Boat Buying Power!

Buy New or go Used? I had an interesting conversation with a 'seasoned boat broker' about boat financing and purchase power. So I thought I would pose the question, " how much boat can one really buy/afford when considering this purchase?"
Value or perceived value of a boat is another topic.

If you can buy a used 40' trawler for $144,000 that is 'Voyage Ready to Go' (that could use a few minor cosmetic upgrades) or buy a new boat for $400,000 and finance either one, what would be the deciding factors? (Assuming comparable characteristics in both boats' ability)

Used boat $144,000
40% down ($57,600 cash)
$86,400 @ 6% Is $937+/- per month
15 years

New boat $400,000
20% down ($80,000 cash)
$320,000 @ 4% is $2,367+/- per month
15 years

The new boat is apparently easier to finance from the banks perspective. Lower down payment % required and a better interest rate offered.

Difference in numbers is $22,400 in cash more for the new boat and $1,400/mo over 15 years.
Up front cash outlay is not much different but the monthly cost is about 1 1/2 times as much.

Let's say you buy used boat for $144,000 cash
And you finance the new boat with $144,000 cash

New boat $400,000
$256,000 @ 4%
$1,894/ mo
15 years

You are paying $500/mo less but invested $64,000 more cash up front. (larger down payment) for the same new boat above.

But, compared to the used boat purchase(all cash) the new boat costs you $1,894/mo more to own for 15 years.

I guess there are at least two questions here:

How much emotion factors into the equation on a purchase?

And

Is it really a question of practicality or just financial capability?

Thanks,

Randy

Greetings,
Mr. RB. Does depreciation enter into this equation at all? Emotion? Meaning does one feel better about owning new as opposed to owning used? (superior, peace of mind with new systems, latest and greatest?) Practicality? In what sense? Less to do (possibly) on a new vessel?
Interesting question. I look forward to the answers.

I personally rarely buy anything of this nature new. As RT has mentioned, it's about the depreciation in the first few years of ownership and also the fact that we were raised old school thinking that the only thing to borrow money for is a house, everything else you save the money then buy it cash. That's what making the banks rich from interest but to each his own.

My boat in 1988 new was 320K. As the third owner, I bought it for 112K

Today the same kind of new boat is well over 1.5 mil and closer to 2mil. As soon as you take delivery, the price drops a lot....

Or look at another way...
If in five years you change your mind and change boats how much will you have lost on the $ 400,000 boat vs the $144,000 boat?

My guess is just taking the $ 144,000.00 you will loose way less of it on the used boat and be $ 1900.00 per month richer... 1900X 60 mo. = $114,000 !

Even if you loose half of the $ 144,000 you still are $ 184,000 ahead...

$ 184,000 is a fair chunk of change... $ 3066 per month towards the cruising kitty..

HOLLYWOOD

I have a simple economics philosophy .... no cash, no buy.

And think about the potential to invest the saved $$ if you purchase used.

boatpoker said:

I have a simple economics philosophy .... no cash, no buy.

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Sounds good, but too simple.

Say, you're buying a $500k boat. You have the cash which is invested in something that gives you a 10%($50k per year) return. If you can get a loan for 5%, you would be better off financing the boat using the earnings from your investment for monthly payments. This way, when the boat loan is paid off in 20 years, your $500k is still intact plus you own your boat free and clear.

The more simple scenario would be to pay $500k cash for the boat, but in 20 years your $500k is whatever the depreciated value of the boat is.

My point is that buying cash, isn't always the best thing.

mahal said:

Sounds good, but too simple.

Say, you're buying a $500k boat. You have the cash which is invested in something that gives you a 10%($50k per year) return. If you can get a loan for 5%, you would be better off financing the boat using the earnings from your investment for monthly payments. This way, when the boat loan is paid off in 20 years, your $500k is still intact plus you own your boat free and clear.

The more simple scenario would be to pay $500k cash for the boat, but in 20 years your $500k is whatever the depreciated value of the boat is.

My point is that buying cash, isn't always the best thing.

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So when your 10% investment goes south with Bernie Madoff or Enron or or or or ... and the bank comes looking for their 500k because you lost your job ...... in the meantime I'll still have my cash and I will not have wasted a minute worrying about foreclosure. It's just the way I was raised.

boatpoker said:

So when your 10% investment goes south with Bernie Madoff or Enron or or or or ... and the bank comes looking for their 500k because you lost your job ...... in the meantime I'll still have my cash and I will not have wasted a minute worrying about foreclosure. It's just the way I was raised.

