Our plans - need feedback

[La Sirena]

I'd like to share my wife and I's plan to move from a dirt home with jobs to retiring on a boat and doing long distance cruising. I'd like some feedback to see if this is practical and doable. Or maybe there is something we should consider doing differently.

We currently both work and own a house in southern CA. We plan on buying a boat (a Selene 53, KK48, or N47), retire, and move aboard at the end of next year, and rent out the house. We don't want to sell the house because the location is good, and buying back later will reset property taxes and triple what we're currently paying. We want to keep an option open to move back into our house someday.

We will buy a boat as soon as a suitable one becomes available. Sales tax could be very high on the boats we're considering. If I bought the boat in CA, the sales tax could be $60K-$70K plus 2% per year. Ouch!! If I bought a boat in CA I would take delivery off shore and move it to Ensenada, MX where there is a good boat yard to do any work that may need to be done, and a decent marina. I would keep it there until end of 2021 when we start cruising.

If the boat was on the east coast where sales taxes seem to be much friendlier, we would keep the boat on the east coast and start our cruising there beginning 2022.

We would purge a lot of stuff from our dirt home, move some things onto the boat, and anything we want to keep we would move into storage. We would return to the dirt home and storage two times a year to check on the house and retrieve anything we may need to get from storage. But since we would be living on the boat, we would change our residency to a more tax friendly state. Any income I made from renting the house would be taxed as CA income, but other income could potentially have a lower (or no) state income tax.

If starting from the east coast we would cruise the coast, Bahamas and Caribbean for a few years before transiting the Panama Canal and cruise the west coast and potentially beyond. If starting from Ensenada, we would cruise up to Alaska, down to Central America, and potentially beyond. Our goal is to explore, meet new friends, be challenged, and learn new skills. This would go on for as long as we care to or are physically capable.

The questions I have specifically are:
1. Is the long distance landlording a good idea? The rent could generate enough income to finance the boat expenses.
2. What state should we establish residence in? How is that done?
3. How do we get mail when we're on a boat?
4. What other questions that we don't know enough to ask?

Thanks in advance for your responses. This is a big change for us, and we want to minimize the big mistakes.

 

[Seevee]

One minor caution.....


I'm assuming you expect the taxes are to remain the same with some sort of ownership exemption, or homestead exemption? Now, not familiar with CA law, but in Florida (and a lot of other states), one has to live in the house to maintain the exemption, as least, show it as a primary residence. And that might make moving your domicile to another state hard. But worth checking into. Now, I believe that there's still tax benefits with a rental home you own over time, just don't know the differences.



However, you "might" let one of you own the CA house, live in it a few days a year, and the other (with the income) move to a tax friendly state.



If you're moving around (boat), you can really establish a domicile anywhere, for the most part.

 

[MYTraveler]

One minor caution.....


I'm assuming you expect the taxes are to remain the same with some sort of ownership exemption, or homestead exemption? Now, not familiar with CA law, but in Florida (and a lot of other states), one has to live in the house to maintain the exemption, as least, show it as a primary residence.

In California, under our "Prop 13" (a 30 year old voter initiative -- therefore beyond the reach of state government absent a super majority -- to limit the increase in property taxes) residence doesn't matter. There is a homeowner exemption, but it is worth only $70 per year.

 

[Alaskan Sea-Duction]

You could always keep your boat on the Columbia River and moor it in Oregon (not WA as taxes are as high, if not more than CA)

 

[murofrelwart]

The questions I have specifically are:
3. How do we get mail when we're on a boat?
4. What other questions that we don't know enough to ask?

.

3. There are many mail forwarding services, for example: https://www.sbimailservice.com/


4. Depending on your age and personal situation US and international health insurance can be a complex issue.

 

[NowhereHome]

I'd like to share my wife

Not sure if a good idea or not.

The questions I have specifically are:
1. Is the long distance landlording a good idea? The rent could generate enough income to finance the boat expenses.
2. What state should we establish residence in? How is that done?
3. How do we get mail when we're on a boat?
4. What other questions that we don't know enough to ask?

Thanks in advance for your responses. This is a big change for us, and we want to minimize the big mistakes.

What you are looking for is establishing "domicile" when you are a full time cruiser and not really in one state for long or large cumulative amounts of time.

1) Find a good property manager - their cut is worth it for the piece of mind and not having to solve all the problems remotely. Imagine having to figure out a water heater repair in the middle of one of your cruises?

