applying for a loan myself or thru broker?

[PhilPB]

If the cost to borrow money is cheaper than what my portfolio is making, then I'll happy borrow the money. Why tie up $135K into a depreciating item, if the money is yielding more profit than the cost to borrow the money?

If I'm making 17% on principal, and money costs me 8%. I'm going to borrow the money and take 8% of the return and roll the remaining 9% back into the investment.

By paying cash, what you're really doing is borrowing from yourself. Are you paying yourself back the money that you borrowed from yourself? OR are you proposing taking money from an appreciating vehicle and moving it into a depreciating vehicle? That makes ZERO sense to me.

If you have a long term guaranteed 17% return on your money, let us know your secret!

 

[Action]

^^^ +1

 

[ksanders]

If you have a long term guaranteed 17% return on your money, let us know your secret!

not 17% but the S&P 500 has averaged 10% over several decades. It is a no brainer investment.

If you can borrow at 6% then logic says it's a better deal by 4% to borrow the money.

Imagine a 250,000 boat loan

4% of $250,000 is $10,000 your first year.

Now, imagine you have the money in a tax defered vehicle like a 401-k or IRA. Now you have to pay whatever your marginal tax rate is. Again using $250,000 now you have a probably 25% tax due, or $62,500 in taxes to boot.

 

[PhilPB]

not 17% but the S&P 500 has averaged 10% over several decades. It is a no brainer investment.

If you can borrow at 6% then logic says it's a better deal by 4% to borrow the money.

Imagine a 250,000 boat loan

4% of $250,000 is $10,000 your first year.

Now, imagine you have the money in a tax defered vehicle like a 401-k or IRA. Now you have to pay whatever your marginal tax rate is. Again using $250,000 now you have a probably 25% tax due, or $62,500 in taxes to boot.

Actually the S&P has returned an average of 8.8% over the last 20 years. If you borrow at 6% and assume you get the average 8.8% and you pay 15% tax on the hypothetical 8.8%,return you will end up with 7.5%, so you may , as an average, make an additional 1.5%. This doesn't take into account a 38.5% down year in the S&P (2008) or the 29.6% up year in the S&P (2013). Bottom line is it is your choice as to what makes you sleep better at night. My choice is to have no debt whatsoever. My investments are doing fine and steady and my retirement plan is to die at 110 with no more money in the bank. If and when I die before that, I'll be dead so it doesn’t matter to me.

 

[ksanders]

Actually the S&P has returned an average of 8.8% over the last 20 years. If you borrow at 6% and assume you get the average 8.8% and you pay 15% tax on the hypothetical 8.8%,return you will end up with 7.5%, so you may , as an average, make an additional 1.5%. This doesn't take into account a 38.5% down year in the S&P (2008) or the 29.6% up year in the S&P (2013). Bottom line is it is your choice as to what makes you sleep better at night. My choice is to have no debt whatsoever. My investments are doing fine and steady and my retirement plan is to die at 110 with no more money in the bank. If and when I die before that, I'll be dead so it doesn’t matter to me.

My son is 40 and just closed on a $300,000 boat which he put 20% down.

I cannot think of a single 40 year old that has $300,000 sitting around in a non tax defered account.

His choice was to either borrow the money or not buy the boat, or buy a $50,000 boat for cash.

He will work hard and probably get it paid off in a decade. I did the same thing back in 2011 and today I have a paid for boat, and have had the enjoyment of my boat for the last decade.

I find it amusing that almost every one of the "dont borrow money for a boat" advocates have boats valued at a small fraction of the one he just purchased.

 

[PhilPB]

My son is 40 and just closed on a $300,000 boat which he put 20% down.

I cannot think of a single 40 year old that has $300,000 sitting around in a non tax defered account.

His choice was to either borrow the money or not buy the boat, or buy a $50,000 boat for cash.

He will work hard and probably get it paid off in a decade. I did the same thing back in 2011 and today I have a paid for boat, and have had the enjoyment of my boat for the last decade.

I find it amusing that almost every one of the "dont borrow money for a boat" advocates have boats valued at a small fraction of the one he just purchased.

I also find it amusing that he will probably owe a lot more for his leveraged boat in a few years than its worth. Sounds like sound financial advice for someone who probably owes more than they are worth.
My initial response to you was your seriously incorrect financial numbers and subpar financial advice

 

[Action]

My choice is to have no debt whatsoever. My investments are doing fine and steady and my retirement plan is to die at 110 with no more money in the bank. If and when I die before that, I'll be dead so it doesn’t matter to me.

