Buy or charter in Mallorca

[Hugo_Andreae]

I have been sent a letter by a reader asking whether it's more cost effective to buy and run a boat in the Med for 10 years or simply charter for 5 weeks a year so I thought I'd throw it open to the the forum to garner your opinions:

"Dear MBY,

What is the actual cost over 10 years of buying a boat (second hand) for say £500,000
something about 55/60 feet?

Running costs to include:
Berthing (Mallorca), service, repairs, fuel for say 5 weeks, cleaning, security plus anything else.
A skipper for say 3 weeks.
10 year loan at capital payment of £50,000 pa.
Interest payments at say 5%.
All payments to be subject to tax and Ni both personal and company.
Depreciation estimated at £300k over the 10 years.

So what I am looking for is an annual cost that needs to be earned before tax, to run and enjoy this boat per actual week.
I want to compare the cost of chartering against buying."

So what do you reckon?

 

[Deleted User YDKXO]

I'd tell him to go hire an accountant instead of trying to get accountancy advice on the cheap from you! Here are some costs that he can give to his accountant

Berth in Palma for 60 footer €20,000 pa
Maintenance €15000 pa
Insurance €4000
Fuel €12000 pa (based on 1000nm per season)
Skipper €150 per day

Charter cost for 60 footer €15000 per week + fuel + berthing + skipper

 

[Nick_H]

Bit of a cheek to expect you to work out his loan costs and income tax burden!!

Anyway, the info he will need to calculate the answer for himself is roughly as follows:

Annual costs - servicing, antifouling, polishing, insurance, guardiennage, and endless ancilliary stuff - £30k/yr
Mooring rental - not sure in Mallorca - maybe £15k/yr?
Depreciation - varies wildly with age and model as you know, but a carefully chosen, 4 year old boat at that size and cost should average about 6-8% a year - £35k/yr
A skipper, if he doesn't want to drive it himself - £250/day. Stewardess - £100/day
Fuel - same whether he charters or owns
Only other significant cost is a provision for a major mechanical failure - anyone's guess - £10k/year??

Against these, for a 5 week charter he'd expect to pay about £100k, maybe discounted by 10-20% if he went direct to the owner.

 

[BartW]

There are too many unknown variables in the question to give a sensible advice;
- Its very rare that a boater keeps the same toy for 10 years
- Nobody can predict depreciation, too many variables
- Mooring and maintenance too many variables,
- How many weeks will he be using,
Etc…
But the answer to the question is that, unless you spend 2 month’s/year on the boat,
It will “alway’s” be cheaper to charter.
But then,
there are geeks like many on here, who enjoy spec’ing or adapting their toy completely to their own taste,
enjoy the “owning” of their own boat,
go on the boat unexpected or unplanned
etc etc ….
And for all this there is no sensible economical explanation.
And It doesn’t matter if it’s a small cuddy cabin, or a big super yacht, all the same.
All imho. As usual there are exceptions to this generalizing

 

[Nick_H]

I'd tell him to go hire an accountant instead of trying to get accountancy advice on the cheap from you! Here are some costs that he can give to his accountant

Berth in Palma for 60 footer €20,000 pa
Maintenance €15000 pa
Insurance €4000
Fuel €12000 pa (based on 1000nm per season)
Skipper €150 per day

Charter cost for 60 footer €15000 per week + fuel + berthing + skipper

Interesting comparison Mike, as I was writing my response at the same time, so hadn't seen yours first.

I think you're light on maintenance and repair costs. I keep accounts for my boat because I charter each year so have to declare all revenues and costs to HMRC, and costs average £27k a year with me doing a lot of minor work and organising, and without full guardiennage. That includes insurance and some updating to keep the boat in A1 condition, to make it a more direct comparison with chartering. I guess it may be cheaper in Mallorca than SoF, but not half I wouldn't have thought?

edit - actually my costs do include the port service charge at 4,000 euro (for long leaseholders), plus a fair bit of cost specific to MCA coding, so maybe £25k is closer to the real cost.