2) You'll have to take a look at what the split is between income/capital gains tax and taxes on things like your boat. There are state with no income tax, no sales tax, and no excise tax. There are also LLCs which may or may not work. Since we'll probably spend enough time in WA (+6 months and 60 days at a time), no matter what, we're pretty much stuck paying their excise tax from what I can tell. Oregon's tax rate on our income would mean we'd have to have a pretty spendy boat to make property tax worse than income. Alaska might work for us given the current flexibility in work locations

3) We use virtual post mail (CA/DE) - fairly reasonable/fast/secure. There is also Anytime Mailbox that has more locations if you want an address in your domicile and the ability to pickup local. They get mail, take a picture of the envelope. I choose scan/shred/ship to me and they do those things for me. A certain number of scans are included depending on the plan. Shipping is fairly reasonable. Most of my accounts are e-delivery, and I download and save the statements.

 

[BandB]

No, absentee landlord isn't advisable. Get a local management company to handle that for you.

As to establishing residence elsewhere, all states without income taxes are attractive. Now there are a good many necessary steps and all of them require you moving away from your prior residence. That would mean not living in the house and making it clear you did not, renouncing any homestead rights.

Here is an excellent link outlining requirements.

https://www.sbimailservice.com/become-a-florida-resident/

California will require you to prove you're no longer a resident. Meeting all those requirements and not overlooking any is essential. New states are quick to take you but old states don't like giving you up and just because State B considers you a resident now, doesn't mean State A won't continue to do so.

 

[hmason]

Be careful about Federal taxes. If you don’t live in your house for two out of 5 years it becomes an income property and you lose your capital gains exemption. Might be different if you move back in someday. Check it out with an accountant.

 

[Alaskan Sea-Duction]

Here is a great mail forwarding service that Crusty and I use. Highly recommended!

https://www.docksidemail.com/

 

[rgano]

Are you going to document the boat with the USCG or register with a state. Then there is the entanglement with remaining too long in some states at which point some start looking for the taxes you paid on your boat purchase as they prepare to issue you a property tax bill. MANY things to consider, and there are lots of folks here much more well versed in these details.

 

[FF]

First read a number of books from folks that have done bluewarter voyaging and decide if that is for you.

A true voyager will cost way more than a coastal cruiser like most trawlers (better scantlings), have less room inside (fuel, water and food take up lots of space).

It takes loads of time to cross oceans , as you get older , it may not feel like time well spent.

 

[Seevee]

Be careful about Federal taxes. If you don’t live in your house for two out of 5 years it becomes an income property and you lose your capital gains exemption. Might be different if you move back in someday. Check it out with an accountant.

Yes, this could be a big issue, but there are ways around it. It takes some creative planning and moves, however, not up on California rules, I don't know if it would work there.

 

[Seevee]

As for "long distance property management" it will be an issue EVEN with a property manager. I've done it both ways, and I can do a better job by myself, and just a good handyman in the location.


However, if one is not experienced with rentals (I mean TRAINED experience with years of practice), I could argue to get the BEST property manager you can. And it will require constant being in touch with him. If he really does a good job, you might only have to talk once a year.



Good luck on that one.

 

[Hippocampus]

Come to this discussion after 7 years of cruising. Decisions are very case specific. Everyone’s situation is different.
Mail is a PIA. How you handle it depends on your available land support. We divided mail into three groups. Legal/financial stuff that could require action. Finding a notary who is recognized by home country (US) can be quite difficult. For some real estate deals (buying and selling) we actually had to sail to a US possession to find a notary to close some deals. Other choice is to go through layers of lawyers which is hugely expensive. Most other stuff you can pre-arrange by utilizing power of attorney dispersed by task. For this we used one of our kids, our financial advisor and a lawyer all based in our home state of record. We pre arranged where mail went. Some was held by the post office. Either we collected it on our periodic flights home. But some was diverted to one of our kids, some diverted to lawyer or mail service.
We used vpns, or satphone or local phone for communications (voice/email) home. Choice depended on level of security required. Going through a phone is generally more secure than going through any form of straight internet. Encryption is good and cheap at this point.
We sold the house but set up a condo lease. Storage is expensive and things still get ruined. We have antiques, memories and other valuables we didn’t want to sell or give to charity. Still we got rid of a huge amount of stuff before leaving. That was work and very time consuming.
We had looked at renting out but between the stress and management fees and liabilities didn’t make sense for us. We were often entirely off the grid with no comms except KVH and SSB. This would be different if you could afford the expense of frequently getting satellite data. Voice is cheap. Data is expensive.
We kept our legal residence in our home state but documented the boat in a different state due to taxes. Boat was held in a trust. We invested using Caymans or the like for the boat but we sail back and forth to the US and dealing with cruising permits is a PIA. How you handle the boat depends on where you expect to go.
Just some thoughts. Best advice I got before leaving was “decide on the mission first”. Where you will go, when, for how long. Decide how you want to live when you come back. Where, when, in what. Then plan. Make sure everything, EVERYTHING can run on total autopilot in your absence and for periods you are totally unavailable. Then have too much fun.

