1st Boat purchase in Family since Grandpa died

[bob daily]

Mr. Navajas, I have been following your posts and find them very interesting if not down right funny!
So you have never owned a boat or operated one but are going to spend upwards of $250.000 on a boat of your dreams? Not knowing what annual maintenance and docking fees are and labor costs for simple routine maintenance as oil changes etc. It's kinda like my Grand-Pa had a horse that I rode as a kid, so I think ill buy a $20.000 horse and inter a professional rodeo! By the way that $20.000 horse doesn't include the $75.000 Truck, a $150.000 living quarters horse trailer, not to mention the cowboy boots and hat plus hay and shoes for the horse and vet bills!
I don't intend to damper your dreams of sailing off in the sunset, but you are a accident waiting to happen, not to mention a very gullible buyer that is going to be taken advantage of.
I may be wrong but can you answer these questions:
1. Have you ever operated a boat before ?
2. Have you priced: dock fees, insurance, annual maintance, haul out and bottom painting ?
3. Can you afford to loose the cost of the boat and not affect your life style
4. Can you pay cash and not finance (as the cost of maintenance is like a mortgage )
5. Are you willing to spend the man-hours required to maintain a boat (the bigger the boat the more man hours)
6. Have you considered the fuel cost to travel from point A to point B
7. Can you dock a boat with out doing damage to your boat or others!
8. Are you mechanically inclined to do emergency repairs when needed
9. Have you taken any coast guard or marine courses for operations and safety
10.Do you have a support group, friend that will help you when it's needed!

I don't mean to sound negative but you sound like one of my kids that have not thought through there plans and are getting ready to get in to something that might have a different outcome than they had hoped for.
Sorry if I've offended you, Bob

 

[navajas]

Sorry if I've offended you, Bob

Nah, you know what? You're right, none of that ever crossed my mind. Luckily for me though, someone like you came around. No boat for us after all!

Thanks, Bob!

 

[SJI Sailor]

Very interesting thread. I would VERY strongly encourage chartering an RT 29/31 or CW 30 (see charter companies in Anacortes and Bellingham WA, maybe elsewhere).

Take all 5 people on board for at least a couple of days. Maybe do 2-3 days for just 2 of you training with a captain, anothrr 1-2 as a couple, and finally 2-3 with the group. It will be extremely eye opening as to your comfort with the plans and the boat.

At a minimum you will learn a tremendous amount that transfers to your own RT and have a great vacation. (Even more, I imagine that it will highly inform or change your plans and/or priorities -- for most folks these boats really are 6 for cocktails, 4 for dinner, 2 to sleep).

 

[navajas]

Very interesting thread. I would VERY strongly encourage chartering an RT 29/31 or CW 30 (see charter companies in Anacortes and Bellingham WA, maybe elsewhere).

Yep, already in the works, but thanks for the reinforcement. Was hoping to find a weekly rate from a charter with both a Ranger and Cutwater that might be willing to let us swap in the middle. Might be wishful thinking. shrug

Signing up with local USPS, but unfortunately looks like they take a hiatus for the next few months. Did my ABC thing in the meantime, but real classes aren't even scheduled at this point.

EDIT: If anyone has a charter they would recommend, please don't hesitate to point it out!

EDIT #2: That said, and even though my wife is from Kennewick and we'll be back there for a wedding fairly soon, don't bother recommending Bob Daily's Scuttlebutt. 😉

 

[huruta]

Navajas, Yeah, Anacortes seems to have a 5 night minimum for their charters - it would be great to be able to experience our contenders (R25-R29) on the water for shorter period just to get a sense of them for something less than 4k-5k (charter cost). There are some in-person classes offered via anacortes yacht and nw expeditions in Bellingham that might be worth checking out. We seem to be on the same timeline so look forward to hearing how things develop for you.

