When Will Boat Prices Drop?

[mvweebles]

So, how many boat owners do you think are residents of NYC? Ten, twelve?

Funny you should ask. Headline in NY Post this morning. Turns out the owners of the $51m super yacht involved in the accident that sunk this small tanker in the Bahamas kept it near their apt in NYC at Chelsea Pier

According to the wife “We’ve always been avid yachters so having our yacht across the street was super convenient.”

Millionaire JR Ridinger’s yacht sinks gas tanker in Bahamas boat accident

 

[ksanders]

My advice for wannabe boat buyers is to quit trying to find a bargain. There are no bargain boats out there.

Buy a boat at what you and the owner feel is a fair price today and go use your boat.

if you wait for demand to ease and prices to drop you might just wait yourself out of cruising altogether.

How is your health going to be in a couple years? How about your spouses health? Are either of your parents going to need your presence then?

Lots of things besides a boat have to come together all at the same time to actually go cruising. If the stars are aligned today then go today, for tomorrow you might not be able to go.

 

[backinblue]

I agree with KS. I just read an article about outboard manufacturers not being able to keep up with demand. They cite many first-time boaters entering the market. If that's the case, new and used boat prices will not be falling any time soon. I could see things slowing down if there is a huge economic downturn or a huge jump in fuel prices, but if either of those happen you may not want to buy anyway.

 

[long-cours.62]

We discuss we De Valk Broker's and they confirm last year was their "best year' in term of sale an this year may be will be better.
Few month ago they had 650 boat for sale... today (even with the new entries) 535...
Some boat stay for sale only week, they named some sale "covid sale".
Unfortunately not our

 

[kthoennes]

...I could see things slowing down if there is a huge economic downturn or a huge jump in fuel prices, but if either of those happen you may not want to buy anyway.

Boy, even if fuel prices spike or there's a general crash, I tend to think there would be a lot of inertia against lower boat prices or a flooded market. People invest in boats or recreational cabins or whatever, then the economy crashes -- unless they have no choice because they can't make the boat or slip payments, they've poured a pile of money into that form of recreation and would take a hit if they suddenly jumped back out. And then the other dynamic is that I don't see pandemic-panic going away anytime soon. It's too juicy a crisis to let subside anytime soon, continuing to snarl world travel and sports and (some) major cities and cruise ships (again), and all kinds of other recreational choices. My predictions are worthless but if I had to guess, I think high boat prices and high demand on the rec boating industry is here to stay for at least some years to come, even if there is an economic downturn or fuel spike.

 

[socalrider]

The other issue with waiting for the downturn is that people don’t usually distress sale a boat immediately; they retain their optimism that things will turn around soon and defer maintenance, meaning your discount price might not be as good a deal as you thought. It might be better to buy in good times when owners are caring for their babies properly.

 

[FF]

"So, how many boat owners do you think are residents of NYC? Ten, twelve?"

When I worked a yard at the end of LI , dozens of folks would take the train , then the bus to tiny Sag Harbor.

They would stop at the market , row out to their boat on a mooring , open her up , then start the engine to make enough electric to have some refrigeration, and row back to shore for drinks and dinner.

The point is not the number of individuals , but the number of un-launched boats and empty slips , that should drive the market down .Especially for cookies.

 

[bowball]

And another year later...?

 

[Deano]

Here in Tampa bay dock rents have stayed the same or gone up.

 

[Delta Riverat]

They have dropped some, just like real estate. Both were booming during the covid times.

However the stock market was also booming and driving a lot of the boat-real estate surge. Work from home for houses and get away from people for boats. But now the market is down and to tell the truth, I wouldn't be looking for a boat now.

Me, I sold stock and paid cash.

 

[OldDan1943]

Rule of thumb: right after you or I buy a boat
Great Lakes area: right after the ice forms

 

[OldDan1943]

They have dropped some, just like real estate. Both were booming during the covid times.