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What a doomsday outlook. If your investments yield less than expected or you lose your job, you pay your debts with your reserves.

The example that I cited is a very common thing that people do. People invest and borrow money all the time.

plus tax deduction for boat interest (second home) in USA....I think it's still OK.

boatpoker said:

I have a simple economics philosophy .... no cash, no buy.

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ROGER THAT!!!! Now if you do have the cash, it's a no brainer that newer equipment is going to last longer than worn equipment. Replacing machines part by part is far more expensive than buying the whole. There's boats out there (literally I'm looking at one! lol) I wouldn't take for free. Proverbial White Elephants. Like marrying a girl that's a heavy drinker and smoker- there's not going to be a happy ending with either.

boatpoker said:

I have a simple economics philosophy .... no cash, no buy.

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Works for me too ...

And whenever I forget why, I do the following calculation:

Used boat $144,000
40% down ($57,600 cash) $ 57,600
$86,400 @ 6% Is $937+/- per month for 15 years $168,660
TOTAL AMOUNT PAID $226,260
INTEREST PAID TO BANK $ 82,260

New boat $400,000
20% down ($80,000 cash) $ 80,000
$320,000 @ 4% is $2,367+/- per month for 15 years $426,060
TOTAL AMOUNT PAID $506,060
INTEREST PAID TO BANK $106,060

Let's say you buy used boat for $144,000 CASH $144,000
TOTAL AMOUNT PAID $144,000
INTEREST PAID TO BANK $ 0 (ZERO)

New boat $400,000
And you finance the new boat with $144,000 cash $144,000
$256,000 @ 4% is $1,894 per month for15 years $340,920
TOTAL AMOUNT PAID $484,920
INTEREST PAID TO BANK $ 84,920

While most of the new world new (credit card) economy likes to focus on monthly payments, I always like to know what is the CASH outlay over the entire loan term ... the old world way ... total CASH out of my pocket ...

BTW, the total interest paid can be significantly lowered by shortening the loan term to 12 or 10 years, or increasing the down payment. The 15 years term for the asset that only depreciates is a stretch. The 5-6 years term for boats and autos in my book. If you cannot afford the monthly payment, you cannot afford the toy.

mahal said:

You have the cash which is invested in something that gives you a 10% return.

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You are either rich enough to invest via the best in hedge markets, or you need to change your financial adviser. A consistent average of 10% return on investment is not what most analysts predict over the next decade or so.

mahal said:

The example that I cited is a very common thing that people do. People invest and borrow money all the time.

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Yes, people with means who can afford this and pay in cash regardless without depleting their liquid reserves. Anybody else is facing the risk of foreclosure or repo when s#it happens.

Just saying ... be careful out there!

Richard W said:

You are either rich enough to invest via the best in hedge markets, or you need to change your financial adviser. A consistent average of 10% return on investment is not what most analysts predict over the next decade or so.


Yes, people with means who can afford this and pay in cash regardless without depleting their liquid reserves. Anybody else is facing the risk of foreclosure or repo when s#it happens.

Just saying ... be careful out there!

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Yes financial planners do exaggerate when forecasting. Although based on the past few years, the market has performed better than their inflated estimates. But I don't expect it to continue at this pace. Where I get 10% from is from purchasing distressed rental properties.

By the way, when paying cash, there is still a cost in interest as the cash used probably came from an investment.

Randall B said:

I guess there are at least two questions here: How much emotion factors into the equation on a purchase? And Is it really a question of practicality or just financial capability? Thanks, Randy

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1. Boats are emotional and often ego driven purchases as nobody needs one, not even those whom live aboard. A lot of ways to rationalize it but living aboard is a desire not a need. A one bedroom apartment would more than satisfy ones "need" for shelter.

2. Purely financial capability. Why else would some folks pay over $100K for the opportunity rebuild a boat one system at a time? If it was driven by practicality plane tickets and hotels are cheaper.

All things being equal I'd buy a new boat but alas my financial statement says no.

mahal said:

Yes financial planners do exaggerate when forecasting. Although based on the past few years, the market has performed better than their inflated estimates. But I don't expect it to continue at this pace. Where I get 10% from is from purchasing distressed rental properties.

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... and what had happened a few years before the last few years? When you look at the last decade, we just made even last year. This year we are going down again, and the forecast does not look too good.

