We purchasing a yacht you need to consider your options of buying new or used carefully. There are very good values to be had in used boats. More first time buyers purchase new boats, while experienced boaters more often buy used. And with good reason. Experienced boaters know that there is better value dollar for dollar in many used boats than new ones. They’ve already had the experience of taking a big hit in depreciation, along with the high cost of financing involved in a new boat purchase. To help decide which is right for you, consider the following.
When we track the depreciation curve for many of the most popular builder’s models by determining the net annual loss in resale value, we find that the higher the vessel quality, the sooner the depreciation curve will flatten out. That means that higher quality boats proportionately loose less value than lower quality vessels. For the above mentioned builders, the flattening out usually starts around five years, so that by the time a vessel is 6 years old, the annual loss of value is only a few percentage points.
If you truly want to know what the annual cost of ownership is, add in the total principle plus interest to the annual operation and maintenance costs. Then, simply subtract the anticipated residual valve and divide by the number of years owned. For a new boat, this can be an enormous sum each and every year. Perform the same calculation for the purchase of an 8 year old vessel and the cost of ownership comes to only a fraction of that of a new vessel.
A general rule of thumb is that a new boat purchase works out better for the owner who keeps a boat longer than the average four years, or at least through the bottoming out of the depreciation curve. Obviously, the longer a boat is owned, the less the annual cost becomes. However, that doesn’t help much as far as residual value is concerned unless we consider the original cost versus anticipated resale value. Once we do this, we understand that what they told us was really true: boats, like automobiles, are not an investment but a major expense. If you plan to only own the vessel for a few years, or you anticipate that there is a chance you may have to sell, by far a used boat will be your better value.
With used boats, don’t make the mistake of equating low hour meter readings with good engine condition. For the most part, engine hours mean little because engines deteriorate over time. Engines that are little used, gas or diesel, are often in worse condition for the lack of use. Also, don’t succumb to the myth that marine diesels last for thousands of hours. They don’t. The average time between major repairs is around 6-7 years. Or, if you want to put it in terms of hours, around 1500 hours. Marine engines deteriorate rapidly in a salt water environment.
Good boats with bad engines can turn out to be a good buy when comparing price differentials against a newer boat purchase, particularly for smaller boats, and boats with gas engines where engine replacements are easier. Many buyers find that they can get a good buy in a boat with clapped out engines and rebuilding or replacing them. If you don’t mind the trouble, it may be worth making the price comparison. If the price works out, you end up with a boat with new engines, a real comfort to any boat owner.
Older vessels
While used boats can represent good value; this is true only up to a point. The problem with some boats once they get beyond 10-12 years is deferred maintenance. It is an unfortunate fact of life that many boat owners cut a lot of corners when making repairs, additions or improvements. This is particularly true when it comes to mechanical, electrical and plumbing. While the interior may be beautiful, major systems may have been ignored. On good quality boats, repairs are often done to a much lower standard than the original, so that by the time a decade has gone by, there may be a lot of substandard maintenance and jury-rigging.
On older boats, these problems can accumulate to the point where it is no longer economically viable to restore the vessel when considering the cost of refurbishment versus market value. Nothing can take the pleasure out of boating faster than to get in over one’s head financially by underestimating restoration and maintenance costs. When experienced boaters make reference to repairs always costing double what they think it will, they’re not kidding or exaggerating. Estimating marine repairs is extremely difficult, even for professionals. And nowhere is the statement, “You get what you pay for,” more true than in the marine business.
Be wary of vessels with excessive amounts of deferred maintenance or jury-rigging. After the survey is completed, ask a yard to estimate the cost of repairs. If they can’t do it, or are having a hard time estimating, chances are that you’ll have a hard time paying when the bill comes due.
Cost of ownership
In addition to purchase price, interest and depreciation, the cost of ownership includes maintenance and repairs, something owners rarely consider. For new boats, maintenance is low for the first three years or so. But after three years, costs start increasing significantly. Regardless of type, major machinery will often require major repairs in years 5-7. There’s a reason why warranties expire when they do, and that’s because that’s when the breakdowns begin to happen.
If you buy a new 40′ sailing yacht and sell it after 3-4 years, annual maintenance is likely to average around 4%. The longer you own it, the more it will increase as things wear out and breakdown. The first big hit usually comes when an engine or generator goes bad somewhere between 5-7 years. Obviously, if you own the vessel this long, suddenly the annual average takes a big leap. If you’re buying used, then you have to be prepared for this, whether it’s an unexpected blister repair job, or some other problem that’s not covered by insurance. Of course, with a used boat, that fifty or hundred thousand you saved off the new price more than makes up for a “big bill.”
The point is that in compiling averages, over time we know that costs can be reduced to annual percentages for which an owner should be prepared. For twin screw diesel motor yachts or fishermen, a ten year average will run around 7% annually. After ten years even more. This accounts for all types of maintenance from bottom painting to pump replacements and engine overhauls. Moreover, this assumes that there is little or no deferred maintenance, and for a boat owned since new. If you’re getting into a used boat with considerable deferred maintenance, that annual average can increase dramatically, especially when serious problems gang up on you all at once.
NB: In part 5 of the guide next week we cover yacht surveyors, purchase agreements and concluding the deal.