Standard charter rate in SoF is 3,000 euro/day, say discounted 20% for a 5 week charter. I'd assumed similar in Mallorca, plus VAT (SoF charters are exempt for the time being), gets you to £100k. I think a savvy charterer could definitely negotiate a better rate though, especially if it wasn't the prime 5 weeks covering end July/start Aug.

edit - duh! .. 100k euro, so £80k

Skipper costs - I think generally you pay more for a charter captain that a delivery skipper, though I accept some people do both jobs

 

[Tranona]

You don't need to be an accountant to work out that paying the year round costs and only using the asset 3 or even 5 weeks a year will be more expensive. At an educated guess the break even is likely to be between 10 and 15 weeks a year.

As Bartw says even getting an accurate estimate of costs of owning over a 10 year period is impossible as there are so many unpredictable variables.

 

[Deleted User YDKXO]

I think you're light on maintenance and repair costs. I keep accounts for my boat because I charter each year so have to declare all revenues and costs to HMRC, and costs average £27k a year with me doing a lot of minor work and organising, and without full guardiennage. That includes insurance and some updating to keep the boat in A1 condition, to make it a more direct comparison with chartering. I guess it may be cheaper in Mallorca than SoF, but not half I wouldn't have thought?

Yes I think you're right but maybe I misunderstood the OP's question. I thought the comparison was between the OP owning and running his own boat for personal use against chartering for personal use. But yes, I spend more than €15k pa on maintaining my 53 footer, even in Italy/Croatia which is cheaper, but a fair proportion of those costs are discretionary improvements (eg u/w lights!) rather than essential maintenance so its difficult to put a figure on essential maintenance costs. Certainly, I found maintenance costs to be cheaper in Majorca than SoF; there are many expats there hungry for work and I guess the matriculation tax fiasco has reduced the number of boats there and the amount that owners spend on maintenance

 

[jfm]

Without doing any detailed maths, the chartering will be say €13k per week = €65k pa. That's much cheaper than owning a boat that depreciates €300k

He is comparing apples and oranges though. Owning and chartering boats are different , as BartW explains above

 

[Nick_H]

I thought the comparison was between the OP owning and running his own boat for personal use against chartering for personal use.

Yes, but then if you charter a boat you just turn up and everything is perfect, and there's no work or time required for the rest of the year, so for a direct comparison when owning a boat you need to allow for a management company to look after it completely, so a different cost base again!

Anyway, I think we've already put in more effort that the original questioner seems prepared to, so I think i'll leave it there!

 

[Deleted User YDKXO]

Without doing any detailed maths, the chartering will be say €13k per week = €65k pa. That's much cheaper than owning a boat that depreciates €300k

Yeah but the charter costs don't include fuel, overnight berthing, crew tips etc so maybe total charter costs for 5 weeks will be more like €85k. Then the OP is working on £300k depreciation over 10yrs which is £30k pa so it's not so clear cut at all whether it's cheaper to charter especially since £300k depreciation on a £500k used boat is probably an overestimate, even over 10yrs. Maybe £100-150k would be nearer the actual depreciation. So, the OP's question is a fair question IMHO but he can do his own maths

 

[Deleted User YDKXO]

Yes, but then if you charter a boat you just turn up and everything is perfect, and there's no work or time required for the rest of the year, so for a direct comparison when owning a boat you need to allow for a management company to look after it completely, so a different cost base again!

But isn't lavishing your time and attention supposed to be part of the pleasure of owning a boat Thats what I keep telling myself anyway

 

[jfm]

Yeah but the charter costs don't include fuel, overnight berthing, crew tips etc so maybe total charter costs for 5 weeks will be more like €85k. Then the OP is working on £300k depreciation over 10yrs which is £30k pa so it's not so clear cut at all whether it's cheaper to charter especially since £300k depreciation on a £500k used boat is probably an overestimate, even over 10yrs. Maybe £100-150k would be nearer the actual depreciation. So, the OP's question is a fair question IMHO but he can do his own maths

The fuel/overnight berthing will be identical whether you own or charter so they do not enter into the maths. Crew costs are what they are and we have no data from the original question, but under any crewing scenario it's a no-brainer that owning is more expensive. With €30k pa depreciation (I'm applying RTFQ on that, not 2nd guessing), you only have to add maintenance, insurance and berthing on a 55 footer to get you beyond the €65k pa.

