Boat buying debt

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A contrarian point of view, stolen from the Facebook loop page:

"To be truly challenging, a voyage, like a life, must rest on a firm foundation of financial unrest. Otherwise, you are doomed to a routine traverse, the kind known to yachtsmen who play with their boats at sea... cruising, it is called. Voyaging belongs to seamen, and to the wanderers of the world who cannot, or will not, fit in. If you are contemplating a voyage and you have the means, abandon the venture until your fortunes change. Only then will you know what the sea is all about. "I've always wanted to sail to the south seas, but I can't afford it." What these men can't afford is not to go. They are enmeshed in the cancerous discipline of security. And in the worship of security we fling our lives beneath the wheels of routine - and before we know it our lives are gone. What does a man need - really need? A few pounds of food each day, heat and shelter, six feet to lie down in - and some form of working activity that will yield a sense of accomplishment. That's all - in the material sense, and we know it. But we are brainwashed by our economic system until we end up in a tomb beneath a pyramid of time payments, mortgages, preposterous gadgetry, playthings that divert our attention for the sheer idiocy of the charade. The years thunder by, the dreams of youth grow dim where they lie caked in dust on the shelves of patience. Before we know it, the tomb is sealed. Where, then, lies the answer? In choice. Which shall it be: bankruptcy of purse or bankruptcy of life?"

Sounds like a passage from the Manifesto from the Occupy Wall Street drum circle crowd. Essentially a paper tiger argument when it's too late and the credit cards have maxed-out.

Peter
 
One thing I have not seen posted is the insurance implications if the boat is financed , or can you afford or be able to comply with the insurance company , they can dictate annual surveys , where it is docked during hurricane season I even saw a post of them wanting a full time captain ( soundings magazine ) even without financing the insurance can be hard to get or at least full coverage may be hard .
 
Yeah, the lender will insist on insurance and the Insurance Co says "no way Jose"

Good Luck!
 
Essentially a paper tiger argument when it's too late and the credit cards have maxed-out.

I can understand how people get there.

A good argument for not borrowing is that you're going to have steady payments no matter what. I think many buyers underestimate that cost. They thought they were in for 2k/mo and it turned out to be 4k/mo.

Not in this crowd, but more generally.

A quick personal anecdote: I went into heavy (for me) debt to buy my first big sailboat, a 1980 Goman Express 20. There was a respected local sailor Greg who had one, and had tinkered endlessly with his boat.

Greg mentioned in the YC bar that he was excited to have me join the fleet, but feared that I might not be able to properly fund new sails and such.

He was right. I couldn't afford to do much more than show up. But in 30+ races he beat me once, when I broke my mast.

Forgot where I was going with this. I still can't afford to buy sails. Right. It's all expensive, and having a monthly payment makes it a lot less fun.
 
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Cars and boats with no payments make me sleep good at night.
 
On this TF forum, when this question comes up, it's pretty clear that most of the contributors have a choice about borrowing for their boat. Some may use a loan to stretch a bit for a larger boat, but for the most part, no 'hard-lender' stories.

On the sail-oriented CruisersForum, when the question comes up, the OP is usually confounded by rejection as they seek a loan for a cheap liveaboard. Responders are typically low-budget cruisers giving advice to scrimp and save and by a 40-year old 36-footer for $15k.

Context is key.....

Peter

That's quite an assumption on your part. It wasn't my situation at all. Also, I think the type of boat has a lot to do with the decision to mortgage or not. Trawlers either hold their value or increase in value where many other types of boats depreciate considerably.
 
I read the quote as an excuse to drop-out, not leverage resources to accelerate purchases. Sort of a Jack Kerouac type of treatise. . Maybe I over reacted but suffice to sat, it's a balance. God knows I've walked a fine line over the years.

Peter
 
Trawlers either hold their value or increase in value where many other types of boats depreciate considerably.

What's the saying with mutual funds? Past results do not indicate future performance. Something like that.

ETA: I bought and sold sailboats through the 1980s on credit. Could buy a boat, keep it cheap, use it for a year or two then move on.

Maybe we're in those days right now with older trawlers, but Mainship 40s aren't going to be worth 250k forever.
 
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How much debt are you comfortable with? When we bought our current boat, many yrs ago, we took out a loan to finish the purchase.

We could cover about 2/3 to 3/4 of the purchase price. We took out a 3 year loan which was paid in 2 yrs by buckling down and WATCHING the budget carefully.

The economy was not in great shape but we were both working , so far.
We felt ok with that debt level. But we had no other debts.

Even if we lost the boat and basically had to give it away we still would have survived but less comfortably.

So we went ahead.

You have to look at YOUR comfort zone. I don't believe anyone else can tell you if it is OK or not.
 
Coming from an accounting and finance background, the answer to this question is quite simple. If the interest rate is less than the return you are getting on the money you would use to pay cash, then borrow. Why? For example, if the loan rate is 5% and your invested money is earning 8%, to use your cash COSTS you 3%. And if you have to withdraw money from a tax-deferred account, then that would be an insane financial decision.
 