Long trends my friend, long trends ... I am still to see the model that predicts average gain of over 10-11% over long term (decades) using the most aggressive (and the most risky) investment portfolio.

mahal said:

By the way, when paying cash, there is still a cost in interest as the cash used probably came from an investment.

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This is not chicken and egg issue ... the cash is what buys investment, and investment may or may not improve your cash position. There is no interest on holding cash, missed opportunity maybe ... and without any guarantees (other than for TIPS and CD, or GIS and TD in Canada, that are hardly profitable at the current interest rates).

Money Can Be Funny... Especially regarding pleasure boats!

Purchasing a new boat that drops 50% +/- value in 10 years of its life, having paid umpteen interest and principal $$$ for those 10 years, with 5 yrs of umpteen interest/principal $$$ payments yet remaining, and at close of the 15 yrs owning a then used boat with greatly reduced value... Well, That equation - Simply Ain't Fun!

Purchasing a well built really good condition used boat for cash at a reasonable (i.e. low) price that can still be sold in 15 yrs as a well built really good condition used boat for a fair amount of cash is FUN... Taint No Funny Money - in that equation!

BTW - In posted financial calcs of a "new" boat compared to "used" boat I saw no mention of Insurance Cost difference to add to interest cost and value drop off of the down payment paid and principal owed in addition to the new boat's greatly reduced value at eventual sale.

IMHO - Buy Smart - Buy Boats Used for CA$H - Have FUN!

Happy Boating Daze! - Art

I am surprised about the American market.

In Spain any new boat with overall length higher than 7 mts pays VAT 34%

Same boat used pays a transfer tax of 4%.

So any buyer of new trawler in Spain needs to be certainly rich.

If one wants to look at things from a financial point of view only, you'd never buy a boat. No new. No old. These are not financial decisions. Now within the decision to purchase a boat, from a financial standpoint used will still always win over new. Same thing as cars but exaggerated over them as the initial depreciation is even greater. That said, we still choose to only buy new as we like to get exactly what we want, design the intererior, choose all the options. But that's personal and is not financially logical. Now we do intend to hold our boats for a long time and so over that period of time the new boat isn't quite as bad in a financial situation.

There's something too that I find somewhat bothersome when we refer to some boat owners as rich. I guess the person with more money than the one talking is always rich. I don't know. But compared to most of the world, the very fact of owning any of the boats owned by members here makes them wealthy. Most people in the world don't have and can't afford even the cheapest boats we have.

We buy boats to fill a recreational and pleasure desire. We should make the best financial choices for ourselves. To me that means what we can own without otherwise impacting our lives negatively or putting ourselves at financial risk. A hobby item like a boat should not do that. Ideally nothing we purchase should do that. So you can't singularly look at the boat purchase. You must look at it in the context of all your finances.

Saving for a boat consumes youth.

I wouldn't say for financial reasons NEVER buy a boat...as a liveaboard and lifestyle, add in where you work and what you spend on commuting, dirt property....etc...etc...sometimes and some places it could be a dead heat..maybe cheaper in the long run....

I'll certainly lose less money on my current boat if I gave it away than I just lost on EACH of 4 house properties I short sold in NJ.

Timing can be everything also....

Again...like so many other topics in these forums...using words like never, always, the right/correct way, from this lone picture I can tell your boat is ____......will only get a response from someone that might prove you incorrect.

boatpoker said:

I have a simple economics philosophy .... no cash, no buy.

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Count me in this camp. Financing a house often makes sense because you need a place to live and the value of the house usually increases while you are paying for it. I was able to sell my first house for a profit and pay cash for the second with money left over. I sold that house and bought my current house for cash with money left over.

"Toys" (boat, motorcycle, even new cars) should not be financed as a rule. If you can't afford to pay cash for a car, buy a cheaper one. It will still get you to work and back.

Of course, many people lack the sense and willpower to follow these priinciples and that's why this country (the USA) is in the mess it's in. Keep yourself in debt by financing things you don't absolutely need and you'll never get ahead.

And of course, the US government would do well to understand this.

One thing to consider is a fairly old boat will usually have far more structure , as GRP was less trusted so thicker was better.

The USCG rules for inspected vessels require a 400% hull margin , which basically translates to a stiff enough structure that it doesnt flex.

For cruising , thicker IS better .after all if 15 hp come from a gallon of diesel, and your thick crude old hull weighs 2 tons more than a flexing flyweight , at 3 HP per ton to cruise thats cheap insurance.