However the stock market was also booming and driving a lot of the boat-real estate surge. Work from home for houses and get away from people for boats. But now the market is down and to tell the truth, I wouldn't be looking for a boat now.

Me, I sold stock and paid cash.

Delta, the boat loan interest rate, when I bought my boat, was about 5%.
I have no other write offs other than my boat loan. My CPA said, ‘keep the loan.”
5% is “cheap” money. Also as I recall, owners keep their boats about 5 years. We appear to be different, keeping the boat well over 5 years.

 

[backinblue]

Delta, the boat loan interest rate, when I bought my boat, was about 5%.
I have no other write offs other than my boat loan. My CPA said, ‘keep the loan.”
5% is “cheap” money. Also as I recall, owners keep their boats about 5 years. We appear to be different, keeping the boat well over 5 years.

This may have been true prior to the tax law change a few years ago. If you have no other deductions, you probably don't have enough in boat loan interest to to deduct it. Not saying a boat loan is a bad thing, just that the write off may not exist anymore depending on your tax situation.

 

[OldDan1943]

This may have been true prior to the tax law change a few years ago. If you have no other deductions, you probably don't have enough in boat loan interest to to deduct it. Not saying a boat loan is a bad thing, just that the write off may not exist anymore depending on your tax situation.

Hmmmm, I will have to check with my CPA. If I cannot write off the interest on the boat loan maybe it is time to sell stock and pay off the loan. I guess one consider the project time you intend to keep the boat too.

 

[backinblue]

Hmmmm, I will have to check with my CPA. If I cannot write off the interest on the boat loan maybe it is time to sell stock and pay off the loan. I guess one consider the project time you intend to keep the boat too.

The standard deduction for 2022 is $25,900 for joint filiers and $12,950 for single. If you don't have enough deductions to exceed those limits, then you can't itemize your deductions like boat interest.

Whether you want to sell stock to pay off a 5% loan depends on whether you think your stock will rise more than 5% anually and how much risk you are willing to accept. Even bank CDs are in the 5% ballpark these days, so paying off a 5% loan may not be the best strategy. Best advice is talk to your CPA about it. He knows your situation best.

 

[smitty477]

The standard deduction for 2022 is $25,900 for joint filiers and $12,950 for single. If you don't have enough deductions to exceed those limits, then you can't itemize your deductions like boat interest.

Whether you want to sell stock to pay off a 5% loan depends on whether you think your stock will rise more than 5% anually and how much risk you are willing to accept. Even bank CDs are in the 5% ballpark these days, so paying off a 5% loan may not be the best strategy. Best advice is talk to your CPA about it. He knows your situation best.

"Whether you want to sell stock to pay off a 5% loan depends on whether you think your stock will rise more than 5% anually and how much risk you are willing to accept."

It also depends upon how much taxable income those sold equities will add to your annual income potentially raising your taxes/tax rates.
Often it is advantageous to take a loan if that loan were to allow you to maintain a lower tax rate over each year.

 

[backinblue]

"Whether you want to sell stock to pay off a 5% loan depends on whether you think your stock will rise more than 5% anually and how much risk you are willing to accept."

It also depends upon how much taxable income those sold equities will add to your annual income potentially raising your taxes/tax rates.
Often it is advantageous to take a loan if that loan were to allow you to maintain a lower tax rate over each year.

Good point and I agree. No simple answer that fits everyone.

 

[rslifkin]

"Whether you want to sell stock to pay off a 5% loan depends on whether you think your stock will rise more than 5% anually and how much risk you are willing to accept."

It also depends upon how much taxable income those sold equities will add to your annual income potentially raising your taxes/tax rates.
Often it is advantageous to take a loan if that loan were to allow you to maintain a lower tax rate over each year.

Agreed. If your investments are earning 7% and the loan is costing you 5%, it's cheaper to take the loan vs selling investments to pay cash.

 

[ksanders]

Hmmmm, I will have to check with my CPA. If I cannot write off the interest on the boat loan maybe it is time to sell stock and pay off the loan. I guess one consider the project time you intend to keep the boat too.