 

[mvweebles]

I moved from California to Florida 15 years ago for three reasons. First, my work in management consulting was primarily in financial services. East coast time zone for weekly travel was a plus. Second, weather. I lived in San Francisco which while not too cold, was not very warm either. Third, taxes. Simply exiting SF and California gave me a 10% bump in income.

I left my boat in SF planning to return frequently - I flew every week to somewhere, might as well be SF. Didn't work out that way and the boat deteriorated.

Two years ago, I took Weebles (Willard 36) from SF to Ensenada for a refit and repaint. Originally, I planned to start my cruise from MX and perhaps up to PNW for a season, then slowly head to Florida. Between Covid and normal refit delays, I'm getting kinda antsy about having the boat on other side of country so may just drop her on a ship from Ensenada to Florida and start cruising from there.

Im in Ensenada right now for a long overdue visit to check on boat progress. Crossing into Mexico is easy. Getting back to US is still a couple hour delay at border. There is not a lot of cruising nearby so it's more or less long term storage to keep your boat in a marina in Ensenada.

My wife still owns her condo in downtown SF that we rent. Key has been finding a good renter. She accepts a lower rent and her tennant has bee flexible. However, renting a house is more difficult. You will either need a good property manager or a network of tradesmen who are responsive. Even then, you'll need to have comms to get the call from renter that something requires attention. If your house is in good shape, should be fairly infrequent. I have a rental house in Florida and consider myself lucky with about two service calls per year. We also have a condo in Mexico and an excellent property manager - I call her the "Easy Button."

I don't mean to diminish the cost of $60k in sales tax. But avoiding it will come at a cost. The old California sales tax dodge was the "90 day yacht club" in Ensenada. I have not kept track, but my understanding is that had been changed to make it more difficult to qualify. Yes, the boatyard in Ensenada does decent work, but many parts and materials come from US at West Marine priced plus 20% mark up plus 16% VAT. And they are not as cheap as you'd think as they set their prices based on Socal yard prices despite the $30/hr listing on their website (I did not use the biggest yard).

Your plan is fine. Many have done it before you. Nordhavn has an entire business model built on folks like yourself. Kids college is funded, thinking of early retirement, have a comfortable nest egg, not ready to stop adventuring - a posh and adult updated version of backpacking through Europe of yesteryear.

My advice is to be a bit more deliberate about sequencing. Get the house settled first. Whatever you need to do to get it in steady-state. If plan is to rent, then get it in shape to rent, belongings in storage, deciding on property management strategy, and perhaps even move into an apartment for a few months before buying a boat. The stress of two major and expensive activities happening concurrently will be difficult. With possible exception tools, there are few existing belongings that will be transferred to boat.

BTW - biggest concern for international cruisers is (D) none of the above. It's insurance - both health and property (boat).

As far as which coast, for us it's of little matter. We're in Florida now and that's fine. Central America is a couple days away, and there's plenty of coastal cruising. We originally thought we'd leave from SF and head to Mexico which would have been fine too. More about lifestyle than destinations.

Good luck

Peter

 

[Hippocampus]