The new boat is an old second hand boat the instant it leaves the brokers dock and the big depreciation clock starts.

First to go is the builders 20% , second is the brokers 20-25% markups.

For my bucks a well built used boat would always be first choice .

What IS a well built boat can start as many religious arguments as twin or single and + Best+ anchor.

FF said:

.......... What IS a well built boat can start as many religious arguments as twin or single and + Best+ anchor.

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It needs to also be a well maintained boat. A well built boat that has been neglected or maintained by an incompetent person will be a constant headache.

This is a great topic.

The ironic thing is we all buy boats for exactly the opposite reasons...

Some buy new to sit on them and do nothing, others so they have a project to keep busy.

Some buy so they can travel, others so they can stay in one place and not travel.

Some buy boats to feel young, others think they make you old and tired.

Some buy boats so they can spend time with their spouses, others to have a place to get away from their spouses.

Some buy boats and do make money on them, others just spend and loose

Some buy boats because they feel relaxed aboard, others like the adrenalin rush they get pushing the envelope aboard boats

Some buy to live aboard, others to get out of the house.

The one common thread here is we all buy boats!

HOLLYWOOD

Richard W said:

... There is no interest on holding cash, missed opportunity maybe ... and without any guarantees (other than for TIPS and CD, or GIS and TD in Canada, that are hardly profitable at the current interest rates).

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If i was in this unfortunate situation (will likely happen when i'm old and can't take risks with $), I would definitely pay cash for a boat. It wouldn't make any sense at all to finance.

mahal said:

What a doomsday outlook. If your investments yield less than expected or you lose your job, you pay your debts with your reserves.

The example that I cited is a very common thing that people do. People invest and borrow money all the time.

Click to expand...

I don't see my philosophy as doomsday, I just like to sleep at night knowing I don't owe anybody anything.

I do third party appraisals on repossessed boats for all the banks here in Ontario. That part of my business has been booming for the last five years.
All those people buying boats that they could not pay cash for have contributed greatly to my income .... keep it up

“Pleasure” Boats cost a bit. At first blush on a cold/hard spreadsheet of Dollar$$ & Cent$$... their swirling financials are poor way to spend money – appearing as a losing proposition to say the least – “At First Blush” – That is!

I give this caveat on financials before I begin listing what need-driven-holes in life Pleasure Boats actually fill at considerably reasonable cost: Wisely purchased good condition used boats supply as much or more enjoyment as new boats and their cold/hard “financials on spreadsheet” read-out better.

Life’s need-driven-holes affordably filled... reasons to have a privately owned Pleasure Boat always available for self and family and friends and business associates...

1. Availability to spend time out and about on the water or at dock in a comfortable self contained cruiser
2. Ability to explore marine areas as no other item in life will allow
3. Chance to vacation any day(s) that time becomes available
4. Super fun way to take long vacations on water with family/friends
5. Opportunity to mingle at dock or on water with boating friends
6. Ongoing physical exercise whenever aboard (mental exercise – whenever not... lol)
7. A play toy to which you can add pretty much whatever “extras” you’d like to satisfy your boating desires
8. Good condition Pleasure Boats can be the best psychiatrist on earth – via sheer enjoyment
9. Boats are great marriage counselors – ya know... like... “when this boats a rocken, don’t come a knocken”!
10. Boats teach skills that can only be learned when often on and around the water.
11. Pleasure Boats can act as supplemental housing for owner or owner’s family/friends
12. Swimming, diving, rowing, gunk holen in dinks – Ya simply gotta love it – I DO!
13. Fishing – need I say more!
14. Tax write off when properly designated, positioned on paper, and smartly entered into quarterlies/ annuals
15. Reason to have a hobby of researching and always learning more about marine doings/life
16. Place to hold a party – at dock or on the hook!
17. Excuse for going to boat shows!
18. Last, but not least... Reason to delve into forums such as this and banter with the best Pleasure Boat owners in the world!!!

That’s my take on why it is OK for spending money to own a Pleasure Boat, and, just how “overall” inexpensive it is to own one. Cause – If you took each of the 18 reasons I listed and put dollar $$$ costs next to each one... well then... the true-value of what owning a boat actually accomplishes becomes greatly enhanced!

I look forward to hearing other TF members’ reasons for spending money to own and have consistent availability to their much loved “Pleasure Boat”!

Just sayen...

Happy Boating Daze – Art

Never finance your toys. I'm with Boatpoker. If you can't afford your toys you have no business messing with them.