Home vs Boat

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 answer is "no way." The boat depreciates too rapidly and requires too much maintenance. Plus it requires a slip somewhere. But even more, I can far more easily sell the house. I maintain more flexibility. I would never tie everything I had up in a boat.

As to debt vs. cash, I'm afraid it's much too easy for those of us with available cash to say we'd never go into debt on a boat. That's great, but not practical for the vast majority of boat owners. What I would say is I'd suggest one not extend too far into debt for a boat. For instance, someone might buy a $200,000 home and finance $190,000 and most of the time they're safe. The exception was a few years ago when the market dropped and suddenly they were upside down. However, I'd never finance a boat like that. You'd be guaranteed to be upside down quickly. I personally think financing any boat over 70% is dangerous. Therefore, I wouldn't finance a $200,000 boat more than $140,000. If $30,000 was all I could afford to pay down, I'd only buy a $100,000 boat.

One other consideration, especially in the OP's case. One often has no idea if they'll like living on a boat. However, jumping back to a house isn't easy and it won't be nearly the house you left. If you are retired and have a 3000 sq ft home and plan on going to a 1200 sq ft condo, that's fine. But if you leave a $500k house for a $500k boat, you'll be moving back in to far less house. The old house may be $600k now and you may only get $400k for the boat.

tiltrider1 said:

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

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We own 19 units AND our house all mortgage free. Sure, rental property is a gift that keeps on giving, it like all things however has drawbacks. No need to make a list of the awe shucks other than to say not everybody is cut out to be a landlord. There is more to being a landlord than just collecting rents.

We’re working toward the ‘Big boat, small house’ plan. Sell the current boat and our house in Seattle (were appreciation is currently mind boggling) and buy a larger, more liveaboard capable boat along with some land out in the boonies (recreational area) where we can plunk down a small, modern prefab.

If we do it well we’ll pay cash for both (the Seattle re market has been good to us) and have the possibility of AirBnB income from the prefab.

Ideally all by the time we’re 55. I’m still working and plan to continue in some capacity for a bit longer but for us this opens up so many options to travel and explore without kicking the stool out from under ourselves when want or need to re-enter the housing market.

As far as ownership and investments a lot of people don’t seem to consider the cost of money in home financing. You’d need to turn a considerable profit to offset interest over 10, 15 or 30 years. When we sold our house in the Midwest we turned a profit but I wouldn’t say we “made” money after factoring in the cost of interest over 15 years. Yet in Seattle we’ll see a considerable return on our total cost of ownership in under ten years.

Your market may vary.

Finally when considering a life aboard - the investment is not a financial one. You’re investing in a lifestyle no matter the length of boat or brand name on the side of the hull.

Good luck!

If you count the interest paid on the mortgage, houses very rarely make money. For the most part, only people who buy houses for cash or flip them fast actually come out ahead. Your typical 30 year mortgage holder pays between 1.5 and 2x what the house is worth by the time they truly own it.

A $400K 30 yr mortgage at 4% means you'll actually pay $690K (not counting taxes and maintenance or the interest tax deduction) for that $400K house. If the property values go up enough in 30 years maybe it'll work out, but you're rolling the dice.

You also have to consider the inflation rate. A house whose price goes up at the same or lower than the rate of inflation is not actually increasing in value.

In the example above, if after 30 years you sell the house for $700K, you can brag to your friends that you made $300K on your house, but all that really happened is you broke even (which is probably better than most people).

foggysail said:

We own 19 units AND our house all mortgage free. Sure, rental property is a gift that keeps on giving, it like all things however has drawbacks. No need to make a list of the awe shucks other than to say not everybody is cut out to be a landlord. There is more to being a landlord than just collecting rents.