If you do not have other major deductions, then the "standard deduction" will be more than your interest paid.

 

[twistedtree]

Also, I believe itemized deductions are limited based on your income. This makes it harder and harder to exceed the standard deduction. Above a certain income, you basically can't take any deductions anymore because they will get carved back to less than the standard deduction.

 

[TBill36]

I was talking to my neighbor the other day and I think he nailed it. Covid taught the world that a large portion of the work force can now work remotely. This has a huge and continuing affect on real estate, boats, etc. Interest rates and recessions will have their
short term affect, but in the long term people are going to move and enjoy recreation in a different manner. A boat may make a lot more sense now than a few years ago as people will justify the cost since they can potentially use it more.

 

[backinblue]

TBill may be right. I work from home exclusively now, which sometimes includes working from the boat. I can work anywhere with either a cell or internet signal, occasionally at anchor.

One more thing to consider about paying off loans. If you have a long term loan like a mortgage and have had it for a while, your "effective" interest rate could be less than your actual loan rate. That's because you pay more interest in the beginning of a loan than towards the end. In the case of OldDan, he may only really be paying 3% on his 5% loan if you look at interest vs. principal payments. I'm about half way through a 15 year mortgage at 3% but if I look at my monthly payment at this point in time, I'm really paying about 2.5%. One of many factors to consider when looking at loans and re-fi's etc.

 

[bowball]

Also, I believe itemized deductions are limited based on your income. This makes it harder and harder to exceed the standard deduction. Above a certain income, you basically can't take any deductions anymore because they will get carved back to less than the standard deduction.

Money is fungible even if secured by an asset like a mortgage or boat loan. If you can prove that you used to proceed for investment purposes you can deduct the interest as an investment expense independently from itemized deductions. But you need to buy an investment like stocks or bonds with the loan proceeds. You end up with the same leverage

 

[guy with a boat]

One more thing to consider about paying off loans. If you have a long term loan like a mortgage and have had it for a while, your "effective" interest rate could be less than your actual loan rate. That's because you pay more interest in the beginning of a loan than towards the end. In the case of OldDan, he may only really be paying 3% on his 5% loan if you look at interest vs. principal payments. I'm about half way through a 15 year mortgage at 3% but if I look at my monthly payment at this point in time, I'm really paying about 2.5%. One of many factors to consider when looking at loans and re-fi's etc.

That’s some creative financial interpretation. Your interest rate (even your effective rate) isn’t changing, you are just paying on a declining balance. More of your payment goes to principal, and your interest paid is less costly because your loan amount declines. Never heard it interpreted to a lower rate.
In these days of increasing interest rates, an unchanging (fixed) rate is something to celebrate.

 

[backinblue]

That’s some creative financial interpretation. Your interest rate (even your effective rate) isn’t changing, you are just paying on a declining balance. More of your payment goes to principal, and your interest paid is less costly because your loan amount declines. Never heard it interpreted to a lower rate.
In these days of increasing interest rates, an unchanging (fixed) rate is something to celebrate.

I know what you are saying but it's true isn't it? If you are near the end of a 30-year mortgage, almost all of your monthly payment is paying principal and very little paying interest. If you were to pay off a 30 year loan at year 28, the savings in interest is minimal, making it less attractive to do so. My point is at year 28, look at the remaining principal that you owe and the remaining interest you will pay over those last 2 years. Almost all your payments are going towards the principal and very little towards interest, so paying off that balance with other savings makes even less sense.

Am I wrong?

 

[guy with a boat]

I know what you are saying but it's true isn't it? If you are near the end of a 30-year mortgage, almost all of your monthly payment is paying principal and very little paying interest. If you were to pay off a 30 year loan at year 28, the savings in interest is minimal, making it less attractive to do so. My point is at year 28, look at the remaining principal that you owe and the remaining interest you will pay over those last 2 years. Almost all your payments are going towards the principal and very little towards interest, so paying off that balance with other savings makes even less sense.