Catalina jack, the one caveat I would add is your return is rarely guaranteed but the interest on a loan usually fixed. So perhaps you earn 8% on an investment but it could go negative. That is why their is no perfect absolute answer. You pay your money and you take your chances making the best decision based upon the best available info at the time. :)
 
The peace of mind and security of low debt or no debt is worth something in itself. We have lots of discussions about boat debt on this forum from time to time, and I've never quantified how much it's worth to me psychologically, but it has some monetary value. I pay thousands in insurance costs every year to buy security -- tangible/financial, and psychological. Same thing in my mind, if I sacrifice a few points on potential investments to clear debt instead, even at a lower rate. Whatever that rate differential and small investment loss, I'm buying myself psychological security. When these threads come up I usually mention the (relatively small, short term) debt we incurred on our boat. That loan bought us some family memories with our boys that would not have been possible otherwise, and I'll gladly pay some interest for that before they move away and we rarely see them. Even so, it sure feels a little better in some subtle psychological way to have all that fun on a boat that's now free and clear. And for those upside down marina neighbors trying to sell a boat for a price they'll never get, because they need to clear the outstanding loan balance -- it sure feels good to be immune from that dilemma. That's worth a small (and ultimately taxed) investment loss.
 
It is a relatively small aspect, but interest on a loan may also be tax deductible (if it qualifies as a second home). So if one's marginal tax rate is 33% then a 6% loan is more like 4% net.

There are multiple reasonable strategies but IMO a solid starting point is certainly not to borrow more than it would be worth in an unanticipated "fire sale." That is unpredictable of course but could be 20-40% less than current market value. Maybe even less in some cases. Once there is enough equity in place not to risk going (figuratively!) under water, then loan vs cash seems like a matter of discretion and balancing priorities.
 
There is no one single right or wrong way to boat ownership and boat loans because all of our circumstances are different. I don’t try to tell someone else that their method is right or wrong, that would be very presumptuous of me since I am not in their situation. And I prefer that others don’t tell me that what I do is wrong either.

Totally agree. Well said.
 
The peace of mind and security of low debt or no debt is worth something in itself. We have lots of discussions about boat debt on this forum from time to time, and I've never quantified how much it's worth to me psychologically, but it has some monetary value. I pay thousands in insurance costs every year to buy security -- tangible/financial, and psychological. Same thing in my mind, if I sacrifice a few points on potential investments to clear debt instead, even at a lower rate. Whatever that rate differential and small investment loss, I'm buying myself psychological security. When these threads come up I usually mention the (relatively small, short term) debt we incurred on our boat. That loan bought us some family memories with our boys that would not have been possible otherwise, and I'll gladly pay some interest for that before they move away and we rarely see them. Even so, it sure feels a little better in some subtle psychological way to have all that fun on a boat that's now free and clear. And for those upside down marina neighbors trying to sell a boat for a price they'll never get, because they need to clear the outstanding loan balance -- it sure feels good to be immune from that dilemma. That's worth a small (and ultimately taxed) investment loss.
Each to his own. I get more peace of mind when leveraged money puts more money in my pocket, net.
 
Psychologically, once I was debt free I just couldn't/can't create any new debt. This just applies to me personally and my mantra is to do whatever I like, or can do, as long as I can sleep well at night....and during naps in the day.
 
Catalina jack, the one caveat I would add is your return is rarely guaranteed but the interest on a loan usually fixed. So perhaps you earn 8% on an investment but it could go negative. That is why their is no perfect absolute answer. You pay your money and you take your chances making the best decision based upon the best available info at the time. :)
I completely understand and sppreciate this cocept. Where I've seen it misapplied by friends is when they use that rationale to "purchase" additional toys using the same investment as the comparison. So in fact they didn't/wouldn't have sufficient cash to purchase multiple boats, MHs, vacation homes outright but figured they were better off financing.
One that comes to mind is still paying for a boat loan that was affordable in his early 60s but now still having to work at 73 to keep paying for his boat. All this in spite of heart attack and other significant medical issues.
 
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I completely understand and sppreciate this cocept. Where I've seen it misapplied by friends is when they use that rationale to "purchase" additional toys using the same investment as the comparison. So in fact they didn't/wouldn't have sufficient cash to purchase multiple boats, MHs, vacation homes outright but figured they were better off financing.
One that comes to mind is still paying for a boat loan that was affordable in his early 60s but now still having to work at 73 to keep paying for his boat. All this in spite of heart attack and other significant medical issues.
~13 years, is he enjoying the boat? Then the important question, is the loan less than the boat value.
 
~13 years, is he enjoying the boat? Then the important question, is the loan less than the boat value.
I doubt it!
I know other toys purchased w loans were upside down and couldn't "afford" to sell them and couldn't afford to put new tires on a MH. Simply let them sit unused and covered rather than sell and pay off the balance.
Sad but true. Boat is basically a dock queen as the $ to cruise is an issue.
 
The very second that ours looks to be in danger of becoming a dock queen for any reason will be the day she goes up for sale.

Old mate who converted her fell into that trap and haemorrhaged cash for 10 years before near giving her away.

She owes us nothing so should be an easy sell.
 
