How to Finance a One-off Custom Boat?

[TacomaSailor]

A minor factoid I failed to mention about the boat

a good sailing friend was the captain on this boat for several years in another part of the world. He is the one that got me interested in buying it due to the great stories he tells about sailing it in all kinds of conditions. He supervised the initial purchase and outfitting of the boat. I have no concerns about it's quality, strength, or great sailing characteristics.

My wife wants to know WHY are all the people I correspond with on this Forum are so sensible, knowledgeable, and practical while all my local sailing buddies are idiots, egotists, and extravagant spenders of money on impractical yachty things?

She has picked out her production white plastic boat and there is little hope we will get anything other than that boat if we decide to upgrade.

Our 40' cutter that we have owned for 20 years is still in great shape and works perfectly. I just want one last big upgrade before moving ashore!

[Scot McPherson]

Originally Posted by weavis

You know why McDonalds works? People know what they are getting and they know the value.

Doesnt mean its the best. BUt the line is outside of McDs and not Freds Gourmet burgers.

Why not purchase a stock boat and upgrade mightily........ It will have a resale value and be a good one with the additions...

Yep, it's the Hershey bar example. Every Hershey bar is the same as the next. No surprises. People know what they are getting, the bank knows what you are getting, and the insurance company knows what you are getting.

When you deviate, actuaries can't do their job. And even if you provide the data they need, they don't know enough about the product and are uncomfortable providing a table with their name on it.

In other words, they don't want to give you the money.

If you want to prove me wrong, go get your 4 CMAs if you can and see if they say yes at that point. My money is on, they won't.

[Scot McPherson]

Originally Posted by TacomaSailor

A previously factoid I failed to mention about the boat

a good sailing friend was the captain on this boat for several years in another part of the world. He is the one that got me interested in buying it due to the great stories he tells about sailing it in all kinds of conditions. He supervised the initial purchase and outfitting of the boat. I have no concerns about it's quality, strength, or great sailing characteristics.

My wife wants to know WHY are all the people I correspond with on this Forum so sensible, knowledgeable, and practical while all my local sailing buddies are idiots, egotists, and extravagant spenders of money on impractical yachty things?

It's probably a great boat, but you can't argue that it's not a Hershey bar...it isn't. It's a custom asset/liability pair, and therefore an unknown for someone you want to share the liability with and they don't get to sail it.

That's why you want to find partners rather than lenders. You are sharing BOTH the burden AND the joy. That's entirely different.

[weavis]

Originally Posted by TacomaSailor

A minor factoid I failed to mention about the boat

a good sailing friend was the captain on this boat for several years in another part of the world. He is the one that got me interested in buying it due to the great stories he tells about sailing it in all kinds of conditions. He supervised the initial purchase and outfitting of the boat. I have no concerns about it's quality, strength, or great sailing characteristics.

My wife wants to know WHY are all the people I correspond with on this Forum are so sensible, knowledgeable, and practical while all my local sailing buddies are idiots, egotists, and extravagant spenders of money on impractical yachty things?

She has picked out her production white plastic boat and there is little hope we will get anything other than that boat if we decide to upgrade.

Our 40' cutter that we have owned for 20 years is still in great shape and works perfectly. I just want one last big upgrade before moving ashore!

If I may.

If you have the cash, trade everything in for what you want. If you dont have the cash, and no one will lend you the money, it means that when it comes to sell, the same scenario will be in place. You will staring at a huge money pit and wishing you had not done it. Your kids will wish you had not done it and your wife will probably not be talking to you.

Several years ago, I did this exact same thing on a property I wanted. I was warned. I didnt listen. It is now worth precisely nothing. I still have to pay taxes every year. I cannot give it away. I lease it to a neighbouring farm for the land usage..... he pays me EXACTLY the tax value...... when I wanted to charge more he didnt take the land the next year. So now, I swallow hard and let him use it at that value. I could prevent him using it and tell everyone to go take a hike, but one day the tide will turn and things will change. Im Irish and can wait..............

Be cautious about stepping out of the norm for personal vehicles, for that is what this is, especially when large sums of cash are involved.

If I cant pay for it, I dont own it. The benefits and the liabilities are mine... coz sure as eggs are eggs, they are yours even if its the banks money.

[skipmac]

Originally Posted by TacomaSailor

My wife wants to know WHY are all the people I correspond with on this Forum are so sensible, knowledgeable, and practical while all my local sailing buddies are idiots, egotists, and extravagant spenders of money on impractical yachty things?

