depreciation and the "gap" with boat prices

[Island Time O25]

Rule of thumb on the 30+ year old boats is that 80-90% of their value is in the engine, sails and electronics. So if all 3 components are relatively recent installs/rebuilds, etc. the value should reflect that. OTOH if none of these have been upgraded in the last 10-20 years that 30+ year old boat is worth very little. Other than "newbie buyer premium", which btw is paid more often than not. So that 5 years later, after the newbie buyer upgrades everything which is needed to be upgraded, it turns out he/she could've had initially a 10 years younger boat with everything upgraded recently. Ask me how I know.

[Island Time O25]

Originally Posted by Kd9truck

Base on nothing, it seems the sliding scales of types of use, Environmental exposure, and most important attention to maintenance, Drive the asking price.
when the price is set with in realistic limits. The vessel maker Has sway, and usually dictates the depreciation in most cases. A Hinkley retains its value much longer that a Morgan or an O’day.

Percentage wise perhaps. But in absolute dollars you take a beating on a Hinckley just the first year. Then again people who have to calculate those depreciation numbers before buying can't afford a Hinckley to begin with.

As an aside related to the OP, it seems there is a marked difference in 30+years old boat prices in all 5 major boating corners of US. With NE and Great Lakes being the cheapest (except may be ME) and CA being the most expensive. With FL and SE being somewhere in the middle. Don't know much about PNW but I here it's prices are closer to CA.

I realized this when discussing boat searches with friends in all of those areas. At first thought it was just anecdotal or perhaps seasonal but them looked into it some more and discovered a clear pattern. This is for old cheap 70s and 80s boats not under 30 year ones or Swans Hinckleys or some such.

[Ibetitsthisway]

Originally Posted by redneckrob

I think you may not have looked at perhaps a sample of 10 boats of the same model and roughly the same age that are 8-12 years old living in different parts of the country? I was absolutely shocked when searching for my Mahe 36 at the range of conditions of exactly the same model of what at the time was a 6-8 year old boat. They ranged from mint condition to absolutely appalling. I, like you seem to be, had it in my head that a given model of boat was much more of a commodity with just some wear difference between them. How very wrong I was. Seriously, hop off the spreadsheets (I'm a geek like that as well so I say that with the best of intentions) and go start actually climbing around boats. Then, when you go back to the spreadsheets you'll have a whole lot more insight and it will make a whole lot more sense.

Yep... i am an Excel geek ... no offence Taken... it makes me more comfortable in understanding Things... and i HAVE been climbing throught boats my whole life . 40 years now.. i ve seen, sailed and driven "it all".
From rubertube boat with 2hp over brand new 50feet swan to 60 feet sunseaker which Almost sank during a med crossing (seacock failure).
I know the Differences. But i never Went deep into buying a big one myself.
And for me it was always "obvious" that the b condition boats are Those which sell at depreciation value. Worse than c dont sell at all.
A+ may ask a small Premium or simple sell much fester... are more liquid.. which is a big advantage allready.
But it seems to me tjat some owners want calculated values for Junk and double price for condition a to b.

[Ibetitsthisway]

Originally Posted by Island Time O25

Rule of thumb on the 30+ year old boats is that 80-90% of their value is in the engine, sails and electronics. So if all 3 components are relatively recent installs/rebuilds, etc. the value should reflect that. OTOH if none of these have been upgraded in the last 10-20 years that 30+ year old boat is worth very little. Other than "newbie buyer premium", which btw is paid more often than not. So that 5 years later, after the newbie buyer upgrades everything which is needed to be upgraded, it turns out he/she could've had initially a 10 years younger boat with everything upgraded recently. Ask me how I know.

That is EXACTLY how it works... or how sone people in the Market try to make it work. Sell way over Value to poeple who dont know or dont care..
But there we are back at the philosophical side. The Market does not make mistakes. If prices are Dominated by smart sellers and stupid buyers... These prices are at correct Marketing value ... lol.

[ol1970]

I used to worry about depreciation and although it’s still a consideration it’s not as big of a deal after a few years of watching prices and better understanding the boat market. There are so few boats manufactured of certain high end boats it really skews the depreciation curve in normal economic times. If you are buying a $1M boat and are worried about depreciation you are buying too much boat. I am going into the process considering that the entire “investment” into a blue water cruising vessel will be worth $0 when the journey is done. Anything greater will be a bonus. When you put it in this context it really helps you choose a responsible amount to spend.

