Home vs Boat

Supposing you had a mortgage... let's say a $300k to $500k mortgage. If you could sell it and pick up whatever equity you had in it, would you ever consider buying a $300k to $500k boat and having a similar loan amount?

My wife and I are going back and forth between a big expensive boat that would replace our mortgage (payments would be a little lower because of equity in the home, but it would still be something upwards of a house payment), or a smaller and cheaper boat with very little debt. Her perspective is that if we're going to do it, we should go all-in and have a very nice boat. Me, on the other hand, am very concerned about the diminishing value of a boat vs. the increasing value of a house, and love the idea of being nearly debt free.


How have you wrestled with this decision?

I refinanced my house at a lower rate - got a "free" boat as my house payments are the same as they were before.

In all seriousness though, I would be very concerned about losing your home investment. Personally, I would be fine living on the boat but I'm pretty sure my wife would want to move back on land - 5, 10, 15 years from now. And even if she doesn't there has to be some age where it just doesn't make sense to live on a boat anymore - and then what are you going to do? Obviously you would be able to recoup a fair amount of your money at that point, but are you willing to give up the appreciation you would've made on your house. I guess that is what it really boils down to - how much money are you willing to part with to make this experience happen?

I have thought about this. What worries me is the cost associated with maintaining a larger boat with a value over $500,000. I wouldn't want to be so heavily invested in the purchase price that I couldn't keep the boat up.


I know there are people on this board who are smarter about these things than me and may disagree, but I have found that a well taken care of boat holds its value pretty well. Especially if you made a smart purchase and didn't overpay.


Heck, I checked pricing on my 18 year old flats boat the other day and it is worth at least 25% more than I paid for it.

Are boats now increasing in value as most homes do? It is a very large boat that can offer the same amenities that a home offers, even a small home. No, not putting down anybody who lives on a boat. That is a personal choice and their preference

My answer would depend a lot on your age and/or future plans. If you are close to retirement either for age or for future cruising plans, you do not want to saddle yourself with a big boat payment. If you plan on working for many years and have a job that pays well, and will mostly just live on the boat at the dock with weekend trips, then a larger boat payment would probably be fine.
If you don't factor in maintenance costs, there are good boat choices that seem to hold their value better than others.

If I was going to full-time, I would need to have an exit plan. What would my wife and I in the event that we could no longer (or opted not to) live on the boat. Would we be able to sell the boat and be able to afford to live (on land) in a home (house, townhouse, condo) that we would be comfortable in?

This would help drive my (and my spouse's) decision on how much we could afford to spend on the boat. Any left over monies would be invested for the future in which our living situation might change.

My decision would also be driven by our personal finances. As I'm 59 and 3 years away from retirement, my financial planning would be based on our pensions, our social security, and the investments that we have already made.

So, in my shoes if I had 500K available, I would probably spend 250 - 300 K on the boat, and invest the rest.

Personal financial situations are pretty unique to a couple, and no one here could really give sound advice based on the limited information available. Add in the degree of risk one is comfortable with and it becomes even more complicated!

Jim

Boats are very different than homes. A home will require only 1-2% of its market value in maintenance each year and it should appreciate about 3-4% each year. Yes I know there are areas in this country with 10-20% appreciation at least short tem, but 3-4% is the national average.

A boat on the other hand takes about 5% of its market value in maintenance each year and it depreciates about 5% per year. These are broad averages.

So a house will earn maybe 2% after maintenance and the boat will cost you about 10% including maintenance.

I like your thinking as expressed above: "Me, on the other hand, am very concerned about the diminishing value of a boat vs. the increasing value of a house, and love the idea of being nearly debt free."

Never consider a boat as an investment.

David

I would love to buy a bigger boat. Not counting the money issue the reasons we are staying with our current boat is that our yard can’t haul anything larger than our current boat. Also when I looked at a 50’ Chris Craft and just realized how many systems and the vast area to be maintained maybe I don’t want that big of a boat. I think about all the maintenance I do on my 41’ boat and multiply it to encompass the work needed to maintain a 50’ boat and realize that it isn’t just 25% more but probably twice as much. Oh well...

Can't and won't say what's right for you. IMO, a house or home is a necessity as you need a place to live. A boat is a luxury item. I bought my boat 5 years before my retirement and paid cash for it. When I bought my Florida home, I financed it for only 15 years so that it would be paid off when I retired. To me, financing large ticket items a few years before retirement, is asking for trouble. Too many things can happen that get your financial life turned upside down. Unfortunately, when you're near retirement, you may not have the time left to recover.