 

[navajas]

Huruta,

Just got off phone with Anacortes. There are very few spots left. DON'T YOU DARE TAKE ONE!!!! :twisted: :twisted: :twisted:

Checking with my female calendar overlords for my availability on the remaining dates. Maybe I'll see you round! 🙂

 

[gswearin]

Hi Huruta,
Certainly not the same as a charter, but I’d give you a ride and talk about the R29.

 

[FlyMeAway]

I don't mean to sound negative but you sound like one of my kids that have not thought through there plans and are getting ready to get in to something that might have a different outcome than they had hoped for.
Sorry if I've offended you, Bob

@Bob, FWIW my experience watching people buy boats for 25+ years is that the more a boat costs, the less likely that the buyer will make this mistake (there are obviously exceptions). People who have a spare $250-300k to spend on something *often* (though not always) have enough experience/smarts to figure out what it will actually cost to own and plan accordingly. I have seen many more owners of $40k boats up s*it creek than $400k boats up s*it creek. Just my $0.02.

I tend to think that a similar rule of thumb for a boat should apply for buying a house. Find out from the bank the largest $ amount they will lend you for to buy a boat. Now divide by 5. That's probably the upper limit of what you should buy. (With houses, it's divide by 2). 😀

 

[FlyMeAway]

4. Can you pay cash and not finance (as the cost of maintenance is like a mortgage )

Don't follow this advice, by the way. It is the worst advice you will ever get. Never, ever (EVER) pay cash for something like a boat if you have access to normal financing (and if you don't have access to normal financing, then it becomes a whole different set of questions).

I once crewed for a guy who had 50 years experience as a financial advisor before he retired. He used to say "if your financial advisor tells you to pay cash for a boat, or a car, or a house. Fire them. On the spot."

 

[huruta]

Huruta,

Just got off phone with Anacortes. There are very few spots left. DON'T YOU DARE TAKE ONE!!!! :twisted: :twisted: :twisted:

Checking with my female calendar overlords for my availability on the remaining dates. Maybe I'll see you round! 🙂

Better hurray! Got my quote yesterday....🙂 In all seriousness, I hope we aren't looking at the same dates. We already had trips planned (AK, July...Dolomites Aug/Sep) and so are looking at May/June time frame for our charter. Look forward to hearing your thoughts!

 

[navajas]

4. Can you pay cash and not finance (as the cost of maintenance is like a mortgage )

Don't follow this advice, by the way. It is the worst advice you will ever get. Never, ever (EVER) pay cash for something like a boat if you have access to normal financing (and if you don't have access to normal financing, then it becomes a whole different set of questions).

I once crewed for a guy who had 50 years experience as a financial advisor before he retired. He used to say "if your financial advisor tells you to pay cash for a boat, or a car, or a house. Fire them. On the spot."

If Bob Daily can confidently (and of course, entirely without meaning any offense whatsoever!) repeatedly describe me as a child-like simpleton (feeling obliged to make other passive aggressive insults along the way), I feel fairly comfortable in my own assessment of him: My family and I would not be in the position we are now had we paid much attention to, let alone followed the advice of, people like him.

Rest assured, I am paying Mr. Daily all the attention he deserves.

 

[navajas]

Huruta,

Just got off phone with Anacortes. There are very few spots left. DON'T YOU DARE TAKE ONE!!!! :twisted: :twisted: :twisted:

Checking with my female calendar overlords for my availability on the remaining dates. Maybe I'll see you round! 🙂

Better hurray! Got my quote yesterday....🙂 In all seriousness, I hope we aren't looking at the same dates. We already had trips planned (AK, July...Dolomites Aug/Sep) and so are looking at May/June time frame for our charter. Look forward to hearing your thoughts!

None of the Anacortes courses will work for us dates wise as we're packing our house with my in-laws for Easter (three spots left) and are in Florida for the other two weeks in May. I'll be sure to pester our fishing charter captain while we're aboard to make up for lost time however.

Looks like I'll be making a course in Bellingham early April sometime though.