We may choose to build our own, but more likely will be purchasing a 1-3 year old boat that’s been fully kitted out for blue water and had a couple of shakedown cruises. We will have 7-10 types of boats we’ve narrowed the list down to that will exceed/meet our needs and be willing to choose what the best option is at the time. Odds are there will be some sort of economic crisis that flips pricing upside down temporarily and we will be ready to act if such an event happens, if not we will have no issue going through the 2 year + build/prep process and happily get clobbered on depreciation.

[valhalla360]

Originally Posted by Ibetitsthisway

buy the way.. check the table in the link - there is one alberg 30 in yachtworld for 35000 usd from 1965. thats what i meant .. LOL.

This was my example with our Silverton. By the time you get up to 20-30yr old (or worse 55yr old), depreciation is really no longer a factor as inflation typically more than cancels it out and the value is really based on the underlying value of the boat.

You'll find the same thing with cars. If you buy a 1965 car in good shape (not a show car but just clean and in good running order), it will typically sell for more than the original MSRP.

[valhalla360]

Originally Posted by SalingSue

You will also see that the depreciation (market price wise not tax wise) is very tied to the quality, price a 10yr old Toyota Tacoma vs a Kia or Mercedes

Maybe in isolated markets where there is a love/hate of a particular brand. But percentage wise relative to the purchase price, there typically isn't much difference.

It's the same with boats. The high end gold platers typically have higher resale values but they came with proportionally higher original sales prices. If there is a difference, it's usually related to low production numbers throwing supply & demand out of wack...often after the manufacture goes belly up trying to compete selling gold platers.

[Ibetitsthisway]

I hear again the comparison between depreciation and fair market value... smile.
This does not make sense! Depreciation IS the only way to define the fair market value. What Else should it be? Sellers wish? Buyers Dream? Broker guess? All Nonsense. Fair price is what banks or Court would calculate.

Well... no... an auction would be even better than calculation.
Why does no seller want to auction their boat? Because they dont want to be confronted with the outcome. Most boats are NOT Mercedes 300sl wing doors.

[Singularity]

Originally Posted by Ibetitsthisway

I hear again the comparison between depreciation and fair market value... smile.
This does not make sense! Depreciation IS the only way to define the fair market value. What Else should it be? Sellers wish? Buyers Dream? Broker guess? All Nonsense. Fair price is what banks or Court would calculate.

Well... no... an auction would be even better than calculation.
Why does no seller want to auction their boat? Because they dont want to be confronted with the outcome. Most boats are NOT Mercedes 300sl wing doors.

Economics = money required to purchase XYZ utility
Finance = banks, loans, gambling, tax games, keeping up with the neighbors, fashion

In economics, the fair market value is the price that occurs when:
-someone (the seller) brings something to the market square
-the seller likes his thing, and requires ___ money to give up his thing
-the buyer seeking XYZ utility seeks the seller offering a thing with XYZ utility for the lowest possible money
-the buyer will/will not have enough money to satisfy the lowest-priced seller

So the above is basically an auction, but an auction where the seller may set a minimum bid price. This is basically the fair market value of economics...where "market" should be conceptualized as an old-fashioned market in the middle of town, and "fair" is what amount of money typically occurs when the average seller sells.

What is depreciation? Loss of value that doesn't pertain to XYZ utility in the first place, generally dealing with fashion and tax games (between the govt and buyers to stimulate the economy). People who play with fashion and tax games generally have to spend more money in life, while, a rich person isn't obligated to spend any more than the basic minimum to obtain utility XYZ.

Some rich people buy new boats, some rich people buy old boats; when both boats travel 7.5 knots in the trades then the person in the newer boat has more opportunity to lavish in surroundings that they paid extra money for. So as the rich new boat floats along at 7.5 knots....money is floating away in the breeze. For a private boat owner on their own boat, that evaporation of money is called depreciation. The consommé left over after all the evaporation occurs is XYZ utility (economics) that could have been purchased for a much lower price in the first place.

[Tetepare]

Originally Posted by Ibetitsthisway

BUT if you look at asking prices online for ships this is often vastly off. And if you trust what is told about discounts, it is still vastly off in many cases.

