How do cruisers pay for boats?

[C Paton-Gay]

Hi Tigue,

Just a couple of points: I'm not a boat builder. Just love sailing and have sailed extensively offshore in the Pacific (North and South) and the Med. Also, I found that maintenance runs about 6-8% of the replacement cost of the vessels annually over time. So, I would take that into account and of course, never finance it. Another option is joint ownership with a like minded partner or two. Particularly for offshore adventures. 6 month segements or whatever. Frankly, depending on liveaboard or sail aboard, chartering by far is the most cost effective.

[wolfgal]

the kind of freedom i want does not include debt. hard-core saver, realistic boat buyer.

[JimmyDarci]

There are other ways besides taking a loan or draining your retirement fund. It is about thinking outside the box. I will never be rich but I am comfortable with zero uncollateralized debt and willing to share the following in case it helps inspire alternative thinking.

At age 16, I attended a seminar on how to “get rich”. ... I am now 53 and still not rich... but happy with a boat paid for with cash. Boat ownership is counterproductive to being “rich” for most of us but O share the following with respect to all and the appreciation that there are 1,000 ways to afford a boat - a loan is not one for me. We paid cash for our 46’ performance cat. She is. It new but she will put sail most other sailboats and cruises like a champ. The phrase that got me there, and might help others, is “OPM” —other people’s money. Being a “worker drone” may require breaking the corporate and cultural chains that bind you. First, really ask yourself if a “million dollar boat” is what you “need” and “why” you think this particular boat will make you happy? Hint: sunsets are really good from the smaller and cheaper boats too. Our cat has a million in sweat equity but cost a fraction of that.

I will apply some actual facts to demonstrate what I am suggesting:
I too was a worker drone ... got a professional license (pick one - law, accounting, medicine, plumbing, electrician etc; it doesn’t actually matter to apply this formula).... worked for others until I started my own business and paid rent until I took the risk of buying the office building with multiple other tenants paying my mortgage — OPM again. In ten years, the other tenants will have paid my building off. My professional practice pays zero rent. (Yes, this helps with saving for a boat and so we start a few steps before buying a boat).

Example 2:
Pick your status symbol because big houses oftenimpede boat purchases— Sold the single family 5 bedroom McMansion and bought a nice and modern three family in downtown. (Do not just buy the boat because it is a depreciating asset) Instead, two floors actually pay for the home on a 15 year fixed mortgage (including utilities and insurance) — again OPM.

With the above
Two examples, you have a free work space and a free home to live in. Monthly costs are near zero with real estate assets going up and you have not touched your retirement fund at this point. Hassle to have tenants you say?? Tenants and the occasional leaky pipe are a breeze compared to fixing up an older boat. If carefully selected tenants scare you, then reconsider the risk of a mortgage on a million dollar dream boat.

All of the above is about using appreciating assets to minimize the risk of a boat purchase - and frankly, the risks of kids, eating and living. It becomes a lifestyle that accommodates a boat quite easily. Dreamers of million dollar boats must take (and actually can take) steps to make dreams come true - without a pile of cash or a big bank loan on a depreciating asset. Some of us who own big boats that we bought for cash are not trust fund baby’s or Bill Gates. We take simple steps well before buying a boat.

So now the boat —
Idea # 3. OPM again my friend. Consider a boat business that you would enjoy? Get your 6-pack USCG license so you can do day charters and share fun experiences while getting paid a lot of OPM. The knowledge alone of a USCG OUPV Captain’s license is worth it. (An eye opener and refresher for even the oldest of salts) You may find you cannot even get a million dollar boat without the proper credentialing - I certainly wouldn’t lend you the money for such a risk unless I knew you were a certified captain. Either way, Buy your million dollar boat (hire a captain if necessary) and run a legitimate charter business off of it. Yes it is work and yes you have to be friendly but you get to introduce people to sailing and to the ocean on 4 or 6 hour pleasure cruises. We did this and it is truly fun - most of the time (a lot like parenting). In our first full season the accountant true former IRS agent, was really happy with the efforts and it was OPM again. Like a house or an office building, this business will eventually lead to a fully paid, and totally refitted boat. Ultimately we may age out and sell her for more OPM or we might just sail into the sunset on a boat that gave us much pleasure through the years.

The above is a contrarian view offered with respect to all traditionalists out there. My point is that there truly are 1,000 ways to afford your dreamboat. But remember this my friends that are still dreaming of taking the boat plunge.
Sunsets are sweeter without a huge bank loan around your neck. Everyone must make sacrifices to get their “million dollar boat”. Not one of these folks that took the time to reply has a printing press in their basement. Each of us made a plan and stuck to it. Our boat still feels like a million bucks but cost a boat-load less. No Gunboat or brand new Outremer for us ever, and yet we will still out sail most other catamarans, then drop anchor with a boat we actually own. IMHO of you are posting about a dream girl that costs
A Million Dollars, then start much smaller and make a realistic plan. The knowledge most of us older folks have was learned by working on many older and smaller boats.