 

[huruta]

4. Can you pay cash and not finance (as the cost of maintenance is like a mortgage )

Don't follow this advice, by the way. It is the worst advice you will ever get. Never, ever (EVER) pay cash for something like a boat if you have access to normal financing (and if you don't have access to normal financing, then it becomes a whole different set of questions).

I once crewed for a guy who had 50 years experience as a financial advisor before he retired. He used to say "if your financial advisor tells you to pay cash for a boat, or a car, or a house. Fire them. On the spot."

Okay. I tend to be fairly literal...why would you not follow the pay cash advice if you have the funds? I know sometimes the rationale is that the interest on the mortgage, for example, is much lower than the return from the market, but the higher rates for boat loans would likely make this a toss up.

 

[huruta]

Also taking a course in Bellingham, mid-April. Thinking we'll do a cruise and learn with Anacortes when we charter to make sure we cement our knowledge and have the Ranger Tug specific stuff understood. My NW Expedition training is on a Grand Banks.

 

[navajas]

Okay. I tend to be fairly literal...why would you not follow the pay cash advice if you have the funds? I know sometimes the rationale is that the interest on the mortgage, for example, is much lower than the return from the market, but the higher rates for boat loans would likely make this a toss up.

Lots of potential reasons. One simplified way to look at it given your scenario above is, say I have $600k in liquid assets earning even a paltry 3% interest. I want to buy a $600k boat. Neat. Paid in full in full just like Big Brain Bill says I should. Now that $600k is depreciating in salt water and I’m earning 3% interest on $0. But, hey, at least I saved that 4% financing cost! In your scenario you can’t just compare financing cost to potential gains (not to mention inflation…), and say to your self, “hey, four is bigger than three, therefore…”, you have to factor in the opportunity cost of the decision.

Obviously the above numbers are just examples for basic illustration and there are many other scenarios and more complicated ways to approach and explain them.

 

[Catch22]

Navajas....l am curious...who is Big Brain Bill?

 

[it4llc]

I don't think one or the other is always right. Currently, bank accounts pay ~.25% interest. Factoring in inflation, you're actually losing money on the money sitting in the bank in terms of purchasing power. The boat on the other hand, once purchased, will depreciate, but the rate of depreciation should be reduced by inflation in terms of absolute dollars. So if I finance, assuming I'm not investing that money somewhere else, which you might very well do, then I'm paying the 4-5% interest on the money sitting in the bank, since that was the amount I financed, that is losing value in terms of purchasing power. Hypothetically speaking, if I bought a $300K boat, put $100K down, and financed $200K, and inflation is 5% (easier math, even though it is currently higher), and I'm paying 5% interest on the loan, then at the end of year 1, I've paid $10K in interest and lost $10K of purchasing power. Let's say the boat has depreciated 5% (factoring 10% depreciation offset by 5% inflation). So net net I've got $95K worth of boat, and $180K of purchasing power ($200K less 5% interest and less 5% inflation impact), for a total of $275K. If I paid cash for the boat, my $300K of boat has depreciated 5%, so I have $285K worth of boat. It's been too many years since my finance classes so someone may blow this logic apart, but the short of it is that I don't think financing is always the right thing to do, nor is paying cash. As mentioned, other factors may also play, such as the impact on your credit.

 

[navajas]