^^^ I like this!!!!

And getting a loan for a boat may not be too different than a vehicle. Six figure cars used to be an exception. Not so much as of late.

Personally I am at the stage most everything is cash because I have the assets and can liquidate if I want to.
I have financed Real Estate, however it does appreciate and with the exception of my primary, the rest of my Real Estate is income producing. And I have a mother in law that lives in the house because she did not plan too well. She pays too. She doesn't pay much and there ain't no free ride.

I have financed boats in the past.
Life ain't that long.
Staying on shore might be a deal breaker for life.
Financing a depreciating asset could be worse. It just might be an added price to pay to get off of the shore. Just means a smaller bar bill.
Lord knows a lot of people finance (credit card) non-assets and have nothing to show for it.

The path to death can be done a lot of different ways.
My choice has been to be off shore for part of that time.

 

[ksanders]

I also find it amusing that he will probably owe a lot more for his leveraged boat in a few years than its worth. Sounds like sound financial advice for someone who probably owes more than they are worth.
My initial response to you was your seriously incorrect financial numbers and subpar financial advice

Pretty strong words my friend. Lots of very well off folks finance things and the money they pay in interest is simply the cost of enjoying that thing sometimes for decades, while the "Dave Ramsey" cult leads a boring life with their only fun counting their money.

I borrowed money to buy my boat in 2011. during the 10 years I paid on my boat I lived a lifetime of adventures. I also gained important skills needed to fulfill my cruising dreams, while outfitting my boat for extended cruising.

I could have waited, and been that 60 year old with a new to me boat and trying to play catch up.

Instead I paid off my boat, retired three months later and I suppose washed up in Mexico living a dream life.

Now take my son. He, at 40 is going cruising. He can keep his house, or he can sell it, he's still deciding that. his wife has served our country for 20 years and is retiring. He is a digital nomad. Imagine the memories he and his wife will have when they are my age.

Sometimes it's the life we lead that has value, and if borrowing money for your boat adds value to ones life, then that interest payment is money well spent.

 

[DavidU]

It’s all in what helps you sleep at night. I tend towards Ramsey and at this point in life (64) I’m really glad everything I’ve I’ve bought is paid for. Ramsey is right in that nothing feels better than being beholding to no one. That said, anytime I borrowed money I rationalized the interest I paid was the “rent” I paid for having the experience then and now, not waiting to pay cash and missing all the joy and experiences. Again, as long as you make your payments, again you really aren’t beholding to anyone then either. Work your tail off, pay it off early if you can and live life. I’m happy where I am now, but also happy I didn’t wait on all the fun and adventure along the way of getting here. Fact is, everyone who can make it work for their life is RIGHT. ENJOY!

 

[dpmcgarry]

I used Cindy Lewis at Sterling. She was great to deal with and got me a good rate. 410-903-6611

+1. Just used Cindy for a purchase. Great rates and she was fantastic to work with.

 

[denverd0n]

Lots of very well off folks finance things...

You are confusing people who APPEAR to be well off with people who are ACTUALLY well off. You should read the book "The Millionaire Next Door." You probably wouldn't like it (because it would force you to consider uncomfortable truths), but in the long run -- if you read it with an open mind -- it would do you good.

 

[SteveK]

Forget about whether a boat should be financed.

One poster is financing about 45% AND the son of Kevin is financing 80%. I did not know you could get that ratio financing on a boat, a car or any such depreciating asset over a long term.

Income of course must support the loan to quailfy, in order to get the loan.
Do your lenders not care that the loan principal may within years exceed the market value of the boat.

 

[ksanders]

Forget about whether a boat should be financed.

One poster is financing about 45% AND the son of Kevin is financing 80%. I did not know you could get that ratio financing on a boat, a car or any such depreciating asset over a long term.

Income of course must support the loan to quailfy, in order to get the loan.
Do your lenders not care that the loan principal may within years exceed the market value of the boat.

Maybe it has to do with risk of default. My son and his wife make a great income and have over 800 fico scores. That sets the risk.

Yes from a lender standpoint the collateral is depreciating in value, so I'm thinking they are looking at acceptible collateral and a low risk of default.

New car loans have been for many years 100% zero down for well qualified buyers.

My personal opinion is that the kids will sell their house and use the collateral to pay off the boat, but that's just my opinion having watched them buy severasl houses over the years with dreams of being landlords, only to sell the houses to lower their risk.