You can do it - try “OPM strategy” - make a realistic plan and a realistic timeline.

[lyl]

Originally Posted by wolfgal

the kind of freedom i want does not include debt. hard-core saver, realistic boat buyer.

When are you buying yours? My journey will start with a O'Day Day Sailer, hopefully soon.

[wolfgal]

Originally Posted by Full

When are you buying yours? My journey will start with a O'Day Day Sailer, hopefully soon.

ah, the O'Day, sweet!!!

me, i'm working on it... will only say when it is done.

what i can say is that i'm more than ready to ditch this armchair i've been sailing

[lyl]

Originally Posted by wolfgal

ah, the O'Day, sweet!!!

me, i'm working on it... will only say when it is done.

what i can say is that i'm more than ready to ditch this armchair i've been sailing

Very exciting! Good luck!

[Lionshooter]

I bought my first boat, a sailing dinghy when I was 30. Since then, I have owned 7 sailboats, a 25' powerboat, and a 36' houseboat. The largest boat I ever owned was a CSY 44 that I used in my charter business in the Bahamas.
I paid cash for all of them except the CSY which was a lease/to own deal.

[Capdave360]

Originally Posted by Paulihno

Thanks everyone. Really appreciate all the replies. CF is a great resource.

I tried to edit my initial post but missed the window to do so... I'm afraid the "$1M" price tag isn't super relevant, so hopefully it can be ignored in future replies. What I'm really interested in is, especially for full time liveaboard cruisers:

1. Did you buy outright or finance?
2. If bought outright, roughly what % of net worth was purchase price?
3. If financed, how much down?

I do appreciate all the cool stories -- 11 cats! DIYers! -- but the price tag of my target boat isn't super important.

Thanks to all who've shared!

The old rule of thumb is - don't spend more than 10% of your net worth on a boat.

Another old rule of thumb is that to keep a boat well maintained and in great condition and well updated will cost about 10% of the replacement cost. Another version of this rule bases it on purchase price - but if you stop to think, replacement cost is likely the right basis. Needless to say very very very few boats are maintained/updated to this level - they form the very top of the market.

Another thing to be aware of is depreciation. With a few rare exceptions, regardless of how well you maintain a boat it will depreciate pretty steadily through the first 10-20 years to "full depreciation". After that the price you can get depends on the exact supply/demand for that exact boat, and how well you've updated and maintained it, along with other more opaque factors like absolute price/size, etc.

I have a difficult to insure boat - S-glass, carbon, and kevlar hull, carbon mast, high-performance catamaran, etc. Not a lot of doors to knock on to insure for offshore sailing. I've been paying 2% of value pretty steadily.

The financing thing is really about your personal finances and income and balance sheet and investment performance. There are too many variables to give cogent advice in the abstract, especially for what is often an emotion-driven decision. I borrowed as much as I easily could to buy my boat, because I have 30 years of evidence that I can on average beat the (recently very very cheap) cost of money with post-tax investment performance keeping my money invested. If I can continue that, it costs me less to borrow than to pay cash.

Of course that only works in a context where you have a source of cash to buy the burn rate.....but if you stick to the 10% of net worth rule it kinda works out OK.

Alternatively if you live a current-income based financial life with few or no investment assets, you need to do that math....

Being boat (or house!) poor really sucks - don't guess on the numbers, figure it out, Excel is your friend.

[Nicholson58]

There a lot of “depends” on this.

Our boat was both too old and too large to arrange financing. We found we could borrow from our financial investment account without depleting funds and pay ourselves the money with interest. If you have a portfolio manager, check it out.

[JordanH]

Originally Posted by Paulihno

G
Would love to understand:

1. How many bought their boat outright vs. financed
2. Those who buy outright, what % of net worth did you allocate to it
3. Those who financed, how much do people put down?

I understand this is totally subjective, but still appreciate any input!

Your questions are not my own, but the sentiment is something I've been considering about myself. When we retire...
1. Would we extract some of our capital to pay for a boat outright, or would we borrow money for it, knowing that my wife's pension will be able to cover the payment?
2. If we buy it outright, how expensive do we go? I have 2 halves of my personality... I value classic simplicity, but I have a love of expensive toys. (I own a Contessa 26, and navigate with paper charts... but I work in IT and have all kinds of other expensive hobbies). My dream boat is a Garcia 45, but I would be just as happy with a steel Joshua replica.