Obviously your wife has not spent much time on the forum.

[sailorboy1]

Originally Posted by TacomaSailor

Well - my wife may be sensible and the mortgage brokers may be giving me a clear message about the value of the boat but a true sailor ignores all those FACTS and rational thoughts when it comes time to buy the boat of their dreams!

Sounds you 2 have a role reverse going. I would spell out what this means but don't think it would be in my best interest.

[BandB]

Originally Posted by TacomaSailor

a good sailing friend was the captain on this boat for several years in another part of the world. He is the one that got me interested in buying it due to the great stories he tells about sailing it in all kinds of conditions. He supervised the initial purchase and outfitting of the boat. I have no concerns about it's quality, strength, or great sailing characteristics.

Actually with such knowledge of it and if you could pay cash or finance another way, and NEVER intended to sell it, then it could be a great buy. The problem is it's resale value might be as low as zero. And resale value is one of those things the lender looks at.

[Steel sails]

So I assume the boat is a Lerouge design Brazapi, surely it could be compared to the Freydis line and the Baramundi line. There are 3 or 4 of these on the market.
Regards
Paul Haggar

[TacomaSailor]

"There are 3 or 4 of these on the market."

... and none have sold

I can not find a record of a Feydis selling in the last three years

The Baramundi:

- made in a different country by a different builder
- different construction method
- 14 years newer
- only one has sold and that was to a French couple
- only sale was 7,000 miles SSW of San Diego

Adagio is now officially off my list - yet another mortgage broker told me today that none of his lenders would touch the deal

0 for 4 brokers who can find a lender

[reefhunter]

Like I said earlier - "Line up a number of investors and give them equal number of weeks aboard the boat. This eliminates the need for a mortgage and a bank".

[TacomaSailor]

Originally Posted by reefhunter

Like I said earlier - "Line up a number of investors and give them equal number of weeks aboard the boat. This eliminates the need for a mortgage and a bank".

Shoreside residential real estate would call that TIMESHARE

What a great and unique idea!

[Cadence]

I have not doubt the vessel could be constructed well. I believe it is a matter of investment and associated money problems. I have built a 48 fter and double and tripled some scantlings. If I had it to do again I would have waited till I could buy a production boat.

[Arthur Garfield]

Even if seller financed 15 years at %3.5 the resale is the killer.go in hardball low assuming seller finance and be prepared never to recoup.Wife sounds entirely pragmatic.What's the "scrap value" ?


All the Best

[TacomaSailor]

"What's the "scrap value" ?"

A friend manages boat donations for a local charity. Occasionally they take in a boat that they can not sell. When it becomes more expensive to keep at a dock than it can possibly bring in when sold - they scrap it.

they just got rid of a 30' sailboat that was structurally sound but badly water damaged and had a dead diesel.

It cost $4,000 to dispose of it plus the cost of hauling to the scrap yard.

So I would guess a 50' cat scrap value would be a big negative 5-digit number.

[EzzyD]

Originally Posted by TacomaSailor

"What is the advantage of using credit to buy a boat in the US? Are there some tax issues?"

I do not want to start another finance and investment thread but:

Our investments (where all are cash lives) make about 10% - 15% per year, compounded and that growth is tax free.

If I take cash out of those accounts to buy the boat I have to give Uncle Sam (Federal IRS ordinary income tax) 28% on part of it and 33% on another part which has the effect of raising the boat price by that percentage. Additionally, I would have to pay California another 1.5% on the lump sum I take out of my tax free investments to buy the boat.

If I can borrow money at 5% and leave the cash in an account making 10% I am then making 5% more than I would by using cash to buy the boat.

And, 1.25% (our marginal tax rate is 25%) of the 5% I pay to the finance company is tax deductible so my effective loan rate is 3.75% compared to the 10% my money, which I leave invested makes.

If I use a 15 year loan period (amortization schedule) I can keep the investment withdrawals at a level where I only have to pay 25% Federal Income Tax and 1% California tax on the annual boat payments.

I never use my own money to buy anything when I can rent someone else's money to accomplish the same purpose. I try to keep my money working hard in tax free investments. I only let that money come out to play when my alternate investment pays more than my tax free investment pays.

"If your credit rating is fine you can simply borrow the amount in cash."

Who would make an unsecured loan on a very expensive asset that can easily be moved out of the country, repainted, and disappeared?

The folks that would do those loans are not the folks I want to associate with.

Talk to your investment advisor about getting a loan FROM your retirement account...
Then you pay interest TO your retirement account. Should be Tax Free.