 

[SteveK]

Kevin, you added additional assets to the mix. Equity in other assets whether securing said loan will still be eyed by the lender and thus finance the 80%.
In Canada I see lower loan interest rates for homes, appreciating asset, than for boats deprciating asset. If the home equity is tied to the loan then 100% is easy to get.

BTW 0% down, 100% car loans on inflated purchase price is like the insurance industry taking no risks on the few % claims. The more you can do will offset/mitigate the losses on the number of defaults. so not a good comparison.

 

[ksanders]

Kevin, you added additional assets to the mix. Equity in other assets whether securing said loan will still be eyed by the lender and thus finance the 80%.
In Canada I see lower loan interest rates for homes, appreciating asset, than for boats deprciating asset. If the home equity is tied to the loan then 100% is easy to get.

BTW 0% down, 100% car loans on inflated purchase price is like the insurance industry taking no risks on the few % claims. The more you can do will offset/mitigate the losses on the number of defaults. so not a good comparison.

I suppose the additional assets are part of the risk equation the lenders use more than just FICO score.

In my sons case he had to for example supply current 401-k balances as part of the qualification process. Even though the boat loan is secured by the collateral in the boat, getting a picture of someones net worth seems to be a prudent way to make a risk evaluation.

 

[Pete Meisinger]

Response to those who cite that in certain cases money invested is worth more to the owner than the cost of money borrowed.

Maybe true at any given point in time, but things change. You might experience some unusual expense or change in circumstances. Job loss ? illness? Boat sinks?. lots of things can happen.

Ill stay with my plan. Don't borrow money to buy toys.

pete

 

[PhilPB]

Response to those who cite that in certain cases money invested is worth more to the owner than the cost of money borrowed.

Maybe true at any given point in time, but things change. You might experience some unusual expense or change in circumstances. Job loss ? illness? Boat sinks?. lots of things can happen.

Ill stay with my plan. Don't borrow money to buy toys.

pete

You and me both brother!

 

[Shrew]

If the cost to borrow money is cheaper than what my portfolio is making, then I'll happy borrow the money. Why tie up $135K into a depreciating item, if the money is yielding more profit than the cost to borrow the money?

If I'm making 17% on principal, and money costs me 8%. I'm going to borrow the money and take 8% of the return and roll the remaining 9% back into the investment.

By paying cash, what you're really doing is borrowing from yourself. Are you paying yourself back the money that you borrowed from yourself? OR are you proposing taking money from an appreciating vehicle and moving it into a depreciating vehicle? That makes ZERO sense to me.

If you have a long term guaranteed 17% return on your money, let us know your secret!

Nobody said anything about a guarantee. Nobody even made the claim that those are the numbers. They are being used as an example. Please don't cherry pick and invent details to attempt to make some contrarian point.

 

[Comodave]

What works for one person may not work for another. So as far as that goes if you want the boat and can afford it whether through a cash purchase or through financing then go for it. Telling someone else that they should not finance a boat is absurd. Do what is right for you and don’t pay attention to what someone else says.

 

[Shrew]

Actually the S&P has returned an average of 8.8% over the last 20 years.

Please show references for your data.


https://www.google.com/search?q=s&p...e&ie=UTF-8#cso=chart-annotations-carousel:444

 

[PhilPB]

Please show references for your data.


https://www.google.com/search?q=s&p...e&ie=UTF-8#cso=chart-annotations-carousel:444

Sorry it took so long and I hope the links show up.




https://www.fool.com/investing/stock-market/indexes/sp-500/annual-returns/

https://www.investopedia.com/ask/an...turn-sp-500.asp#toc-sp-500-historical-returns

https://www.macrotrends.net/2526/sp-500-historical-annual-returns

https://finance.yahoo.com/quote/^GS...story&frequency=1mo&includeAdjustedClose=true


I was a bit off in my first quick calculations, but this is what I garnered from the data as I looked at it today.

With the available data (I tried the St Louis fed but the only data available to me was 2016-present, so I didn't include that).

The only 20 year period concluding in the end of 2023 was Macrotrends and Yahoo Finance for the S&P. You all can correct me, but my calculations put the S&P for 2004-2023 :
Macrotrends. 9.0%
Yahoo(GSCP) 9.05

For Investopedia and Motley Fool, they only had data published up to 2022. Their 20 year period for 2003-2022 is
Investopedia. 11.1%
Motley Fool. 8.49%


I believe the Macrotrends and Yahoo data to be correct as the other 2 were the outliers.