Financing vs cash for boat purchase?

[Camasonian]

Hi everyone. Does anyone know if there are any statistics on means of boat purchases for the kind of trawler yachts generally discussed here? We were vacationing on San Juan Island last week and I walked the docks at Roche Harbor and started to wonder how all those expensive boats were actually paid for.

My wife and I are reaching early retirement age and thinking more about pulling the trigger on a trawler that would be our vacation home for the next decade in lieu of the typical beachfront home or mountain cabin that upper middle class and upper class folk around here tend buy once they reach a certain financial status.

I'm guessing around here that the huge majority of beachfront homes or cabins around Bend and Sunriver are mortgaged, but I don't really know that for sure. It is the same for boats?

We are reaching the point where an all-cash purchase could be possible but would have bigger tax implications than a loan. I'm just kind of curious what percentage of say Nordic Tugs or the like are financed vs bought outright.

Anyone know?

 

[Comodave]

I don’t have a clue as to how to determine what percentage of people pay cash or do a loan. I think it would be a bit personal to ask right out. I would just do what works best for you individually.

 

[Camasonian]

I don’t have a clue as to how to determine what percentage of people pay cash or do a loan. I think it would be a bit personal to ask right out. I would just do what works best for you individually.

That's why I'm not asking for people's personal testimonies here. I'm not trying to do a poll of forum participants. I'm just wondering if this is some sort of statistic that the industry collects or if is something widely known in the industry. I'm sure the real estate industry knows EXACTLY what percentage of homes are financed and how much equity every category of owner currently has.

Of course we are going to do what works best for us. But I'm still curious how many of those boats I see in the marinas and yacht clubs are owned by the bank.

 

[Comodave]

I donsee how the banks would know how many boats are paid in cash and how many loans are out there except their own. I don’t see how it really matters though.

 

[JLD]

Everyone's personal finances are different.

I know that in my situation, it would make a lot more sense to put about 25% (I'm a believer that one should always own less on a depreciation asset than the value of the asset) and finance the rest on a 5 - 10 year loan.

Jim

 

[magna 6882]

Your question is really the same for all purchases. I started my business when i was 18 and couldn't get a bank to even consider working with me. That was in the 70s and loans were not that hard to get for most people but they thought i was biting off more than i could chew. I went forward without them and out of stubbornness have never borrowed any money. My wife claims we have the funds to do these things because we never have paid out any interest .

 

[Beaverlake]

We’ve financed. We had discretionary spending options built into our retirement planning and made a decision that the monthly nut was our choice relative to part of our discretionary spending from our retirement funding. Everyone has different plans and resources so like others have noted - any data is really meaningless from a practical standpoint. If, however, you want some affirmation that you wouldn’t be the only retired couple in the world that financed a boat purchase then yes, the numbers have value. When I modeled our costs I took into consideration depreciation and selling brokers fees as well as operating expenses and payments. If not a boat, then we’d probably have a couple more sports cars. We’re not reckless, but we’re not planning to leave more than a few bucks in the checking account when the last one of us Kicks off. Fortunately our kids and grandkids don’t need any leg up from us after we’re gone.

 

[Jeff F]

Isn't interest deductible for boats as second homes in the US? My experience from many years back is that boat financing was common and often driven by tax considerations. Maybe that's changed since I don't see it mentioned.

 

[Al]

Your question is really the same for all purchases. I started my business when i was 18 and couldn't get a bank to even consider working with me. That was in the 70s and loans were not that hard to get for most people but they thought i was biting off more than i could chew. I went forward without them and out of stubbornness have never borrowed any money. My wife claims we have the funds to do these things because we never have paid out any interest .

You get an "AMEN". same story here. Never looked back. Learned early on that patience is a virtue and with it if you wait patiently , what you desire will come around on your terms.

 

[ScottC]

My wife and I are reaching early retirement age and thinking more about pulling the trigger on a trawler that would be our vacation home for the next decade in lieu of the typical beachfront home or mountain cabin...
Anyone know?

Hi Camasonian,
I'm assuming you don't have previous experience buying and selling boats. In your retirement planning, do not lose sight of the fact that, with rare exception, boats DEPRECIATE in value. Significantly so, if you buy one that's new(ish). Beachfront homes and mountain cabins APPRECIATE. So, be sure to try to realistically project the value of your boat a decade from now when you plan to sell it. If you must finance a portion of the purchase, plan the amount borrowed carefully. You'll ideally want to make sure the sale of the boat fully covers the balance owed to the bank...even if you sell it after 5 years, for example, instead of 10.


Good luck with your search!

 

[JimW]

Good question and yes there are many factors to consider . . . Buying a boat (cash or financing) is a commitment, if married both should be “all in” as every boat, like children need attention, will cost more the longer you have them, will provide joys, challenges and memories . . . We took the “paid for” not “financed” approached because as mentioned previously homes tend to appreciate, boats not so much . . . But with a boat if you don’t like your neighbors or the scenery you pull anchor or change marinas . . . IMO there is not a better activity/lifestyle than boating because in most cases those you meet have experienced the same challenges you have(will) and are willing to assist with solutions, a hand or a shoulder to cry on . . . Welcome Aboard!