Are some actors in this market not telling the truth to protect it, or is it simply a very very inefficient market?

it's almost without exception that sellers start higher than they expect, or even higher than reasonable. There's the human desire to negotiate, and there's always the chance that somebody just has to have THAT boat NOW and will pay more than it's worth.


In that aspect, it's no different than used autos, ATVs, or just about anything else.


It has nothing to do with depreciation.




On the topic of depreciation:


Our boat sold new in 1990 for $65k.



I bought it in 1994 with electronics and autopilot for $40k.


Added a dodger. Today it would sell for $24k. Maybe $26k but I'll go with a certainty, $24k. If I removed the dodger, make it $22k.


So depreciation is $43k, or $1,400 per year.


But that doesn't reflect buying power (inflation). In fact, $65k in 1990 is worth $133k in 2020.



So from a buying power perspective, the depreciation is $111,000 or $3,700 per year.

[Ibetitsthisway]

well... with one difference to the centrak market: cost of (life)time - time to live.

One farmer sells his potatoes for 1USD. The Other for 2 USD. ALL people are waiting in line to buy from the cheaper one. None from the expensive.
Now the 2USD guy yells: "mine are bigger and taste better".
Some potential customers might say´: "right. but 2USD is still too much. we would be willing to pay 1,50". Even more potential customers would be willing to pay 1,25.
As the farmer has to pay his employee and the rent he will - within minutes -reduce the price in order to sell enough to make a profit at the end of the day.
Seller and customer are happy. lifetime inefficiency was equalled out quickly.
a transparent market with some trust and some pressure regulates himself.

Boat market: seller knows that 10 people want a boat like he has. but no one buys his. they make offers - but are rejected. sellers boat is "much more worth than all ten are willing to pay". seller bears cost of ownership. seller bears opportunity cost. seller still ignores customer offers. buyers cant sail. seller looses money.
.... sometimes for years. very inefficient due to intransparency.

the depreciation method would make all much easier.

[Ibetitsthisway]

Originally Posted by Tetepare

it's almost without exception that sellers start higher than they expect, or even higher than reasonable. There's the human desire to negotiate, and there's always the chance that somebody just has to have THAT boat NOW and will pay more than it's worth.


In that aspect, it's no different than used autos, ATVs, or just about anything else.


It has nothing to do with depreciation.




On the topic of depreciation:


Our boat sold new in 1990 for $65k.



I bought it in 1994 with electronics and autopilot for $40k.


Added a dodger. Today it would sell for $24k. Maybe $26k but I'll go with a certainty, $24k. If I removed the dodger, make it $22k.


So depreciation is $43k, or $1,400 per year.


But that doesn't reflect buying power (inflation). In fact, $65k in 1990 is worth $133k in 2020.



So from a buying power perspective, the depreciation is $111,000 or $3,700 per year.

How would you know it sells for 24?
how would a buyer know 24 is ok and not a "rip-off" just because some other dumb guy also paid 24.

please dont hang on the word "depreciation" call it deduction or call it some kind of calculation tool to try to make the market transparent and offers more comparable, reasonable and fair.

of course - there will always be those situations in which a seller can take advantage of a buyer. the most extreme example would be people in war times spending all their valuables left for bread and clean water ... no good at all....

[jmschmidt]

Apples and oranges. There are many types of "depreciation" and different schedules depending on the asset and it use.

[Halp]

A boat is always worth what a willing buyer is willing to pay and what a willing seller will accept.

Too many times I have seen a seller hold out for some 'formula' they believe works for them and then they have a health issue which requires the spouse to take a reduced price to stop paying dock fees, insurance, and lack of maintenance.

Or professionals run a Bucvalupro only to be sideswiped by a NADA when the buyer wants to place a loan on the boat.

If there was a formula that always worked, we all would be billionaires.

In real estate there is always more than one value: Appraised value, assessed value, sellers value, buyers value, lenders value, market value, investors value, cost value,and income value.

Each of these are determined by the motivation of the parties. When 2 or more motivations come together a sale is made.

I suggest that all of these values exist in sailboats.

[boatpoker]

Originally Posted by Ibetitsthisway

Are some actors in this market not telling the truth to protect it, or is it simply a very very inefficient market?

Extremely inefficient market. Anyoe can value a Honda Accord. Hudreds of thousands have been sold and the dealers auction market nails the values pretty well.

When only 20 or 100 boat models are produced and one is sold every 5yrs.
The value becomes a crap shoot.