 

[kcrane]

The fuel/overnight berthing will be identical whether you own or charter so they do not enter into the maths. Crew costs are what they are and we have no data from the original question, but under any crewing scenario it's a no-brainer that owning is more expensive. With €30k pa depreciation (I'm applying RTFQ on that, not 2nd guessing), you only have to add maintenance, insurance and berthing on a 55 footer to get you beyond the €65k pa.

+1 and you also need to add the not inconsiderable time & cost of buying and selling. Owning is also less flexible, you can choose to charter or not each year, including different locations, you can't choose to own or not (well, not easily).

Whichever answer is the right one I'm definitely on the winning side (oh, and the losing side) as I do both - own a motorboat and charter things with flappy bits

 

[Deleted User YDKXO]

The fuel/overnight berthing will be identical whether you own or charter so they do not enter into the maths. Crew costs are what they are and we have no data from the original question, but under any crewing scenario it's a no-brainer that owning is more expensive. With €30k pa depreciation (I'm applying RTFQ on that, not 2nd guessing), you only have to add maintenance, insurance and berthing on a 55 footer to get you beyond the €65k pa.

Well, as I said, £30k pa depreciation over 10yrs is an overestimate on a used boat so the comparison is not valid. If its such a no brainer that owning is more expensive, then that begs the question as to why so many of us own rather than charter. I spend about £30k pa on running my boat (excluding fuel) plus the loss of interest on the capital invested and depreciation, maybe £60-70k pa in total. Chartering a boat for the 6-7 weeks a year I use my boat wouldn't be far off this figure plus you can't put a value on having your own boat available exactly when you want it . All I'm saying is that at this level ie a £500k used boat, the comparison is not so clear cut. Of course if you compare the cost of owning a £3m brand new boat against chartering, the depreciation would be significantly higher and then, yes, chartering would probably be a no brainer

 

[jfm]

OK agreed. I admit i was strictly applying RTFQ to the depreciation figure. You are right that the examiner hasn't set the question well (in many respects!).

if you compare the cost of owning a £3m brand new boat against chartering, the depreciation would be significantly higher

There is a lot of data that would disprove that. Back in the good ole days pre Lehmans weekend superyachts clearly appreciated significantly on delivery and for 2-4 years thereafter, but even now with the right deal the depreciation on £3m new boat can be less over 2 years than on a £500k new boat, in absolute terms not just % terms. The reason being that the £500k deal is commoditised and you can't flex the entry or exit prices much whereas in the £3m deal you can flex the entry price (just one example: if you're cash rich then pay a cash strapped builder early and get a big discount) and also gamble on spec/residual. Of course on the average the gambling wins offset the losses but an individual poker player who, say, reads the credit risk correctly can win. Anyway, getting OT now

 

[Deleted User YDKXO]

There is a lot of data that would disprove that. Back in the good ole days pre Lehmans weekend superyachts clearly appreciated significantly on delivery and for 2-4 years thereafter, but even now with the right deal the depreciation on £3m new boat can be less over 2 years than on a £500k new boat, in absolute terms not just % terms. The reason being that the £500k deal is commoditised and you can't flex the entry or exit prices much whereas in the £3m deal you can flex the entry price (just one example: if you're cash rich then pay a cash strapped builder early and get a big discount) and also gamble on spec/residual. Of course on the average the gambling wins offset the losses but an individual poker player who, say, reads the credit risk correctly can win. Anyway, getting OT now

Remind me to hire you for any negotiations when I eventually buy a new boat

 

[Nick_H]

Probably the cheapest way to have a boat available for 5 weeks a year, is to find another person who also wants one for 5 weeks a year and share it.