A Calculated Investment

Financing a boat requires more than signing on the dotted line.

By David Kuczkir – Updated by Steve Davis and Bonnie Schultz

A boat is a huge investment that pays dividends in the form of recreational bliss and memorable times spent outdoors with family and friends. But purchasing one is a complicated, multi-party, contractual process, and the decision shouldn’t be taken lightly. Doing your due diligence is the key and ensures an enjoyable and rewarding experience from the get-go, so here are a few of the ins and outs of buying a boat.

How Will You Use It?

Step one is knowing what type of boat best fits your lifestyle. If fishing is your passion, look at center consoles and skiffs, or that large sportfisherman. If you enjoy wakeboarding and skiing, then shop ski boats. If you have kids, consider a boat with an enclosed cabin. Will you sail? Will you primarily use it for cocktail cruises around the lake? Is coastal cruising in your plans?

Be Sensible and Budget

If you neglect to budget for the upkeep, you’ll quickly realize there’s truth to those witty B.O.A.T. acronyms like “Bankruptcy on a Trailer” or “Bring on Another Thousand.”

My buddy was recently in the market for his first boat. During his years-long search, he picked my brain dozens of times about many different makes and models. Last winter, he claimed he was ready to pull the trigger on a 35 Regal Sport Coupe.

He had the financial means to buy the Regal but didn’t give much thought to the upkeep cost. In my homeport, Charleston, South Carolina, in-water dock rental is about $18.50 per foot per month, or $7,800 a year. Add $3,000 for insurance. The watercraft tax is an expense that can sneak up on you. The tax in my state is 10.5 percent. For perspective, the annual tax on a $150,000 boat is about $5,000. Ouch! States like Florida and New Jersey have maximum tax caps of $18,000 and $20,000, respectively, regardless of the boat’s price and size.

Already, the upkeep is upward of $15,000, and I haven’t mentioned other costs such as fuel (marinas typically charge $1 or more per gallon than that at gas stations), annual engine maintenance, haul-out fees, bottom cleaning, repairs, etc.

Then there’s depreciation. “Any new boat depreciates immediately the minute it’s sold,” says Ed James, a broker at Ashley Yachts in Charleston. “In the first year, depreciation can be as much as twenty percent of its value.”

That explains why many boaters buy used. If you’re purchasing used, hire a local surveyor, a professional who meticulously inspects a vessel from bow to stern. You’ll pay about $25 per foot, but it’s worth the peace of mind. Unlike new, a used boat usually doesn’t have warranties.

Enlist Help

If you’re in the market for a boat like the Regal, James offers sage advice. “Hire a broker. But take the time to meet with several to find one you like. Then let the broker lead the search to find you your boat.” He asks buyers to fight the urge to shop online. “What happens is they’ll research boats, find a few they like, then make calls. They don’t realize that the person they’re dealing with is the seller’s broker who’s working to get the best deal for the seller.”

The Finance of Things

When financing, James recommends using a marine finance company like Sterling Associates or Trident Funding. They specialize in boat loans only and can usually offer better rates than a local bank. As for discounts on insurance, take a boater’s safety course. The U.S. Coast Guard Auxiliary offers a wide range of courses for the novice, seasoned, and every boater in between.

My buddy? I was his wingman on that momentous day when he got a great deal on his first boat. As the salesman finalized the paperwork, we stood at the helm, drank beer, and discussed the joy in store for him and his family for many years to come.

How to Buy a Better Used Boat

A marine surveyor offers advice based on more than 35 years of experience.

There’s a reason why sales of pre-owned boats outpace new purchases 10 to 1. They represent a heck of a good value, particularly when factoring in perks like depreciation and owner outfitting. The trick is finding the most boat for your money with the least amount of previous owner headaches. Here’s a look at three issues that can turn your potential dream boat into the proverbial hole in the water.

Issue 1: Engine problems

Engines are typically the most expensive piece of gear on board, and it’s a hard lesson to learn after purchasing that deal of a lifetime to discover a rebuild or replacement is required.

Warning signs: Start by looking for obvious problems such as leaks, excessive rust, broken components, etc. Next, check coolant level and properties (for closed systems). Lack of antifreeze should be a concern (a possible indication of leaks) as would coolant with a rusty color or an unusual amount of solids.

Pull the dipstick and check the oil. A slightly low level might be okay, but higher than normal levels could be a sign of trouble, especially if the oil is milky or frothy—an indication that water, antifreeze or transmission fluid is present. The cause of this could mean anything from a blown gasket to a cracked block.

Is the engine difficult to start? Depending on the engine (gas or diesel), hard starting could be caused by anything from weak batteries to faulty plugs, fuel pump issues or bad fuel. How does the engine sound? Does it run smoothly at idle and under load, or does it idle unevenly and stall out when placed in gear? Rough running can be caused by anything from clogged fuel filters to compression problems, while engines idling at more than 800 rpm may have been set high to mask idling problems.