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This topic always drives me crazy. Because there are so many variables and individual circumstances it defies any rule of thumb. But the rule of thumb keeps getting trotted out there anyway, and I suppose always will.

Variables such as:

How much loan are we talking about? Are we talking about as much as a lender will lend, for as long as they will lend it, to keep payments to a minimum? Or, are we talking about a much lower amount with a repayment period of a modest number of years?

What boat are we talking about? If we are talking about a boat that needs or is likely to soon need a ton of work, then a lot of debt may not make sense. A boat that is new or nearly new, in perfect condition, can support more debt than one that is in poor condition.

What's the rest of the story about the borrower? Do they already have a lot of debt, or none? Do they have a lot of assets and little stable income, or do they have a lot of very stable income and fewer assets? If they pay cash, are they left with too little in reserves for the unexpected? If they borrow, then what is the capacity to handle the unexpected? Just how stable is the income stream making the payments? Are we talking about rock steady social security and pension, or are we talking about job income with a history of come and go?

There is 100% agreement that whatever path is taken, the boater needs to be able to handle the unexpected. Not just the unexpected with boat expense, but the unexpected with the rest of life. The expensive dirt home issue. Medical issues. The potential need to help family. Whatever it might be, what's the plan? Draw down assets too far and there may not be a good plan. Rely on an income stream that dries up and there goes the plan.

And once all of that is said and done, think you have no risk? Think again.

Way too many variables for any rule of thumb.

In my opinion, anyway.
 
Tell the what, when, where, why's of boat buying debt.

I wouldn't do it.

Bought my boat for cash in the fall of 2021. It was a "fixer upper" so I got a deal.

Sunk some cash and a ton of sweat-equity it in the first year (2022) to get it sea-worthy. It was still cost effective.

Used it for the last half of the summer (lived on it all that time) and for 2023 we plan to be in the water first week of June and live on it all summer again.
To me, that is value for my money and I don't have to pay any interest.
 
I completely understand and sppreciate this cocept. Where I've seen it misapplied by friends is when they use that rationale to "purchase" additional toys using the same investment as the comparison. So in fact they didn't/wouldn't have sufficient cash to purchase multiple boats, MHs, vacation homes outright but figured they were better off financing.
One that comes to mind is still paying for a boat loan that was affordable in his early 60s but now still having to work at 73 to keep paying for his boat. All this in spite of heart attack and other significant medical issues.
Ah, yes, borrowing because one cannot afford the boat otherwise is much different than borrowing vs paying full cash.
 
I wouldn't do it.



Bought my boat for cash in the fall of 2021. It was a "fixer upper" so I got a deal.



Sunk some cash and a ton of sweat-equity it in the first year (2022) to get it sea-worthy. It was still cost effective.



Used it for the last half of the summer (lived on it all that time) and for 2023 we plan to be in the water first week of June and live on it all summer again.

To me, that is value for my money and I don't have to pay any interest.
And you may have forgone interest income in a higher amount than you would have paid on a loan. That is just throwing money away, but if that is worth your peace of mind, I guess it makes sense, but know that the arbitrage spread is a real cost.
 
We are usually in the 'pay cash' column, but we actually did finance some of our boat - we just couldn't drain our brokerage account for the full amount even though we had it. The only other debt we have is our 15 yr mortgage at 2%; cars paid, student loans (very large) paid and we put >30% of our income away for retirement (both still full time). It's not a stretch at all to our budget but it still niggles at us and will likely be gone within the year even though the math may make more sense to hold giving money market savings rate (vanguard, >4%) and the write off on the mortgage interest.
 
I recently found a financial advisor to assist in managing my portfolio and put it more on auto-pilot. I spent much of my career on Wall Street which had the side effect of becoming an active investor with a fairly robust risk profile. While it served me well, I wanted to step-back from the day-to-day shark tank of trying to leverage and arbitrage the last cent. Somewhere mid-Pandemic, when I was heavily into tech and energy, I realized that losing $x would hurt a lot more than gaining $2x or even $3x would help. There comes a point where your lifestyle is set and adding more money won't make much difference. In short, currency of life changed from money to time - I wanted to declutter my investment life. So I made the change to capital preservation vs appreciation and dramatically lowered my risk profile. Timing was lucky for me.

I like my advisor a lot. We spent a lot of time chatting so he could get a feel of my approach to debt, leverage, and risk; where I had been and where I was headed; my lifestyle choices; etc. It greatly influenced his recommended investment strategy and I am very comfortable with the approach.

This thread highlights that each person has their own tolerance and goals for how they approach consequential financial decisions.

Peter
 
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(Purchase_$ + Interest_$) - Sell_$ = Cost of a Boat

Note that I consider cost of ownership (e.g. Storage Fees, Maintenance, upgrades) differently. That is the cost to own and operate the boat and will exist regardless of the boat in question, though I acknowledge that this is variable based on size and age.

For the cost of the boat, I take the adjusted cost and divide by the number of months I owned the boat. Either I can live with that number or I can't.

When it comes to loans.....don't get upside-down. Be prepared to sell the boat to cover the debt should financial situations change.
 
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