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I would agree with you. Rental property is a great investment. However, I know I am not cut out to be a landlord. I own two commercial buildings. One is entirely owner occupied but the other has additional tenants. Just that (rather painful) experience has taught me I'm not cut out for it. I greatly respect those that can do it well.

ssobol said:

If you count the interest paid on the mortgage, houses very rarely make money. For the most part, only people who buy houses for cash or flip them fast actually come out ahead. Your typical 30 year mortgage holder pays between 1.5 and 2x what the house is worth by the time they truly own it.

A $400K 30 yr mortgage at 4% means you'll actually pay $690K (not counting taxes and maintenance or the interest tax deduction) for that $400K house. If the property values go up enough in 30 years maybe it'll work out, but you're rolling the dice.

You also have to consider the inflation rate. A house whose price goes up at the same or lower than the rate of inflation is not actually increasing in value.

In the example above, if after 30 years you sell the house for $700K, you can brag to your friends that you made $300K on your house, but all that really happened is you broke even (which is probably better than most people).

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"In the example above, if after 30 years you sell the house for $700K, you can brag to your friends that you made $300K on your house, but all that really happened is you broke even (which is probably better than most people)."
Except for the fact that you lived in the home replacing rent that would have been required costing another $700K which makes your equation a bit different. FWIW - our homes have appreciated much more than in this example and any interest paid on a home would be counted no differently than any interest paid on a boat loan.
YMMV

Sold the condo in the Rocky Mountains, took some of the profit and paid cash for a 42' Trawler after searching online for 6 months, talking to every boater I knew, and physically looking at 12 boats. Built a shed in my son's backyard to store the precious things, and sold or donated the rest. We're moving to the boat next month. No mortgage, no boat payments, the admiral is a traveling nurse and I have a retirement check from teaching. We think it's going to work; we'll let you know.

The best investment most people make is purchasing a home. The worst returns in real estate is residential homes. If you can move up just one rung on the ladder you will probably double your net worth.

Been there, done that!

Back in 2017 we made the decision to reduce our debt obligations by (a) selling the house, (b) selling the 37’ trawler and (c) buying a 42’ to 48’ live aboard trawler. It all made sense at the time. We had exceptional credit ratings and didn’t worry about getting a new loan. The 37’ boat sold first, and then we had an offer and quick close on the house. In the fall of 2017 we had gotten rid of all the furniture and household stuff, had no boat, were sitting on a big chunk of proceeds from the house and renting a place in town while we looked for the right boat.

We looked at older Krogen 42s (which had lots of teak trim, teak decks and moisture at the bow and on the boat deck), DeFevers, Selenes, Nordhavn 40s, Ocean Alexanders and other trawler style boats. We made offers on a couple of Selenes and one DeFever but never got to survey. The idea of paying cash for an older trawler went by the wayside when the amount of restoration, moisture and teak maintenance came into play. We didn’t even consider the fact that we couldn’t find the solution boat right away.

Along this journey we started looking for “live aboard” financing since we were now in the market for a larger, newer trawler. This was a rude awakening. Back in 2010 the Dodd-Frank legislation levied significant rules and process changes on the financial industry. Live aboard loans are not readily available at most banks or credit unions any more. If you have no real estate you will be hard pressed to find an institution ready to loan you money with just the boat as collateral and no permanent dirt residence. We called everywhere and talked to the marine mortgage people who set up at every boat show. No live aboard loans were being made. We were even advised that we should have found the boat first, gotten a loan on it and THEN listed the house for sale. In other words, we would move from home owners with a big boat to being a live aboard on a big boat, in that order. The only place we found that advertised live aboard loans was Essex Credit, a subsidiary of Bank of the West. They were about all we could find until we found a small, local bank here in Washington who was more than happy to take on the added paperwork and regulations and give us a loan. But this only happen AFTER we had been renting for six months and we had an accepted offer and survey on an acceptable (to them) boat. We ended up buying a 2007 North Pacific 52’ trawler.

