. When that loss is amortized over the term of the ownership, it is a fairly small amount per year. It is just part of the cost of living a lifestyle that I would like to live.

Everyone's situation is different. This will work for me, your mileage may vary.

Dave

[denverd0n]

Originally Posted by wanderlust42

...if you take the other 75-80% of the cash that you would have used to purchase the boat and put it to work in other investments.

This is the big "IF". Everyone plans to put the rest of the money to work so that all of the present value and opportunity cost calculations work out. Hardly anyone does, though. If you really will do that, then it can make sense. But you really, really do have to do that!

Good luck.

[sailorboy1]

Originally Posted by TwinkleD

Survey came in 15% more than asking. I'm putting down 30%

If you have good credit and can not get a loan on the above you are not asking the right people.

[cheoah]

Originally Posted by laika

Since you specified no pre-requisite knowledge of things financial here, my thinking is why in the hell buy a $500k boat on 80% financing? That sounds like a nightmare scenario to me, and a recipe for never really being able to cast the lines off. There are GREAT boats out there for a fraction of the cost.

And boat maintenance on a paid off boat sitting at the slip is expensive enough. Not to mention the realities of cruising.

I'm young and have no real experience with finances beyond saving money for the things I want to buy. I get lost in some of this financial-speak, which, to be honest, come off as rationalizations for buying things you ought not and can ill afford.

I have but a pinch of the financial wherewithal of others here, but my perception has always boiled down to the general absurdity of this: You take out a 10 year loan for a $200k boat; by the time you've paid it off, you've paid lets say $300k for something that's worth maybe $100k?

Hi laika, lets take my boat as a more reasonable example of a young person buying on credit. I could have paid cash for a $10,000 boat, but lets face it, there is nothing out there that meets my needs in that range. Paying closer to 50k for 15 years, but the interest is tax deductible, which in my case ends up as an actual significant reduction in my tax liability. So, no, I won't end up paying the kind of money you're talking about in the end. I also do not expect to lose the kind of money you're talking about when I resell, which I don't plan to do for a very long time. Ya, I know, but I've been through a few boats and I've arrived. The last boat I bought, I financed too. I sold it and did not lose much at all, and mostly had sweat equity in it.

My point is, that there are details that change the picture here. A smart purchase to start, and the ability to keep the value up without major cost. A good tax position, the ability to earn more on investments, and having the bank handle the insurance issue are some good reasons that have been listed. The bank will still hold you liable in the end for the debt, so I am not sure this will always be a benefit in the event of loss -- especially if the note is in the 40 k range like mine, where they may not be so quick to litigate. Anyone have insight or experiences with this?

If in the end, you are simply amortizing roughly the same money you would be paying cash for, what's the issue? Don't want to be that guy that keeps telling myself that I'm on track, when I'm not, like GiLow suggests is a phenomena in his business.

Let's face it, money is important, but I did not get into sailing as some slick financial move. I watched my mom work herself to death after decades of no play, and I think it is just as foolish to delay your dreams. Particularly as it relates to leveraging yourself some to get there, if you're disciplined. Don't mean to get all metaphysical here, but life is short, and some of us here are not really going out and doing what we want, because we're busy planning for later. None of my business, but if I had a nickel for every time I hear about someones plans....

Don't get me wrong, I'm on track with retirement for a 40 yo farmer, insurance, kids college, own cars with 170k miles, etc. Certainly not a model for fiscal responsibility, but it works for me.

What am I missing? Will I regret the thousands of miles on a boat that is a great pleasure to sail and maintain, dry as a bone, not all stinky and moldy and depreciating way faster than a quality boat? And my wife really likes it. Priceless...

[laika]

That sounds legit, Cheoah, and I don't mean to rain on anyone's parade (well maybe a little). But your boat is exactly the kind I was referring to when I said there are great boats to be had for a fraction of $500k.