For mail St. Breton is good.
For health insurance we decided to get a good medvac plan, use our pre-existing insurance and pay cash when using local services. Most insurance allows vacation allotment of meds. If that’s an issue had meds mailed to a kid who then mailed stuff to us. Pre arranged all routine care for periodic trips home. We bought a lot of boat stuff using a kids mailing address. Either picked it up on periodic trips home or had enough accumulate then had it bulked shipped to us. Periodically used a shipping broker as well. Customs runs into a huge expense even if you are a “vessel in transit” so you can save big money by planning ahead.
Be prepared to switch boat insurance periodically. Ran through 4 different companies in 7 years. Now things are ridiculous for Caribbean. So many companies have dropped out. Details to allow mom and pop cruising truly onerous. We even had to take on “live lumber” crew on occasion to meet insurance restrictions. One insurance required we return to the US at least once a year. Another required all crew be vetted by them and accepted as competent before passage. We ended up paying an extra $7k a year to get a policy that had minimal restrictions on where we went, with who and when. It still required only I could captain. So when I wanted my boat manager to move the boat from a slip to the travel lift I had to pay for a rider. Ridiculous. A 100 yard move by a certified ship’s captain. One time said screw it and just violated insurance restrictions for passage. I have 35 years now of blue water experience with insurance with no claims. Starting out fresh you will pay through the nose. Especially if you intend to have any loan on the boat. Some people decide to self insure but you still need liability. Without at least $1m in liability many marinas won’t let you in. You can only self insure if you have no loan.

 

[Zoar]

We are embarking on a similar journey.

We want to keep the house, the First Home, and the boat, the Second Home. We are working on a six month each plan. The house is in the Finger Lakes of NY state. We are off-the-grid and grow a lot of our own food. Can't think of a more beautiful place to spend six months of a year in late spring to early fall. Then we plan on six months (winter months) in the Carribean with the boat.

I will only speak to residence. I am contemplating either a Florida residence OR possibly moving to a Bahamian residency. A lot depends on political socio-political and health-political factors. Florida is a good jumping off place to access the carribean. At this point we want to drive between our "homes". We can drive from NY to possible places in FL in about 18 hours. Then we take the boat from there to where we want. Florida has many favorable tax scenarios.

The other option is establishing residency in Bahamas. We would still keep our summer place in Finger Lakes. And the boat will still be located in Florida while we are summering. We drive down to Florida in the fall and get in the boat and sail "home" to Bahamas. We sail to US to the Late spring, dock it in Florida and drive to NY for the summer. I would establish a business there. There are many more favorable tax scenarios with Bahamas over anything in the US including Florida. (Our plan eliminates any FLYING)

What I have yet to determine is specific restrictions on going back and forth and specific requirements as far as length of time we can or have to be in Bahamas and how long we can be in the US each year. There are some arbitrary rules regarding lengths of stay etc and I need to get clarity on these. But I will fold these factors into the final scenario.

 

[AlanT]

Just a couple of random thoughts as the difficult questions all seem to have been comprehensively addressed.

You don't mention your or your partner's prior boating or liveaboard experience. Do you already both have enough experience to know that the reality of living aboard is something you will both enjoy? I assume that the answer is yes, and the joys are many but you have to work for them, so both partners have to be fully committed and its as well to consider this before all the big financial commitments are made. In our case we did a few foreign charters, we each took courses, I did a 10 day delivery voyage. I apologize if you are already beyond all this but did not see much detail in your bio.

Duty: I assume you will be buying a used boat on which the import duty (to the US) has already been paid. However if you are buying a new yacht (or perhaps more likely if you wind up buying a used yacht that is advertised as "not for sale in US waters" ie: a yacht on which the import duty has not been paid) you have the option to register it in the BVI or other tax haven instead of the US thus saving the import duty. When you eventually sell the yacht you can either sell it offshore or import it (at a lower tax based on its resale value). If you do go this route you can operate within the US as a visiting foreign vessel subject to some requirements (notification to USCG of moves between CG areas of operation, and time limits which last time I needed to know this was one year).

Mail: We went digital for our mail when we moved aboard in 2006. Even now, back ashore, all of our bills arrive online and we have little need of paper mail. It involved about a year of preparing for this, converting all our vendors etc to online billing but is likely significantly easier today.

Rental: Our solution was to rent to a friend at a reduced rate. Our house has several living areas (but only one kitchen), so we were able to return to the house when we wanted/needed to (weddings, Christmas etc) and our own rooms (my office, our bedroom) were left unoccupied and fully furnished between those visits. That may be an option and if so it might also solve your mail issue as your friend/tenant can sort and either bundle or scan any important mail which is how we handled it.

EC vs WC: The East Coast gives you substantially more variety in terms of cruising destinations, access to foreign ports as well as Ft Lauderdale which is probably the best location on earth for any maintenance/upgrade work. All WC passages require more planning and forethought. The disadvantage is of course the hurrican risk. IMO vessel pricing and availability is better on the EC.
~Alan

 

[La Sirena]

Thanks everyone for the responses! OK, here's my takeaway:

1. Get a property manager to manage the rental of my house. Several years ago I rented my house for 3 years. The first year I paid a property manager, the 2nd and 3rd years the tenant took care of maintenance items and we split the property manager fees.
2. Boat and health insurance can be a problem.
3. There are many mail forwarding services.
4. Try to get a relative or good friend to rent the house and have them hold or forward the mail. I like that idea, and I may know someone that would do that.
5. It all sounds complicated. But I won't be working, so I'll have the time.