Am I wrong?

The portion of your payment that goes to interest is much less in the last years of a fully amortized loan, but that is because the remaining balance is getting low. The interest rate on that remaining balance stays constant.

The pros and cons of paying off the small remaining balance also don’t really change. You are saving less interest but you are paying off a smaller balance so the cash outlay is less. In general terms and assuming you have the available cash, it doesn’t make sense to pay off the loan if you can get an alternative return that is greater than your interest rate. A home loan is likely tax deductible so the after-tax cost of money is pretty low.

I’m a finance guy and long time investor and I use modest amounts of leverage on investments all the time, so I’ve worked this calculation a few (ha!) times over the years. Your interest payments and remaining balance may get low enough late in the loan that you pay it off for convenience or other reasons, but the interest rates stay the same.

None of this really matters and your interpretation probably works fine and will get the same decisions. Its a rainy day here and this is a finance guy’s version of shop talk.

 

[backinblue]

The portion of your payment that goes to interest is much less in the last years of a fully amortized loan, but that is because the remaining balance is getting low. The interest rate on that remaining balance stays constant.

The pros and cons of paying off the small remaining balance also don’t really change. You are saving less interest but you are paying off a smaller balance so the cash outlay is less. In general terms and assuming you have the available cash, it doesn’t make sense to pay off the loan if you can get an alternative return that is greater than your interest rate. A home loan is likely tax deductible so the after-tax cost of money is pretty low.

I’m a finance guy and long time investor and I use modest amounts of leverage on investments all the time, so I’ve worked this calculation a few (ha!) times over the years. Your interest payments and remaining balance may get low enough late in the loan that you pay it off for convenience or other reasons, but the interest rates stay the same.

None of this really matters and your interpretation probably works fine and will get the same decisions. Its a rainy day here and this is a finance guy’s version of shop talk.

OK I stand corrected. I wasn't sure and it doesn't feel right, but the numbers don't lie. Thanks, I'm always happy to learn something here and I usually do. Hopefully we can all agree that if you have fixed low rate and rates are rising, the benefit of paying off that loan becomes less attractive. For some though, it's an emotional decision and they are happy knowing they have zero debt whether that makes sense financially or not.

 

[Hippocampus]

Would not only talk to your accountant but also your financial advisor. Current boat was bought with cash but prior on a loan. Set up that loan with no prepayment penalty. Amount we paid varied year to year depending upon ROI, total taxable income and the fixed rate of the loan. However although the loan was advantageous bought the current one with cash even though beyond depreciation I paid with expensive dollars due to inflation. Thinking was I’m retired and wanted as few carrying costs as possible. Currently have no loans of any sort. So no assets at risk regardless of what the markets do.

 

[backinblue]

Like I said everyone should weigh risk vs reward and what they are comfortable with. For some, zero risk and peace of mind is priceless even if the math doesn't agree.

 

[JayB]

I was talking to my neighbor the other day and I think he nailed it. Covid taught the world that a large portion of the work force can now work remotely. This has a huge and continuing affect on real estate, boats, etc. Interest rates and recessions will have their
short term affect, but in the long term people are going to move and enjoy recreation in a different manner. A boat may make a lot more sense now than a few years ago as people will justify the cost since they can potentially use it more.

Linkedin study shows remote jobs drying up* while many companies require return to office at least for better advancement.

>>>--> A 1999-2002 used Trawler make/model I've been watching was asking $100K more in 2022 for the same trawlers they listed in 2021 even though older. Recently they reduced an asking price by $80K.

I've heard scuttlebutt prices are dropping in boats now along with the housing price drops, time will tell. I'm expecting market correction not bargains.

Now let us exert downward pressure on marinas under aggressive new management!

*https://www.businessinsider.com/remote-jobs-drying-up-high-demand-linkedin-study-2022-11?op=1