Verify proper oil pressure and operating temperature. Low oil pressure could be due to anything from faulty oil pumps to cam bearing failure. High water temperatures may be something as simple as a failed impeller, but could also be caused by corroded manifolds or exhaust risers. Also, read the smoke signals. A well-maintained engine may smoke when it’s initially started or while idling but not when warmed up or under load. Smoke color can also provide an indication of problems (blue for burning oil, black for incomplete combustion, etc.).

Red flags: Have the engine surveyed by a marine mechanic, then discuss repair options and cost. Engines are a big-ticket item, so always weigh the cost of repair or replacement versus walking away from what initially seemed like a great deal.

Issue 2: Wet/delaminated decks

Water intrusion into cored decking likely causes more boat damage every year than sinking, grounding and fire combined. Cored construction simply means you’ve got an inner and outer skin of fiberglass sandwiching some other material between them: balsa, plywood, foam, etc. The prime directive with cored construction is to keep water out, particularly with balsa or plywood. Wet wood coring can rot and allows the cored deck to separate, which drastically reduces structural integrity. Long-term water exposure causes problems with foam-cored decks as well: core separation, freeze damage and even disintegration in some cases.

Warning signs: The first step in finding deck problems can be as simple as walking on them. Soft spots, oil-canning (flexing) or even water squishing from deck fittings are all indicators of a potentially expensive repair. Drips and brownish stains below decks are also common signs of water-soaked decks and rotting core.

Sound out the decks by tapping them with a small plastic-headed hammer or the end of a screwdriver handle. Sharp, crisp sounds are what you want to hear, while dull thuds can be an indication of delamination. Moisture meters such as those available from JR Overseas (jroverseas.com) are also an excellent tool for sniffing out soggy decks.

Red flags: While repair costs will be directly related to the size of the delaminated area, cutting open a deck for core replacement is rarely a cheap proposition. If a deck flexes like the bounce house you rented for junior’s birthday, run or get ready to lay out some serious cash.

Issue 3: Manufacturer’s defects

It’s a sad fact that some problems you’ll encounter are fresh from the builder or caused by improper aftermarket installations by the dealer.

Warning signs: The sky’s the limit with the range and type of problems you’ll encounter. Common issues include holes drilled or cut into cored decks that aren’t properly sealed afterward against moisture entry. Windlass hawse holes are notorious for this. Also, inadequate backing plates for railings and cleats, unsupported wire runs, inaccessible fuel tanks, and lack of seacocks below the waterline thru-hull fittings—the list seems endless.

Red flags: Here’s where a good marine surveyor is worth his weight in gold (marinesurvey.org). It’s the surveyor who, like crotchety old Aunt Emma did on your first real date way back when, picks and gnaws at your new love, ferreting out all those faults your own moonstruck eyes have overlooked. With survey report in hand, you can work with the seller to correct these issues outright, negotiate a reduced price or determine if it’s better to find a boat with fewer issues.

— By Frank Lanier, Southern Boating Magazine February 2017

Buying a Boat? Dues, do’s and don’ts

Buying a boat? Your banker, attorney and insurance agent need you to come fully prepared.

Purchasing a boat is not like buying a car or a house, although it has elements of both. In addition to acquiring an (often) expensive and mobile asset, you’re dipping your toe into admiralty law, which can hearken back to the rules and regulations of a century ago. Being prepared to answer questions in areas of finance, insurance, and legal details could save you time and money, not to mention serious headaches, down the road.

Financing

Boat financing is on the rise from a few years ago as rates have held consistently and are at historic lows. “Instead of paying cash for a depreciating asset, people are taking advantage of higher yields elsewhere,” says Dan Markow, a market executive at Bank of America Merrill Lynch, Palm Beach. “A boat is typically owned for 2-5 years, so it’s better to finance it and hold on to the cash for other uses.”

Boat loans today can be for 10-30 years although most loan periods hover around 10-15 years. Major marine lenders specialize by the size of the loan. Some may work with loans of $25,000 while others, like Merrill Lynch, focus on loans in excess of $3 million. “Larger loans like ours employ creative security-based lending that works more like a revolving line of credit,” adds Markow.

Lenders need to know the age and value of the vessel. Older boats may require larger down payments or higher interest rates. Today’s rates range from 3-5 percent and loans typically require 20 percent down, although this can vary.

Dana Scott, vice president of the Southeast region of the Intercoastal Financial Group, notes that discounts may be available. “You may receive a 1/4 point off special at a boat show or get deals for a higher down payment,” she says. “Those with exceptional credit scores (800+) may receive preferential rates while older boats may have points added.”

The key is to determine if you will be able to sustain the loan long-term with your current and future cash flow. Working with a dedicated marine lender who understands the nuances will provide more options.

Insurance

A yacht needs to be insured whether it is financed or owned outright, and you will want to work with an agent who represents underwriters specialized in marine assets. “There are only about 15-20 major marine carriers available,” says Michael Boyer, marine division leader at Brown & Brown Marine in Fort Lauderdale. “Don’t shop the rates because that won’t yield better results. Instead, work with an agent who has relationships with all the carriers and will be able to compare their rates for you.”