Ted

djmarchand said:

Boats are very different than homes. A home will require only 1-2% of its market value in maintenance and it should appreciate about 3-4% each year. Yes I know there are areas in this country with 10-20% appreciation at least short tem, but 3-4% is the national average.


A boat on the other hand takes about 5% of its market value in maintenance each year and it depreciates about 5% per year. These are broad averages.


So a house will earn maybe 2% after maintenance and the boat will cost you about 10% including maintenance.


I like your thinking as expressed above: "Me, on the other hand, am very concerned about the diminishing value of a boat vs. the increasing value of a house, and love the idea of being nearly debt free."


David

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O C Diver said:

Can't and won't say what's right for you. IMO, a house or home is a necessity as you need a place to live. A boat is a luxury item. I bought my boat 5 years before my retirement and paid cash for it. When I bought my Florida home, I financed it for only 15 years so that it would be paid off when I retired. To me, financing large ticket items a few years before retirement, is asking for trouble. Too many things can happen that get your financial life turned upside down. Unfortunately, when you're near retirement, you may not have the time left to recover.

Ted

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Gees! I agree with both of you. I enjoy being debt free and paying cash for things I want.

I am 40. So I have some time, but ordinarily, the financial advisors would say that I should use this time to aggressively invest, what with my 20+ year time horizon before retirement.

Man, this is a hard choice. My wife and I have successfully bounced from house to house, and we've been very blessed - we've come out ahead every time. The fact that I'm basically planning to come out behind is a hard pill to swallow.

Maybe a better way to look at it is to just consider how much we are willing to spend to enjoy the life we want to live.

jovial_cynic said:

Supposing you had a mortgage... let's say a $300k to $500k mortgage. If you could sell it and pick up whatever equity you had in it, would you ever consider buying a $300k to $500k boat and having a similar loan amount?

My wife and I are going back and forth between a big expensive boat that would replace our mortgage (payments would be a little lower because of equity in the home, but it would still be something upwards of a house payment), or a smaller and cheaper boat with very little debt. Her perspective is that if we're going to do it, we should go all-in and have a very nice boat. Me, on the other hand, am very concerned about the diminishing value of a boat vs. the increasing value of a house, and love the idea of being nearly debt free.


How have you wrestled with this decision?

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My wife and I decided to split the difference. We kept the home and bought a 6 year old boat that, for us, was relatively expensive. We took a mortgage on the boat. Currently, we owe as much on the boat as we do on the house.

For my own personal financial planning, I consider everything that is going into the boat is simply an expense, not an investment. I plan for the residual value of the boat when we are done with it to be $0. Of course it won’t, but I’m not going to plan my financial future on any value from the boat. The house is different. I count on it being an appreciated asset.

So, we could have sold the house, put the cash we put into the boat, and still been left with same total debt. We could have had an $800k boat. That would have been lovely. However, I’m not willing, or able, to put that much into a depreciating asset.

The middle ground gave us the financial security I need. Being able to write off the interest on the boat loan as a second home helped.

Sell the house. Buy an apartment building. Let some one else make your mortgage payments.

Trade house mortgage for boat mortgage, or no mortgage???

First off I’ll address what I see with the cash only folks. This is not a judgement, it is just what I see.

The cash only, debt free folks in my opinion never seem to buy anything expensive. Why??? Simply because they like most people do not have the cash.
I’m not saying anything bad about what they buy but there is a HUGE difference between a $50-75,000 boat and a $500,000 boat.

Now, thinking about homes vs boats and appreciation. Yes a home goes up in value and a boat goes down. That is a undeniable fact. The problem with that thought is that is does not matter unless you sell the house or the boat.

If you buy a house for $200,000 and it goes up over a 25 year period to $500,000 that means nothing unless you sell.

Similarly if you buy a $500,000 boat and 25 years later it’s worth $200,000 is again does not matter unless you sell it.

Then you have the issue of time. You just indicated that you are 40. How long do you plan on working? This is important because if you buy a $500,000 boat you have to make plans for that debt as part of your retirement plans. The same thing goes for a house mortgage though.

Then you have another related issue, net worth and the ability to make future choices. Net worth gives you options, and as we can demonstrate net worth is often gained through real estate over time. Make the decision to go all in on a $500,000 boat and you reduce your choices. In 10 years if you decide to move ashore the depreciation on your boat may come closer to your loan amitorization schedule than you realize, leaving little cash to re-enter the real estate market.

