Boat leasing scheme

[Kevin]

Hi

speaking to a mate in USA who has spoken to somebody in the trade who says that over there a nnumber of companies are looking to bring the car style leasing 3 months down and a contract over say 3 years with an option to buy (depending on lease taken out) he did give me figures on some boats but didnt write them down, never heard of this before. As far as he could tell they were also looking at full contract leasing, not just for companies but to individuals, perhaps to encourage the USA current slump?

Is this a new thing or twist on an old thing that is available or all pie in the sky? wouldnt do it but interested to know more about it.

Kevin

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[jfm]

spade=spade

Pie in sky imho. Capital is capital and interest is interest. A lease is just a loan with a different wrapper stuck on it.

Sometimes there's a tax angle. Eg the lessor gets to tax-amortise the cost of the boat, and passes some of the tax saving to the customer in the form of lower leasing rate. Not sure about this case.

 

[Kevin]

Re: spade=spade

Not being into the nitty gritty of financial dealings my first thought was not sure how it would financially benefit the person leasing it, other than only being committted to it for a 3 year period and not the usual 10 year loan, but maybe as you say there is a tax angle then that might explain the reasoning of the boat builders/dealers, which they can pass onto customers. I suppose in some circumstances it would also keep the buyers assets free ( not raising money against houses for the purchase) or using up any potential credit that they may be able to raise.

kevin

 

[Observer]

Yes - I agree with jfm. I can't see it happening in the UK. There could be a tax deferral benefit in a leasing scheme although the minimum period of the lease would need to be 5 years or more, otherwise it's tax neutral at best. The big obstacle, which I see no way of overcoming, is that as soon as the owner of a boat receives payment for its use, other than as a share of direct running costs, the boat becomes a "commercial vessel" and is subject to the charter code requirements. That is why, in this country, marine finance is (as far as I'm aware) invariably structured as a loan with or without (depending on value) the security of a marine mortgage.

Even if it was available, and the scheme transferred an element of 'residual risk' to the lessor (financier), it would probably be quite costly compared to traditional finance because that risk assumption has to compensated. At least to start off with, it is likely that the risk assumption would be a bottom slice of risk (e.g. assume a 50% market value after 3 years, which is a no brainer) but there would still be a premium. So the user would pay more for no real benefit.



<hr width=100% size=1><A target="_blank" HREF=http://aflcharters.co.uk>Dream Dancer</A>

 

[TwoStroke]

Similar set up to the car market where the leasing company claims full VAT off purchase price and can therefore offer a lower rental. It benefits companies due to off balance sheet funding (as is a rental) and benefits gearing ratios. Rental has VAT benefit to vat registered companies (can claim between 50% and 100% - maintenance full 100%). Lease company takes residual risk. Would be ideal for charter companies etc... but is likely to have a high P11D value so doubt directors would take up the scheme.

I can see why they are trying to do it - but with a small market over here not too sure whether it would be worth while.

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[jfm]

Hmmm. Hadn't thought of the MCA coding point. That kills it stone dead. Unless use elaborate structure to transfer ownership to renter but with call option back to finace co, but I suspect it aint worth the effort and any such scheme would hit plenty of roadblocks and misallocations of risk.

Remeber too that mortgages are pretty helpful to us all in that there is an established system for recording them on a public register, so if you buy secondhand you genrally know if the boat is pledged to a bank. Any leasing system would need to offer similar safeguard to 2nd hand buyers, and maybe it could, but that would need to be worked in

Logging off. Plane to Nice in 2 hours! Back thursday. See ya

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[HeadMistress]

It has not caught on here in the US, though the boat mfrs assoc has been pushing it for nearly 10 years. It works like leasing a car...minimal down payment, monthly payments for 2 or 3 years...turn it in or buy it for the residual value. The kicker is, it's fairly easy to predict the value of a 2 or 3 yr vehicle, but the boat market is so much smaller and highly volitile, depending on economic and even long-term weather conditions, local as well as national...even the popularity of certain make/models. People are also less inclined to maintain something in which they have no vested interest (or don't think they do)...So the fair market value at the time the lease is up may not even be close to the residual value. And--as is also true of vehicle leases--if the leasing lender/affililated dealer can't sell the boat for at least as much as the residual value, the lessee is liable for the difference. The other disadvantage to leasing is...you can sell a boat that you own, even if you have to take a "distressed" price for it, if you lose your job or suddenly discover for any other reason that you can no longer afford a boat , or your company transfers you 1000 miles from any water...but you're stuck with a lease. So people just aren't going for it.

Another scheme here that hasn't caught on very well either is "time share" ownership of larger yachts...which works exactly like vacation home time share. That idea has had some marginal success for houseboats in a few places, but has been a total flop as far as large yachts are concerned. And even for housboats, more people would rather just rent the boat for a week or two each summer than pay for a share of ownership plus a share of all the maintenance costs every month year after year.

<hr width=100% size=1>Peggie Hall
Specializing in marine sanitation since 1987

 

[Kevin]

Thanks for the info Peggie much appreciated.

Kevin

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