I bought my boat for $30k of which I had to take out a $5k loan to help purchase, so I "financed" mine a bit too. Granted I'm not saying everyone should buy a 27' monohull..I'm 30 yo with pretty minimal requirements. Really a very nice 27' tho

I appreciate your breakdown of the factors involved in making a boat loan work. Along with what others have said, I come to understand that taking out a giant loan CAN honestly be a reasonable and prudent thing to do given the right portfolio and the assumption of a stable economy.

If you find the right boat and have investments which would appreciate faster than the boat loan will accrue interest, and/or you factor in tax benefits (which probably make debt seem more attractive than it should be however) than all the power to you.
However, if you then buy the most expensive boat you think you can possibly afford given all this, well that just seems like gambling on dreams and shackling your future to the future of the market index. At the very least, it will guarantee you'll be working longer and not cruising. Why deal with the stress and worry when you can be happy with just a bit less??

I come from a family of midwest farmers so that probably informs a lot of my thinking here I suppose. I'm also of a generation that looks much more anxiously at debt in general. Debt is economic slavery and freedom is having the time to live and the means to give

[cheoah]

Originally Posted by laika

That sounds legit, Cheoah, and I don't mean to rain on anyone's parade (well maybe a little). But your boat is exactly the kind I was referring to when I said there are great boats to be had for a fraction of $500k.

I bought my boat for $30k of which I had to take out a $5k loan to help purchase, so I "financed" mine a bit too. Granted I'm not saying everyone should buy a 27' monohull..I'm 30 yo with pretty minimal requirements. Really a very nice 27' tho

I appreciate your breakdown of the factors involved in making a boat loan work. Along with what others have said, I come to understand that taking out a giant loan CAN honestly be a reasonable and prudent thing to do given the right portfolio and the assumption of a stable economy.

If you find the right boat and have investments which would appreciate faster than the boat loan will accrue interest, and/or you factor in tax benefits (which probably make debt seem more attractive than it should be however) than all the power to you.
However, if you then buy the most expensive boat you think you can possibly afford given all this, well that just seems like gambling on dreams and shackling your future to the future of the market index. At the very least, it will guarantee you'll be working longer and not cruising. Why deal with the stress and worry when you can be happy with just a bit less??

I come from a family of midwest farmers so that probably informs a lot of my thinking here I suppose. I'm also of a generation that looks much more anxiously at debt in general. Debt is economic slavery and freedom is having the time to live and the means to give

That's a great boat. I spent some time next to a guy from the PNW 5 or so years ago in Charleston. We were both there for the winter.

Yep, debt is overall bad, and even my situation is suboptimal, but my best choice. Boats may not always be deductible. I may overestimate how much value it will retain- but I doubt it. I'm just in no hurry to pay off the house or the boat.

I thought about a 1960's alberg last year that I could buy outright, and I'm sure there are others. Right now my wife and I have very good long term jobs, and it is a real luxury to have such a well kept - but basic - boat, that has creature comforts she likes, but I can easily singlehand.

cheers laika-

[rebel heart]

Originally Posted by Sam Plan B

The basic problem is this. It is nearly impossible to get financing on a boat over 10 years old. You need to have some kind of collateral against which to borrow. That can be realestate or a mutual fund, for example. You will be limited to about 30% of your equity position. I had about $100,000 in an equities mutual fund. It was no problem borrowing $25,000 to buy my boat. If you don't have something like that available you will have to stop shaving. The money you save on razor blades will pile up quickly.

We got a loan on a $60k boat that at the time was 30 years old.

To answer the top question though, I think a greater problem might be had in "I want to go sailing so I'm going to spend a half million dollars on a huge catamaran as a first step." Maybe I missed something there.

[charliehows]

well, if you're an accountant maybe you can explain why you would use a financial tool designed to access an income producing asset, for the purpose of accessing an object of extreme consumption. i'm just a dumb 10th generation peasant though, with stupid simple ideas like 'dont spend more than you earn', so what would i know?

[Richard5]

Originally Posted by belizesailor

+1. Cash is King, especially when a depreciating, non profit producing asset is involved. Certainly on par with another common bad practice...financing a car.

+1,000