The second point to make to anyone looking to move aboard is make darn sure you have arranged for moorage and you have been guaranteed live aboard status. In the PNW you will be hard pressed to find 48’ permanent moorage anywhere. And virtually every marina around here has a long wait list for live aboard status. Our marina has a limit of 10% live aboard tenants and the list currently has eleven people waiting. Even the “condo” marinas have limits on how many of owners can reside full time on their boats.

Giggitoni said:

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

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Credit standards are higher for boat loans.

Let’s not forget to factor in risk on either choice. Big house mortgage brings to mind the Great Recession. Big boat brings to mind hurricanes. In either case if you can carry both through life’s challenges which hit all of us at one time or another, all will be good.

dhays said:

I would agree with you. Rental property is a great investment. However, I know I am not cut out to be a landlord. I own two commercial buildings. One is entirely owner occupied but the other has additional tenants. Just that (rather painful) experience has taught me I'm not cut out for it. I greatly respect those that can do it well.

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Thanks Dave- I've gotten pretty good at it over the 25 years we have been at it. We began purchasing old, run down dumps that we completely reconstructed. They are now all lead free with sprinklers and normally 100% occupied. I never want a phone call telling that someone was seriously injured or worse because of a fire.

Now as to commercial..........not sure I could do that. Wish you the best!

We don’t finance boats (or cars). Other than real estate, if we can’t write a check for it, we don’t buy it. And, one of the reasons is, that it (they) is/are a depreciating asset. We have a good, but not extravagant, income stream through pensions and investments. Except for occassional part time contracting, I have been retired since 52.

As much as I would love to live on the boat the rest of my life, my wife has made it clear we will always have a house, and at our age (61), I agree, that she is right.

As a happy compromise, we like leaving on the boat, cruising six months to a year, and then returning home to rest and recharge, and be with family and friends. We plan to keep that routine up for as long as we physically can.

We have good friends who live full time on a 57 foot motor yacht (a beautuful boat) who no longer own a land home, a few years older than us, who are starting to have age and health (stroke and heart) issues that are not completely compatible with living on the boat any more. Their boat is four years away from being paid for and is worth a lot less than when they bought it twenty years ago. They sunk a lot of their capital into that boat.

I frankly worry about them and their future situation.

Group9 said:

We don’t finance boats (or cars). Other than real estate, if we can’t write a check for it, we don’t buy it. And, one of the reasons is, that it (they) is/are a depreciating asset. We have a good, but not extravagant, income stream through pensions and investments. Except for occassional part time contracting, I have been retired since 52.

As much as I would love to live on the boat the rest of my life, my wife has made it clear we will always have a house, and at our age (61), I agree, that she is right.

As a happy compromise, we like leaving on the boat, cruising six months to a year, and then returning home to rest and recharge, and be with family and friends. We plan to keep that routine up for as long as we physically can.

We have good friends who live full time on a 57 foot motor yacht (a beautuful boat) who no longer own a land home, a few years older than us, who are starting to have age and health (stroke and heart) issues that are not completely compatible with living on the boat any more. Their boat is four years away from being paid for and is worth a lot less than when they bought it twenty years ago. They sunk a lot of their capital into that boat.

I frankly worry about them and their future situation.

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I'm a strong believer in whatever your Plan A is, always having a good Plan B. I sure hope your friends do. Regardless of age or health, it just takes one event to change it all. We always consider "What if?"

Very important make and complete all your boat buying and finance decisions while you still own a dirt home. Same for setting up self managed iras in retirement.

BandB said:

I'm a strong believer in whatever your Plan A is, always having a good Plan B.

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And a C and a D.

Except for commercial vessels, I always went the boat route by buying what I could pay in cash. Not having bills makes a big difference when cruising. If you learn how to do your own repairs and maintenance you actually cruise rather cheaply.

djmarchand said:

Never consider a boat as an investment.

David

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Good advice. Never consider your primary residence as an investment either.

Alaskaflyer said:

Good advice. Never consider your primary residence as an investment either.