3. ... hmmm, this is just math and merely a function of your financial picture. Easily figured out by the NPV of monthly payments you can afford + the amount of capital you wish to devote to principle. i.e. If you can afford $2000/mo for 5 years, and you have $40k in the bank that you can allocate to this then your boat price COULD be $160k all in.

For us, if someone offered me any boat for free, I'd take a Garcia 45 (Lets call that a $1M boat for the sake of argument). But if it's my money on the table, I would buy a $200k boat and invest the remaining $800k to pay for my adventures sailing it.

Better a rich guy on a cheap boat, than a poor guy on an expensive boat.

side story: There are a lot of sailors at my yacht club, rich and less rich. The folks with big boats often look down their noses at those with small boats... they don't realize that I likely have as high a net-worth as they do, but I don't need a more expensive boat than my inexpensive Contessa. I took a cruise with them once... the wind was light, the big boats turned on their engines and left me in their wakes. They were 'home' after a while of motoring but the wind filled in and I had an amazing sail. I can tell you that, on that day at least, I had a less expensive boat but more fun. They consumed more gas and were home first... but... what's the fun in that? Point is that you shouldn't worry about the cost of your boat, you should worry about what you want to do with it.

[Stu Jackson]

Originally Posted by Paulihno

Well, you financed your boats, so I'm not sure I follow your last point. And I didn't say I don't have the money to buy this boat, I'm just curious about whether people finance or buy outright. But I do appreciate your examples, so thank you.

I'm confused.


You said:

Would love to understand:

1. How many bought their boat outright vs. financed

I answered, and took the time to detail. I never said anything about cash or finance, I answered your question.


I felt some snark in your answer.


You're welcome.

[belizesailor]

Originally Posted by Paulihno

Greetings CF world. Long time reader with a question.

Much ink has been spilled about the costs of cruising, but surprisingly little financial detail around boat purchasing. I have the great misfortune of being completely in love with a boat that costs ~$1M (and not much less used). And I'm sort of amazed how many people are on the water with boats this expensive and twice this much.

My financial advisor says to "buy appreciating assets, lease depreciating assets." But a representative of a large builder gently suggested to me that if I can't afford to buy the boat in cash, I shouldn't buy it. (Counterintuitive and sort of cool coming from the company..)

Would love to understand:

1. How many bought their boat outright vs. financed
2. Those who buy outright, what % of net worth did you allocate to it
3. Those who financed, how much do people put down?

I understand this is totally subjective, but still appreciate any input!

Your financial advisor is giving you good financial advice. The old adage "if it flies, floats, or f***ks, rent it dont own it" is very true. The benefits, and many of the liabilities too, of boat ownership are intangibles...like long term cruising!

My perspective is buy what you can easily afford to pay cash for and that wont bankrupt you should it become a total loss.

Also if you are not going to live aboard/cruise full time then its best to just rent/charter when you want to go boating.

[Tanqueray]

I am 59, still working and enjoying a few fun toys...my O’Day 322 and my BMW Z3M roadster.


The O’Day 322 is my second boat...

I paid cash for a 1996 Hunter 280 having never sailed...enjoyed it as a hobby. I had seen the O’Day 322 a few years earlier, but it sold before I made an offer. Bought the Hunter as a rebound purchase. $25K.

5 years later, the owner of the O’Day 322 emailed me that he had moved, and wanted to sell her... I paid cash for the O’Day, and owned them both for a a month or so...

Sold the Hunter for a few bucks less than I paid for her, and bought the O’Day 322 for less than that...$22K cash.

I see the O’Day 322 as a hobby and a toy. I don’t want boat I am afraid to take out of the slip by myself (I single-hand 90% of the time).

Humbly, I could probably afford a lot of boat...but for me, it is a hobby, and even if I was going to make it a life choice, I wouldn’t spend more than $100-$200K on a boat.


Greg

[Linguini]

The plan: Selling our house, rent a small appartment and buy a boat for 40% of the money. invest the rest of the money safely. Sailing for 1 to ? years, as long as we want or can. Pay the maintenance from our Pension and hope that the real estate prices will slide into a big crisis and we can buy a nice smaller apartment afterwards :-)

But the most important, which we unfortunately missed because we came late to sail, make as early as possible. Better smaller than never!

Selling the boat after the time, if you are lucky, will bring you close to the money it cost. Without maintenance, insurance.... Good care is of course the prerequisite.

[UFO]

Originally Posted by Paulihno

Thanks. The 1M is not a big deal. I'm really interested in whether those who buy outright have, say, 3, 5 or 10x the value of their purchase in net worth. (And in my initial comment -- whether those buying 1-2M boats have 10-20M in the bank)

Re: dinghies -- check out Lasers

Reading between the lines of your posts it sounds like you are more interested in writing an article than buying a boat or maybe both?