Tiltrider may have the best solution, stay in the real estate market as a way to build net worth, while still living on a nice boat today.

To be honest I’d be a lot more comfortable with going all in on a boat if you were older or single or both. In general I think that single males tend to enjoy the freedoms of liveaboard life a bit more than females, and older people are more often comfortable with downsizing, having had a lifetime of a large home and all that it encompasses.

ksanders said:

... The cash only, debt free folks in my opinion never seem to buy anything expensive. Why??? Simply because they like most people do not have the cash.
...

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And so they choose to live within their means. It probably also mean that expensive things have no value to them. I value a 6 year Honda way more than a brand new Mercedes. A new Mercedes has zero appeal to me.

If you love the idea of being nearly debt free, you should try that for awhile. You may my find it preferable to being in debt.

ssobol said:

And so they choose to live within their means. It probably also mean that expensive things have no value to them. I value a 6 year Honda way more than a brand new Mercedes. A new Mercedes has zero appeal to me.

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Debt Free Vs Mortgage is the difference between these two boats.

On is a wonderful aging Sea Ranger pilothouse. The other is a 50’ Nordhavn.
Both these are at my marina/harbor.

Again, I am not making judgements here, but there is a HUGE difference.

BTW the person with the 50’ Nordhavn and a loan out on it IS living within their means if they have the ability to make the payment, and keep up on the maintenance etc...

Living within your means does not require living debt free. In using the words “living within your means” you are placing a negative connotation on anyone that has a boat mortgage. You are in fact making a judgement on their choices. If you choose to live debt free, that is a choice, and I applaud that choice, the same as I applaud the nice couple whom I know personally that just bought the 50’ Nordhavn in the photo.

ksanders;75811. said:

BTW the person with the 50’ Nordhavn and a loan out on it IS living within their means if they have the ability to make the payment, and keep up on the maintenance etc...

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Undoubtedly, but being in debt for discretionary items means they will probably be going to work on Monday to pay for it and the marina berth instead of being out there actually using it

Personally, we are happy to borrow money and have done for appreciating income producing assets but everything else is strictly cash only.
Cars, boats, motorbikes, holidays, furniture, everything.
That worked well for us allowing me to retire late 40s and wife early 50s with the only debt left generating income, paying for it self and some.

We have always been more than happy to buy well maintained, lightly used but heavily discounted boats, cars etc if it means we gain years of life and freedom not working to pay off debt.
Cars lose 10% the second they are driven off the lot and often more than 20% in year one

But, whatever floats your boat and each to their own.

There is no right answer for this question. Some people like to be debt free others have a large stable income stream that can handle the high payments, ownership expenses, and nose bleed depreciation of big ticket boats. They still have money left over to invest in their future. It all depends where you fit in.

jovial_cynic said:

I am 40. So I have some time, but ordinarily, the financial advisors would say that I should use this time to aggressively invest, what with my 20+ year time horizon before retirement.

Man, this is a hard choice. My wife and I have successfully bounced from house to house, and we've been very blessed - we've come out ahead every time. The fact that I'm basically planning to come out behind is a hard pill to swallow.

Maybe a better way to look at it is to just consider how much we are willing to spend to enjoy the life we want to live.

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Bases on all of your posts and goals I would suggest buying another home and renting or leasing a boat when you want to go boating.
The posts contain a large amount of questions about the financial aspect of the transaction as well as family dynamics with teenagers - these are not typically solvable with a boat.
The posts do not contain large amounts of questions on places to cruise, ability to operate the boat, or the required funds to maintain these boats - these are typically items to solve for when planning an active boat schedule.

I think a part time boat is a great fit for your stated goals as best I can read them.

I think you should just consider a hybrid solution. A $500k boat (assuming it is pretty large) is going to be very expensive to keep up. Even new boats have the same things break as older boats. So you shouldn't see this as a 1-to-1 swap; house for boat of same value. However, to downsize your house and upsize your boat would be the smart play. Look at much smaller homes to fall back to. And kinda escape to when the need arises. Having a dirt house, I feel, should always be an option... even if you go all-in as liveaboards you can rent the house to help cover its own costs. Then go for a boat the won't "max out your credit" so you can make payment on it and still afford the upkeep and put some aside for the major emergency repairs that will inevitably happen. Boats will always go down in value and houses mostly go up. Find a good way to enjoy boating, but with the safety of a fall-back position.