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There is a difference between consideration and reality; a home is an investment. Nobody lives forever, it is an unusual home that does not appreciate over time. A home retains value that can be cashed in or left to others while the rent receipts that I give our tenants are worthless other than for the time window that is specified in the receipts.

The cost of ownership in most situations never equals the cost of living in a rental property.

After a successful 44-year real estate career, we were able to buy and sell several homes and condo's during our lifetime, each time building more and more equity. Eventually, we were debt free ... and enjoying it. But I missed boating, having been a landlubber far too long.



As I neared retirement, with a budget of $200k, I began to research a boat purchase, with my wife's support, of course, and finally found a Monk 42. We had sold our mortgage-free home and wisely and conservatively invested our equity to create sufficient regular income on which to live comfortably.


I wanted to escape the responsibilities of home ownership and all it entails. Lawn and garden maintenance, snow removal, painting, repairs and frequent upgrades, not to mention ongoing monthly expenses, property taxes and periodic furnace and roof replacements.


Where do we live now? In a lovely rental building overlooking a small river that's walking distance to a downtown area and the lake and harbour. Nothing to do but pay the rent, and go boating on our loan-free vessel. BTW - in some markets, trawlers in good condition do indeed increase in value. And as boomers continue to retire, I believe this trend will continue.



Do I miss home ownership? Nope. Our investment portfolio is earning a reasonable return. And with our pensions, it's more than sufficient to pay our living expenses. Will our daughters inherit much when we finally check out? Nope.


My advice is this; once you've thought it through and done your number-crunching, follow your feelings. They won't lead you astray.

One more consideration to add to the conversation - if you have a house with a mortgage, odds are that it is at a much lower rate than you will get on a boat loan, more so if the home mortgage is a few years old. Our home rate is 3.49% and we paid no points. There is no way we could get that today on a home, let alone a boat. In fact, we've decided not to pay it off early even though it is our only debt. Instead, we are directing all our excess cash flow into investments.

As a young Sergeant in the Air Force I still wanted a larger boat someday and I really
liked the Burgers as they seemed well built and made in Wisconsin where I'm from.
Years went by and still no boat but eventually as a civilian I started work for a company that had a good profit sharing plan and I worked there for 13 years. After leaving I had
a little money, but not enough for a boat. By that time though I had decided that a sail
boat would be for me if I could ever afford it. More time went by, and with some good
investments my profit sharing money started to look serious. Meanwhile like most people, I also had a mortgage on a nice home. I bought a 40 foot ketch eventually and
have now had it for at least 15 years and over the years have spent many weeks on the boat. Here comes the problem. I have a house and a boat and no real obligations as
I don't have any children and my wife passed away a number of years ago. Still have
a mortgage with equity built up but the boat was purchased for cash. This being the case the boat insurance, registrations and upkeep plus slip fees are the only costs associated with the boat. I want to now live on it full time, but I still have the house.
I'm leaning toward selling the house not because of any money issues, but because
owning property also has it's downside in that I can't spend as much time on the boat
(full time) as I want to. Finding a property manager to take care of the house might be
an option. Is it worth it with all the problems that entails? Renters tend to not really
care and upkeep would maybe wipe out any advantages to keeping the property.

Downsize.

Sounds like you're a prime candidate for a smaller home, maybe a condominium with zero exterior maintenance. Lot to be said for a place to call home, even if it's a condo.

Ted

Oldsarge,

I would sell the house and move to the boat full-time.

We just sold our home of 25 years. Its value increased at a compounded rate of 3.5% per year. Taking into account ALL of the cost of home ownership: renovations, maintenance, taxes, hoa fees, insurance, I think we barely broke even and that was with me doing almost all of the renovations and maintenance. I think there are many great reasons to own a home, but as an investment tool isn't one of them.