Standing by-

 

[O C Diver]

Imo, your financial situation is more important than what everybody else does. If you were to finance it going into retirement, how much would the payments impact your lifestyle? As important, the annual costs of owning the boat for most are more expensive per month than the loan payments. Dockage, insurance, and annual maintenance can be a real eye opener. If you need to finance the boat, maybe you should look more closely at annual costs.

Personally, I don't finance toys, deprecating assets, and think it's a mistake to finance anything in retirement. While there may be situations where you can justify financing something because of investment tax implications, if that investment declines in value, how will that effect your ability to pay the loan and future lifestyle?

Ted

 

[JLD]

Isn't interest deductible for boats as second homes in the US? My experience from many years back is that boat financing was common and often driven by tax considerations. Maybe that's changed since I don't see it mentioned.

Yes, but you can only take the interest deduction if you itemize your deductions. With the changes made to the tax code a couple of years ago, there was a cap placed on state/local taxes (income and property). For many folks, like us, it no longer made sense to itemize, even though I still work and we paid both mortgage interest and property taxes on the house.

Jim

 

[Pete Meisinger]

Interest on a boat loan can often be deducted from income tax. The boat needs a kitchen area,a sleeping area and a bathroom with a door to qualify (I think).

Depending on you income it may save you some money to finance.

pete

 

[Island15]

Personal choice. But I will say on one of the Nordhavn recent webinars theree sales people stated that in the last number of years they had only one or two buyers that financed the purchase.
One said all cash buyers in the last 10 years!

 

[MurrayM]

We are SIOKOV's (single income one kid one vehicle) so bought with cash which applied several limiting factors;

1) We couldn't buy a boat bigger than we could afford to operate,

2) It allowed us to keep saving for our retirement and daughters college fund without having to make monthly payments to the boat,

3) Kept a lid on the temptation to make all manner of ultimately unnecessary upgrades.

 

[Oldersalt]

Here's how our thinking went....Boat loans are fairly high interest, these days maybe 4 or 5%. We own a home with a small balance still due on the first mortgage. Our investment portfolio (we are retired) is moderately conservative and yields around 4-5% most years. So, we refinanced our home first mortgage to get an interest-only loan at 2.5%, and increased the loan amount by the price of the boat....a bit over $100K. Paid cash for the boat, and are only paying 2.5% for the money. The total loan, in our case, is small enough that we could pay off the whole thing any time we want, but why? Keeping the money in the portfolio, yielding on average about 4-5% (I know, this year is different, but we like to think long term the market will come back) is better than pulling money out of the portfolio to pay cash for the boat or to pay off the entire first mortgage.Makes sense to us, anyhow...
Good luck!

 

[foggysail]

Everyone's personal finances are different.

I know that in my situation, it would make a lot more sense to put about 25% (I'm a believer that one should always own less on a depreciation asset than the value of the asset) and finance the rest on a 5 - 10 year loan.

Jim

Jim...... you are still responsible for the financed portion of any purchase whether the asset appreciates or depreciates. My decisions are based on how much cash I wish to sit on along with if I have enough cash to pay for an asset and of course, finance charges. Gees, I just saw a company selling stuff that claimed their interest rates varied from 0 to 30%!

 

[JLD]

Jim...... you are still responsible for the financed portion of any purchase whether the asset appreciates or depreciates. My decisions are based on how much cash I wish to sit on along with if I have enough cash to pay for an asset and of course, finance charges. Gees, I just saw a company selling stuff that claimed their interest rates varied from 0 to 30%!

Sorry, maybe I wasn't very clear in my post. I never finance an item for more than I can reasonably sell it for, as I never want to be 'underwater' on a loan. We have always done this when we have purchased cars and will do the same when we buy our retirement boat in the next year or so.

Jim

 

[Group9]

I was always taught, that you finance appreciating assets, but you pay cash for depreciating assets. (Assuming you can, of course).

When I was younger, I financed some of my boats. But, the last three boats we bought, we paid cash for them. I'm 62 now, and it feels nice to own our boat free and clear.

 

[ksanders]

My opinion is that boat financing vs paying cash is really based on several factors.

First is the price of the boat. It’s simply a lot easier to come up with a way to pay cash for a lower priced boat than a more expensive one. Many folks can write a $25,000 or a $50,000 check but far less folks can write a $250,000 check, and even less can write a $1,000,000 check.

Second is age of the boat, which is also tied to price because older boats cost less. Older boats are more challenging to finance, so it would be natural to have less of them financed.

Third and I think most important is demographic. Here on TF, and on the dock, and in life we see a few categories of people, and your category tends to affect your ability to pay cash for a boat.

1. Wage earners, working age. These folks are in my opinion most likely to finance their boat. The reason is because they make a good salary so they have disposable income, and years left to work and pay for a boat. They have also been busy with paying for life so they do not have enough cash to pay for their boat. (that was my category when I bought and financed my boat in 2011)

2. Entrepreneurs of any age. These folks often pay cash for their boats because they have cash based on their taking the risks of business ownership or startup and have done well in that endevor.