The size, value, and age of the yacht will dictate which underwriter offers full coverage and the lowest premiums. For pre-owned vessels, you will need a current survey attesting to the condition of the boat and its detailed description. Tenders and personal watercraft need to be added to the policy in case they are involved in an accident resulting in property damage or personal injury.

“Insurers will want to know where the vessel will operate, especially in areas that are known for hurricane season,” adds Jeff Specter, vice president of marine insurance at Brown & Brown. “There are endorsements available for certain seasons and geographies.”

If the boat is financed, the lender will need to be added to the policy. Professional crew will also need to be added in compliance with the Federally mandated Jones Act of 1920, which provides a sort of workman’s comp for those serving at sea. The insurance company will want to know if the yacht will be chartered—with or without crew—and that may affect the premiums and the scope of coverage.

Finally, coverage needs to start at the time the vessel is titled to you or your legal entity. If the yacht will be en route from the manufacturer’s factory but is in your possession, you will want it to be insured. One exception may be the availability of cargo insurance that is provided when the vessel is moved via a yacht transport ship. Be sure to ask for details.

Legal Considerations

Legal issues are a combination of the two categories above, and it’s important to complete your due diligence prior to taking possession. Danielle Butler of Luxury Law Group in Florida is very attuned to her clients. “I need to know exactly how they foresee owning, registering and operating their vessel,” she says.

First, Butler counsels her clients against private ownership and instead suggests using a limited liability company (LLC) or a full corporation, both of which protect, if not insulate, against liability. James McKenzie of McKenzie Law in Massachusetts adds that ownership via an LLC may have slight tax advantages over a corporation.

Second, Butler asks whether the vessel will have U.S. or foreign registry, such as in the Cayman, Marshall or British Virgin Islands. In order for the boat to be registered or “documented” in the U.S., the entity in possession must be at least 75 percent U.S. owned. Butler also needs to know where the vessel will operate primarily, if it is foreign-built and if it will be professionally crewed, since foreign registries have different rules depending on the answers. Even details such as whether you will finance the boat or purchase it with cash may impact your registration options.

A title search for liens is a must for any vessel, especially one that will be documented in the U.S. A lien is a debt that follows the vessel, not the owner, so you’ll want to discover if the vessel has any issues with outstanding payments to a yard or crew. You can do the search yourself directly with the U.S. Coast Guard, or rely on the expertise of dedicated agencies that provide this service for a nominal fee. In the process, you will also learn if there are any lawsuits against the vessel.

Almost all transactions are made with an offer contingent on the completion of a satisfactory survey. McKenzie warns that in addition to the hull, the engines should have a separate survey focusing on things like compression metrics and oil analysis to avoid costly repairs later. “Check with the manufacturer about any recalls on both new and used boats before you sign on the line,” he adds.

There are a lot of variables that go into yacht ownership, and there are as many different circumstances as there are potential owners. “There’s no canned answer,” says Butler. “If in doubt, get specifically qualified counsel because maritime law is its own beast.”

You may already have relationships with a banker, an attorney and an insurance agent for other assets you own, but consider a marine specialist in each of the above categories, especially if the vessel you are purchasing is expensive, will be chartered or is pre-owned. Referrals from other boat owners or from your broker are best. Once armed with the answers to these questions, you’ll be more than halfway to enjoying the best of boating.

By Zuzana Prochazk, Southern Boating Magazine January 2017

New Year. New You. New Boat?

Happy 2017! The start of a new year can mean many new changes. With the onset of the New Year, you may be tempted to plunge into boating to satisfy your resolutions. Maybe you want to spend more quality time with family on the water. Maybe you’ll start paddleboarding or kayaking to stay in shape. Or maybe 2017 is the year to achieve ultimate happiness by purchasing your dream boat.

If 2017 is the year you do take the plunge into buying your dream boat here are some questions you need to consider.

Type

What does your perfect day on the water look like? It may be heading off shore for some fishing. Maybe you dream of completing the Great Loop. Perhaps you’re keen on exploring the Caribbean. Maybe it’s enough to sit in the sun with some good friends on the ICW. Different strokes, different folks, different types of boats.

Size

Did you know that according to the NMMA, 95% of U.S. boats on the water are 26 feet or less? Think about space, size, and specifications. What are your needs and budget? How many staterooms, if any? Heads? Galley or will an on-deck grill suffice? How much space will you need for supplies like fuel or food?

Make and Model

This is the fun part! There are so many different makes and models on the market depending on your needs. Southern Boating has reviews of boats of all sizes. From inflatables to motor yachts, you can browse a wide variety of makes, models, and brands on our site.

New or used?

The best part about buying a new boat is that it can be customized to your exact specifications—truly a dream boat. Also, most new boats come with a warranty…just in case anything should happen.

But just like cars, buying a used boat can knock a big chunk of change of the original price. Boats depreciate the most during their first season of use, so buying used can greatly ease the strain on your wallet.

The Bottom Line

Buying your dream boat in 2017 can easily become a reality. Will you be making the plunge this year? If so, our team of experts will be here to help!