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Old 01-23-2014, 04:25 PM   #1
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Boat Buying Power!

Buy New or go Used? I had an interesting conversation with a 'seasoned boat broker' about boat financing and purchase power. So I thought I would pose the question, " how much boat can one really buy/afford when considering this purchase?"
Value or perceived value of a boat is another topic.

If you can buy a used 40' trawler for $144,000 that is 'Voyage Ready to Go' (that could use a few minor cosmetic upgrades) or buy a new boat for $400,000 and finance either one, what would be the deciding factors? (Assuming comparable characteristics in both boats' ability)

Used boat $144,000
40% down ($57,600 cash)
$86,400 @ 6% Is $937+/- per month
15 years

New boat $400,000
20% down ($80,000 cash)
$320,000 @ 4% is $2,367+/- per month
15 years

The new boat is apparently easier to finance from the banks perspective. Lower down payment % required and a better interest rate offered.

Difference in numbers is $22,400 in cash more for the new boat and $1,400/mo over 15 years.
Up front cash outlay is not much different but the monthly cost is about 1 1/2 times as much.

Let's say you buy used boat for $144,000 cash
And you finance the new boat with $144,000 cash

New boat $400,000
$256,000 @ 4%
$1,894/ mo
15 years

You are paying $500/mo less but invested $64,000 more cash up front. (larger down payment) for the same new boat above.

But, compared to the used boat purchase(all cash) the new boat costs you $1,894/mo more to own for 15 years.

I guess there are at least two questions here:

How much emotion factors into the equation on a purchase?

And

Is it really a question of practicality or just financial capability?

Thanks,

Randy
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Old 01-23-2014, 05:04 PM   #2
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Greetings,
Mr. RB. Does depreciation enter into this equation at all? Emotion? Meaning does one feel better about owning new as opposed to owning used? (superior, peace of mind with new systems, latest and greatest?) Practicality? In what sense? Less to do (possibly) on a new vessel?
Interesting question. I look forward to the answers.
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Old 01-23-2014, 05:12 PM   #3
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I personally rarely buy anything of this nature new. As RT has mentioned, it's about the depreciation in the first few years of ownership and also the fact that we were raised old school thinking that the only thing to borrow money for is a house, everything else you save the money then buy it cash. That's what making the banks rich from interest but to each his own.
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Old 01-23-2014, 05:25 PM   #4
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My boat in 1988 new was 320K. As the third owner, I bought it for 112K

Today the same kind of new boat is well over 1.5 mil and closer to 2mil. As soon as you take delivery, the price drops a lot....
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Old 01-23-2014, 05:33 PM   #5
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Or look at another way...
If in five years you change your mind and change boats how much will you have lost on the $ 400,000 boat vs the $144,000 boat?

My guess is just taking the $ 144,000.00 you will loose way less of it on the used boat and be $ 1900.00 per month richer... 1900X 60 mo. = $114,000 !

Even if you loose half of the $ 144,000 you still are $ 184,000 ahead...

$ 184,000 is a fair chunk of change... $ 3066 per month towards the cruising kitty..

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Old 01-23-2014, 05:53 PM   #6
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I have a simple economics philosophy .... no cash, no buy.
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Old 01-23-2014, 07:13 PM   #7
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And think about the potential to invest the saved $$ if you purchase used.
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Old 01-23-2014, 08:42 PM   #8
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Quote:
Originally Posted by boatpoker View Post
I have a simple economics philosophy .... no cash, no buy.
Sounds good, but too simple.

Say, you're buying a $500k boat. You have the cash which is invested in something that gives you a 10%($50k per year) return. If you can get a loan for 5%, you would be better off financing the boat using the earnings from your investment for monthly payments. This way, when the boat loan is paid off in 20 years, your $500k is still intact plus you own your boat free and clear.

The more simple scenario would be to pay $500k cash for the boat, but in 20 years your $500k is whatever the depreciated value of the boat is.

My point is that buying cash, isn't always the best thing.
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Old 01-23-2014, 08:54 PM   #9
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Sounds good, but too simple.

Say, you're buying a $500k boat. You have the cash which is invested in something that gives you a 10%($50k per year) return. If you can get a loan for 5%, you would be better off financing the boat using the earnings from your investment for monthly payments. This way, when the boat loan is paid off in 20 years, your $500k is still intact plus you own your boat free and clear.