We used a solution, that could work for you. I will use approximate numbers, consult a professional. Our home was too large for us anyway, so we needed to sell. (This was 2018) The market in our area was not all that great and in 15 years of ownership, even with a “Bidding War” or profit was less than 2%. Anyway, we took the funds from the sale and utilized a very good investment person. With approximately $250k we are pulling just shy of $1,000 a month in dividends which is a fair boat payment. If you have a $300k-$500k home to sell, well your pretty well off. Our principal stays intact for a purchase of a smaller retirement place when the boat is no longer an option. It’s a little bit the best of both worlds.

LongStoryGB36 said:

We used a solution, that could work for you. I will use approximate numbers, consult a professional. Our home was too large for us anyway, so we needed to sell. (This was 2018) The market in our area was not all that great and in 15 years of ownership, even with a “Bidding War” or profit was less than 2%. Anyway, we took the funds from the sale and utilized a very good investment person. With approximately $250k we are pulling just shy of $1,000 a month in dividends which is a fair boat payment. If you have a $300k-$500k home to sell, well your pretty well off. Our principal stays intact for a purchase of a smaller retirement place when the boat is no longer an option. It’s a little bit the best of both worlds.

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"Anyway, we took the funds from the sale and utilized a very good investment person."
Please share with us what method allows for a $12K withdrawal per year while having the remaining $250K principal secure long term.

smitty477 said:

"Anyway, we took the funds from the sale and utilized a very good investment person."
Please share with us what method allows for a $12K withdrawal per year while having the remaining $250K principal secure long term.

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That's a 5% dividend. Not hard to find reasonable stocks with that kind of dividend.

Ted

O C Diver said:

That's a 5% dividend. Not hard to find reasonable stocks with that kind of dividend.

Ted

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Thanks Ted but this was what threw me off....
"Our principal stays intact"

If you are at or near retirement and making this decision to go all in on a expensive (nice) boat to replace your dirt house. There is a cold hard fact, that most likely you will pass before your wife. Every situation is different but my wife would be hard pressed to have a boat no matter how nice as her sole residence.

"Now, thinking about homes vs boats and appreciation. Yes a home goes up in value and a boat goes down. That is a undeniable fact."

So sez a real estate broker , however a look at home prices in constant dollars may show that the house value is close to staying the same ,for the past century, without adding the coat of insurance, taxes , and of course maint.

Having money work for one is the simplest way to modest wealth.

If living on a boat is your goal , a modest $30,000 boat will have the same pleasures as the $800,000 boat , except it wont echo when singing in the shower. As well as being less costly to maintain.

The extra $770K , even in T bills would grow , stocks grow faster , tho risky.



observationsandnotes.blogspot.com/2011/07/housing-prices-inflation-since-1900.html

djmarchand said:

Boats are very different than homes. A home will require only 1-2% of its market value in maintenance each year and it should appreciate about 3-4% each year. Yes I know there are areas in this country with 10-20% appreciation at least short tem, but 3-4% is the national average.

A boat on the other hand takes about 5% of its market value in maintenance each year and it depreciates about 5% per year. These are broad averages.

So a house will earn maybe 2% after maintenance and the boat will cost you about 10% including maintenance.

I like your thinking as expressed above: "Me, on the other hand, am very concerned about the diminishing value of a boat vs. the increasing value of a house, and love the idea of being nearly debt free."

Never consider a boat as an investment.

David

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I found David's numbers to be pretty accurate for our home of 25 years that we sold a couple of months ago.

Our home value grew at a compounded rate of around 3.5%. Maintenance and expenses ran about 2%, only because I did almost everything myself. Insurance, hoa fees, and taxes ran about another 2%.

We loved our home, it was on a wooded lot, lots of wildlife, comfortable, and a great place to raise a child. It had lots and lots of pluses, but as an investment tool is was Meh!

I tell my 25 year old daughter don't rush into buying a home. Take the extra money that the house would cost and invest it. Enjoy yourself and the time will come when home ownership makes sense.

To the OP, if you and your wife want to live aboard full time go ahead and do it! Don't regret that you didn't follow your dream. Be careful and take the financial risks that make sense to YOU and YOUR WIFE.

Is it easier to get a $500k loan for a house than an equal loan for a boat?

Giggitoni said:

Is it easier to get a $500k loan for a house than an equal loan for a boat?

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easier... well generally yes.