3. House traders. These are folks mostly older, who have traded years of home equity for their boat.

4. Inheritance buyers. These are folks that along with their other endeavors have inherited a significant amount of money and used that to buy their boat.

5. Retirees. These folks in my opinion generally use their accumulated cash to buy a boat as part of their retirement dreams.

As you can see how you pay for your boat really depends on how much cash you have on hand and the price of your boat.

Lust look around here on TF, and on the dock and it will be pretty easy to determine if a boat is probably financed, and how a person obtained the means to pay cash.

 

[JLD]

I was always taught, that you finance appreciating assets, but you pay cash for depreciating assets. (Assuming you can, of course).

When I was younger, I financed some of my boats. But, the last three boats we bought, we paid cash for them. I'm 62 now, and it feels nice to own our boat free and clear.

I think that the decision to pay cash, or not, is dependent on one's personal financials, including their income stream and whether the interest cost for the item is at, below, or above the income derived from elsewhere.

The last two vehicles we purchased, had loan interest under 2%, much less than our investments were making at the time. Thus, we had a down payment, but the bulk of the loans were financed.

Jim

 

[BandB]

I've seen but can't locate statistics on smaller boats, 30' or less, used on lakes, even Sundancers and boats bought when raising families and they're overwhelming in the vast majority being financed. Probably 80% of the boats on lakes were financed. Much is based on stage of life.

That's why most trawler like boats are not financed, because most buyers are nearing retirement and reduced income. They're not like the buyers above seeing income rising. However, many buy early while still earning at their maximum and many of those finance. Probably 30% of trawler type boats sold for under $200,000 are financed.

Bigger boats, the buyers finance far more often than you might expect, even on multi-million dollar boats but they seldom borrow on a boat mortgage. Instead they'll borrow some other way, on property they on or through a business or on stocks or just personal without collateral.

As to the wisdom, which is not what you asked for, I'd say it's a very personal issue based on where you stand in life and financially. There isn't a right or wrong.

 

[markpierce]

Haven't a clue. Regardless, I don't think it wise to borrow on a non-essential, depreciating asset. Agree with Group9.

 

[bgillroy]

New yacht depreciation is significant. Boats typically do not hold there value as homes do. Lack of maintenance on boats is widespread. If you are wealthy, taking the new boat depreciation hit is no issue. If you are not wealthy, a large hit may be a problem unless you plan on long term ownership (your 24/7 water home). Unlike homes ( location location) the most important factor is condition condition, not age. FWIW we would never buy new boat if financing is required. As a personal preference, buy cash if it's a boat. Houses, okay to finance as much as comfortable since rates so low.

 

[Bacchus]

Sorry, maybe I wasn't very clear in my post. I never finance an item for more than I can reasonably sell it for, as I never want to be 'underwater' on a loan. We have always done this when we have purchased cars and will do the same when we buy our retirement boat in the next year or so.

Jim

Only problem with depreciating purchases is depreciation is high to start and decreases later. With loan payment principle portion is low to start and increases near the end. So very high probability you will be underwater at some point unless you have a high down payment and very short term loan... that's not the norm.

 

[JLD]

Only problem with depreciating purchases is depreciation is high to start and decreases later. With loan payment principle portion is low to start and increases near the end. So very high probability you will be underwater at some point unless you have a high down payment and very short term loan... that's not the norm.

Like most things in life, it depends.

I purchase my last two new vehicles, at significant discount, when the next model year came out. With a down payment, and a 1.5% to 2% loan for 5 years. At no point, during the loans was I underwater.

When I buy my boat, it will be used and around 50K. With a 30% down payment and a 5 -7 year loan, I don't expect to ever be underwater on the loan.

Jim

 

[BruceK]

Such a personal decision, why does what others do matter?. You say it`s curiosity,I`m curious about your curiosity.
The people who should know would be brokers. They`d write deals subject to finance and not, where it`s cash.

 

[South of Heaven]

Such a personal decision, why does what others do matter?. You say it`s curiosity,I`m curious about your curiosity.
The people who should know would be brokers. They`d write deals subject to finance and not, where it`s cash.

I agree.

 

[Camasonian]

Such a personal decision, why does what others do matter?. You say it`s curiosity,I`m curious about your curiosity.
The people who should know would be brokers. They`d write deals subject to finance and not, where it`s cash.

I guess I'm the only one here who walks the docks and wonders how all of those big boats are paid for. It's funny. On some financial forums I frequent everyone is discussing and bragging about the refi rate they just got. Here it seems the attitude is "don't even ask about money because it's no one's business." I wasn't asking for personal testimonials. Just wondering if there was an article or analysis some place that explores the question.

For us it isn't going to be about needing to finance a boat. But most of the boat funds are in accounts that will have tax consequences to cash out. So we will have to decide whether it makes more sense to take the tax hit all at once or finance and spread the reported income out over 5-10 years. The math will depend on our tax bracket, interest rates, and the returns we'd expect to gain on the funds in the interim. So some guesswork.