The more simple scenario would be to pay $500k cash for the boat, but in 20 years your $500k is whatever the depreciated value of the boat is.

My point is that buying cash, isn't always the best thing.
So when your 10% investment goes south with Bernie Madoff or Enron or or or or ... and the bank comes looking for their 500k because you lost your job ...... in the meantime I'll still have my cash and I will not have wasted a minute worrying about foreclosure. It's just the way I was raised.
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Old 01-23-2014, 10:08 PM   #10
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So when your 10% investment goes south with Bernie Madoff or Enron or or or or ... and the bank comes looking for their 500k because you lost your job ...... in the meantime I'll still have my cash and I will not have wasted a minute worrying about foreclosure. It's just the way I was raised.
What a doomsday outlook. If your investments yield less than expected or you lose your job, you pay your debts with your reserves.

The example that I cited is a very common thing that people do. People invest and borrow money all the time.
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Old 01-23-2014, 10:57 PM   #11
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plus tax deduction for boat interest (second home) in USA....I think it's still OK.
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Old 01-23-2014, 11:05 PM   #12
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I have a simple economics philosophy .... no cash, no buy.
ROGER THAT!!!! Now if you do have the cash, it's a no brainer that newer equipment is going to last longer than worn equipment. Replacing machines part by part is far more expensive than buying the whole. There's boats out there (literally I'm looking at one! lol) I wouldn't take for free. Proverbial White Elephants. Like marrying a girl that's a heavy drinker and smoker- there's not going to be a happy ending with either.
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Old 01-23-2014, 11:07 PM   #13
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Quote:
Originally Posted by boatpoker View Post
I have a simple economics philosophy .... no cash, no buy.
Works for me too ...

And whenever I forget why, I do the following calculation:

Used boat $144,000
40% down ($57,600 cash) $ 57,600
$86,400 @ 6% Is $937+/- per month for 15 years $168,660
TOTAL AMOUNT PAID $226,260
INTEREST PAID TO BANK $ 82,260

New boat $400,000
20% down ($80,000 cash) $ 80,000
$320,000 @ 4% is $2,367+/- per month for 15 years $426,060
TOTAL AMOUNT PAID $506,060
INTEREST PAID TO BANK $106,060

Let's say you buy used boat for $144,000 CASH $144,000
TOTAL AMOUNT PAID $144,000
INTEREST PAID TO BANK $ 0 (ZERO)

New boat $400,000
And you finance the new boat with $144,000 cash $144,000
$256,000 @ 4% is $1,894 per month for15 years $340,920
TOTAL AMOUNT PAID $484,920
INTEREST PAID TO BANK $ 84,920

While most of the new world new (credit card) economy likes to focus on monthly payments, I always like to know what is the CASH outlay over the entire loan term ... the old world way ... total CASH out of my pocket ...

BTW, the total interest paid can be significantly lowered by shortening the loan term to 12 or 10 years, or increasing the down payment. The 15 years term for the asset that only depreciates is a stretch. The 5-6 years term for boats and autos in my book. If you cannot afford the monthly payment, you cannot afford the toy.
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Old 01-23-2014, 11:16 PM   #14
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You have the cash which is invested in something that gives you a 10% return.
You are either rich enough to invest via the best in hedge markets, or you need to change your financial adviser. A consistent average of 10% return on investment is not what most analysts predict over the next decade or so.

Quote:
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The example that I cited is a very common thing that people do. People invest and borrow money all the time.
Yes, people with means who can afford this and pay in cash regardless without depleting their liquid reserves. Anybody else is facing the risk of foreclosure or repo when s#it happens.

Just saying ... be careful out there!
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Old 01-24-2014, 12:14 AM   #15
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You are either rich enough to invest via the best in hedge markets, or you need to change your financial adviser. A consistent average of 10% return on investment is not what most analysts predict over the next decade or so.


Yes, people with means who can afford this and pay in cash regardless without depleting their liquid reserves. Anybody else is facing the risk of foreclosure or repo when s#it happens.