We are currently renting a very nice house from a couple who relocated to Georgia. My wife and I take care of this house as if it was our own. Our rent covers the owners costs (at least for normal expenses) for the home. Having a property manager would end up costing them money. They do not make any extra income from the home, although it is slowly appreciating in value. While my wife and I are excellent tennants, some renters really don't give a crap. When we decide to leave (probably in 2 years), they have told us they will be selling the house.

I think you would be better off investing your equity and not have to constantly worry about your rental property.

Jim

O C Diver said:

Downsize.

Sounds like you're a prime candidate for a smaller home, maybe a condominium with zero exterior maintenance. Lot to be said for a place to call home, even if it's a condo.

Ted

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Definitely a condo for those wishing to escape maintenance. Just remember, there is no free lunch. Condo fees include maintenance just as a home owner can pay for services rendered.

We own a boat along with a used to be large (today the homes around here are gigantic!) 4 bed home in a nice neighborhood for just Wifey and I. We would sacrifice too many things to even consider down sizing. Too large? No, comfortable? Yes. We also own apartments, 19 of them that we rent to others who choose to avoid home ownership.

We have thought about the idea of "Selling it All" and living on a boat. Which would mean buying larger boat, as you mention. All of the comments made in this thread are "spot on" and cover many of our thoughts. Basically, I break into two parts - Financial & Desire.

The financial side is a no brainer - as mentioned from djmarchand, "Never consider a boat as an investment". Simply a depreciating asset. You really should not compare a house with a boat from a financial perspective. The only exception I see is that as a "2nd vacation home", a boat is nice as there is no property taxes on a boat.

The desire side, well that depends. Our desire, which still pops up one and a while is to travel the ICW to South Carolina for the winter months, living on the boat as a vacation home. The costs for off-season slips are reasonable.

However, I'm now semi-retired and after taking long boat trips with my wife, 3 months at a time, we have found that we both do like our time on land (at home). We enjoy time in NYC and time with our children. So, the balance for us is to stick with our current boat (which is 100 % paid for), take our 3-4 month trips (sometimes remaining in one spot for a month or so) and enjoy our home living for the rest of the year. This year we're heading up to Maine for the summer. Again, using the boat like a vacation home.

To answer your question about taking a large mortgage for the big boat, as some have mentioned, a boat is a luxury item. I wouldn't take a large mortgage for one.

Enjoy!

I consider my boat a toy. One we can enjoy and one that if necessary, live without. It requires a very large boat to offer the comforts of a home, even a small home. Just my thoughts but to each his own.

O C Diver said:

Downsize.

Sounds like you're a prime candidate for a smaller home, maybe a condominium with zero exterior maintenance. Lot to be said for a place to call home, even if it's a condo.

Ted

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This is exactly our plan when we retire. Larger boat to travel but a small condo with no maintenance in a low tax state (probably NH or FL) as our home base and to store our things. Yes, you pay for no maintenance through fees, but in return you get more time. Once we get tired or are physically unable to to long distance boating, we will probably upsize the house and downsize the boat (or get a second condo and become snowbirds). Being that we are only in our late 40s, it is nice to dream.

Here is another thought...

If living on a boat, and making that your only home makes you happy, do it. You get this one shot at life.

I “live” on my boat, but still own a home so I call myself a stayaboard.

Having spent time on my boat, and in my two story home, I can tell you that if you can navigate in a two story home, you can navigate in at least my boat. The idea of being too old for your boat really means that it might be time to move into assisted living guys. Yes as you age you might have to start hiring repairs out, but the same goes for home owners as well.

Regarding the investment, the lifetime of money in my home means zip, zilch, zero unless it gets sold, something I at least am not willing to make my wife do.

Same thing with a boat. If the value goes down, really who cares. Again, it means nothing unless you sell.

If your finances dictate making a choice of a house or a boat choose the one that will make you happy.

Look at the calendar. Look at your remaining years and be realistic with your self as to what you want out of your remaining time.

My goal... CUBAR 2021
I’ll be 59, and ready to play.