 

[Pete Meisinger]

I am not a tax attorney or a financial advisor, just a regular boater. I'll let the experts help you iron out the financials.

You don't mention your boating background but you are considering 50+ footer, expensive boats and really aggressive travel/boating plans.

Does your experience and boating background support such travel plans?

pete

 

[Cruising Sea Venture]

Here is what has worked for us. We have been living aboard and cruising full time without any permanent moorage for the last 6 years. Before that we have boated and cruised long distance a reasonable amount - just surpassed 10,000 hours and 70,000 NM.

Boat Purchase Taxes: We purchased our boat in Washington State, where you will pay approximately 10% sales tax - this is also owed if the boat stays in Washington waters for a specific amount of time, I believe more than 60 days. Depending on the boat, this could be a lot of money of course, but it’s all relative.

Mail: We use dockside mail, which other posters have mentioned. Angela is great. She gets the mail, scans the envelope, you check the drop box, tell them to open and scan, hold, forward, shred, whatever you like. It’s worked like clockwork and been great. I’m sure there are comparable services on both coast.

Health Insurance: We kept our insurance in Washington state and then supplement that with health insurance from World Nomads. It’s relatively inexpensive, includes a very good evacuation policy - the most important part, and seems to fill in the out of town part great. It’s insurance that only applies if you are more than 100 miles from your home address, whatever that is.

Boat Insurance: You didn’t mention this one, but if you plan to do some offshore cruising, I would sort this out before you purchase a boat. You ability to obtain such insurance is going to be directly related to your boating experience. If you don’t have the experience you can expect an insurance company to require you hire a captain for a period of time.

Rental: I would try to have local eyes on any rental, especially a home. We own an apartment complex and are blessed with smart hard working adult kids. They operate the business and we get our “allowance” each month - otherwise we are on a need to know only basis - which has worked great for us. I couldn’t imagine trying to sort out a problem, vacancy, etc., from some anchorage.

It’s all completely doable, you just have to both be 100% onboard, so to speak, and make it happen. We have never looked back.

Good luck,
Jim and Rosy
M/V Sea Venture
Www.youtube.com/CruisingSeaVenture

 

[Rsysol]

Our Plans Feedback

I'll address the one item on CA taxes. We are in San Diego and did the offshore purchase. You can take possession offshore and return to San Diego for repairs and other work for a reasonable amount of time but keep receipts. I think we stayed an additional 2 weeks before moving Antipodes to Ensenada. Get a marine attorney to document this, it was cheap.

There are two good marinas in Ensenada, Cruiseport and Marina Coral. The Coral is nicer but has significant surge. Cruiseport is cheaper and walkable to town.

Ensenada has good yards, notably Baja Naval. We also used Niza Marine which has ex-baja naval folks running it. In either case, it is wise to stay close to any project. Covid and access impacted us significantly and work slowed way down, but costs did not.

Lastly, CA wanted proof that the vessel was out of CA waters, the invoices from the marina and receipts from the toll booths proved we were there and regularly visiting. We had no issues with them once approved.

 

[Kawini]

"How you handle the boat depends on where you expect to go."


I agree with the above statement. Your choice of cruising ground is an important consideration here. As things stand now, USCG documented boats can stay in Canada for 364 days a year without paying tax. (Though Canadian officials are likely to raise questions for those US boaters who come to the US in their US boats to "round the flagpole" for just a day.)

This is decidedly NOT a privilege accorded in WA or CA where your use of state waters over a certain number of days will trigger a use tax obligation and a corresponding excise tax obligation.

(Of course, there is the COVID wrinkle now.)

 

[grandbanksbayfield]

Document vs. Registration

Are you going to document the boat with the USCG or register with a state. Then there is the entanglement with remaining too long in some states at which point some start looking for the taxes you paid on your boat purchase as they prepare to issue you a property tax bill. MANY things to consider, and there are lots of folks here much more well versed in these details.

As long as you do not stay long, you might get by without registering in any given state, but many states require that you register a documented boat anyway. Here is MI you do get by without displaying registration numbers.