Just saying ... be careful out there!
Yes financial planners do exaggerate when forecasting. Although based on the past few years, the market has performed better than their inflated estimates. But I don't expect it to continue at this pace. Where I get 10% from is from purchasing distressed rental properties.

By the way, when paying cash, there is still a cost in interest as the cash used probably came from an investment.
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Old 01-24-2014, 12:15 AM   #16
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I guess there are at least two questions here: How much emotion factors into the equation on a purchase? And Is it really a question of practicality or just financial capability? Thanks, Randy
1. Boats are emotional and often ego driven purchases as nobody needs one, not even those whom live aboard. A lot of ways to rationalize it but living aboard is a desire not a need. A one bedroom apartment would more than satisfy ones "need" for shelter.

2. Purely financial capability. Why else would some folks pay over $100K for the opportunity rebuild a boat one system at a time? If it was driven by practicality plane tickets and hotels are cheaper.

All things being equal I'd buy a new boat but alas my financial statement says no.
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Old 01-24-2014, 12:49 AM   #17
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Yes financial planners do exaggerate when forecasting. Although based on the past few years, the market has performed better than their inflated estimates. But I don't expect it to continue at this pace. Where I get 10% from is from purchasing distressed rental properties.
... and what had happened a few years before the last few years? When you look at the last decade, we just made even last year. This year we are going down again, and the forecast does not look too good.

Long trends my friend, long trends ... I am still to see the model that predicts average gain of over 10-11% over long term (decades) using the most aggressive (and the most risky) investment portfolio.

Quote:
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By the way, when paying cash, there is still a cost in interest as the cash used probably came from an investment.
This is not chicken and egg issue ... the cash is what buys investment, and investment may or may not improve your cash position. There is no interest on holding cash, missed opportunity maybe ... and without any guarantees (other than for TIPS and CD, or GIS and TD in Canada, that are hardly profitable at the current interest rates).
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Old 01-24-2014, 02:26 AM   #18
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Money Can Be Funny... Especially regarding pleasure boats!

Purchasing a new boat that drops 50% +/- value in 10 years of its life, having paid umpteen interest and principal $$$ for those 10 years, with 5 yrs of umpteen interest/principal $$$ payments yet remaining, and at close of the 15 yrs owning a then used boat with greatly reduced value... Well, That equation - Simply Ain't Fun!

Purchasing a well built really good condition used boat for cash at a reasonable (i.e. low) price that can still be sold in 15 yrs as a well built really good condition used boat for a fair amount of cash is FUN... Taint No Funny Money - in that equation!

BTW - In posted financial calcs of a "new" boat compared to "used" boat I saw no mention of Insurance Cost difference to add to interest cost and value drop off of the down payment paid and principal owed in addition to the new boat's greatly reduced value at eventual sale.

IMHO - Buy Smart - Buy Boats Used for CA$H - Have FUN!

Happy Boating Daze! - Art
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Old 01-24-2014, 06:52 AM   #19
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I am surprised about the American market.

In Spain any new boat with overall length higher than 7 mts pays VAT 34%

Same boat used pays a transfer tax of 4%.

So any buyer of new trawler in Spain needs to be certainly rich.
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Old 01-24-2014, 07:38 AM   #20
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If one wants to look at things from a financial point of view only, you'd never buy a boat. No new. No old. These are not financial decisions. Now within the decision to purchase a boat, from a financial standpoint used will still always win over new. Same thing as cars but exaggerated over them as the initial depreciation is even greater. That said, we still choose to only buy new as we like to get exactly what we want, design the intererior, choose all the options. But that's personal and is not financially logical. Now we do intend to hold our boats for a long time and so over that period of time the new boat isn't quite as bad in a financial situation.

There's something too that I find somewhat bothersome when we refer to some boat owners as rich. I guess the person with more money than the one talking is always rich. I don't know. But compared to most of the world, the very fact of owning any of the boats owned by members here makes them wealthy. Most people in the world don't have and can't afford even the cheapest boats we have.

We buy boats to fill a recreational and pleasure desire. We should make the best financial choices for ourselves. To me that means what we can own without otherwise impacting our lives negatively or putting ourselves at financial risk. A hobby item like a boat should not do that. Ideally nothing we purchase should do that. So you can't singularly look at the boat purchase. You must look at it in the context of all your finances.
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