I don't think one or the other is always right. Currently, bank accounts pay ~.25% interest. Factoring in inflation, you're actually losing money on the money sitting in the bank in terms of purchasing power. The boat on the other hand, once purchased, will depreciate, but the rate of depreciation should be reduced by inflation in terms of absolute dollars. So if I finance, assuming I'm not investing that money somewhere else, which you might very well do, then I'm paying the 4-5% interest on the money sitting in the bank, since that was the amount I financed, that is losing value in terms of purchasing power. Hypothetically speaking, if I bought a $300K boat, put $100K down, and financed $200K, and inflation is 5% (easier math, even though it is currently higher), and I'm paying 5% interest on the loan, then at the end of year 1, I've paid $10K in interest and lost $10K of purchasing power. Let's say the boat has depreciated 5% (factoring 10% depreciation offset by 5% inflation). So net net I've got $95K worth of boat, and $180K of purchasing power ($200K less 5% interest and less 5% inflation impact), for a total of $275K. If I paid cash for the boat, my $300K of boat has depreciated 5%, so I have $285K worth of boat. It's been too many years since my finance classes so someone may blow this logic apart, but the short of it is that I don't think financing is always the right thing to do, nor is paying cash. As mentioned, other factors may also play, such as the impact on your credit.

I can pretty much guarantee that someone with $600k in relatively liquid assets does not have it stuffed in a savings account at their local bank.

But I take your point that there are vanishingly rare absolutes in the world, and that, as I said, was a purposefully simplistic example to illustrate a point. I've bought cars, trailers, etc... with cash before when the hassle of financing private sales of used vehicles was just not worth the trouble. However, a toy Miata in the mid-teens is a lot different than a $500,000+ boat. At least it is to someone like me. There are an awful lot of very wealthy people out there!

Navajas....l am curious...who is Big Brain Bill?

Just some hypothetical alliterative blowhard that, for the sake of argument, gives unsolicited financial advice.

 

[FlyMeAway]

Okay. I tend to be fairly literal...why would you not follow the pay cash advice if you have the funds? I know sometimes the rationale is that the interest on the mortgage, for example, is much lower than the return from the market, but the higher rates for boat loans would likely make this a toss up.

This is obviously a longer conversation, but the ultimate rationale has little to do with market return; it's that the liquidity premium on the cash outstrips any interest rate a normal person with normal credit might pay on a boat (even at 4.5-6%, which is the going rate for a marine mortgage). There is no unsecured credit available at 4.5%-6%; there are no cash-out refinancings on boats; and boats are illiquid.

It takes a metric fuckton of risk appetite to forgo the liquidity premium for a measly 5% of tax-advantaged interest on a depreciating asset; foregoing the liquidity of cash may only makes sense if the debt is irrationally priced (e.g., you have terrible credit so can only get a loan at 20%): it is actually riskier to pay cash for the boat than take out the loan.

This is very, very commonly misunderstood. Taking out a secured marine loan is the least risky way to buy a boat. If you have $500k in the bank and are buying a $500k boat, it is less risky to take out a mortgage and keep the cash in a bank than it is to pay cash for the boat.

That is why a good financial planner should tell you to take out the damn loan (and then if you want, they will make it up to you on the back end). Finding solid assets (that are also tax-advantaged and pay more than marine mortgage interest) is not difficult if you have $500k to play with.

(For home and auto loans the logic starts with the liquidity premium and/or tax benefits, but has the additional logic that in several states one or both are non-recourse. Marine mortgages are recourse by default under Federal law, see 46 USC 31325(b)(2), so unless you're lucky enough to get one which is non-recourse on its face (they are rare, but I have heard they exist), doesn't apply here)

 

[Mr Ben]

Mr Fly; you need to find a new FA. Anyone that would encourage a loan for a luxury item is blowing or snorting smoke. I realize I am from the conservative fly over midwest so my views do not reflect mainstream america, nor the actions of the federal goverment. I have not made car payment since 1978. I have not made a house payment in 15 years. I have been debt free for 15 years. I have paid every CC balance for 25 years. I could buy a new C8 Corvette in every color pay cash and not put a dent in the account. Save, invest, don't borrow money, when you hit 65 you will be glad you did. Some people have a big fat pension or some sort of guaranteed income. They look at finance as how much a month. If you are self employed or not so dependent you look at the bigger picture. While I don't buy everything Dave Ramsey has to say he pushed me in the right direction 30 some years ago. You will sleep much better at night without financial obligations.