Buy to charter?

[Thistle]

It sounds like a great idea: buy a boat, charter it out for at least some of the time while using it yourself for the rest of the time, and make money hand over fist.

Somehow I suspect that the reality is a bit different. Chartering: a lot of effort for limited return; turning sailing into work; unwelcome restrictions on when you can use your own boat; expenses greater and income less than your "business plan" (aka "pipe dream") would suggest.

Has anyone hereabouts tried it? Any figures available to support one view or the other?

 

[dt4134]

I looked into buying a boat to put into charter in the UK.

The first thing is that if you put it in with a charter company they take a significant proportion of the income. The one I looked at I considered reputable and had got to know them by chartering from them quite a few times. They took 40% but did include minor repairs/maintenance in that.

I also looked into the VAT situation. First of all you have to convince them (HMRC) that it is a genuine business. I managed to do that so would've been able to buy a new boat (or a non VAT paid boat) but it meant I'd have had to charge VAT on the charters. As I was looking at chartering through a VAT registered company this wasn't avoidable anyway.

A small one boat operation managed by the owner should be able to manage things by remaining below the VAT threshold, but the downside there is you pay VAT on your outgoings.

If you are VAT registered you have to take account of your own personal use. Simplest way is to charge yourself, but whatever you do you'd need professional advice on that bit especially.

If you buy a boat to charter out in the UK it needs to be coded. £10,000 is often quoted as the amount to budget for that.

Next there's running the costs. To charter out you really need to keep the boat in a decent marina in a popular sailing area. That's expensive.

When I did detailed calculations, I reckoned that there's be £2,000 a year left over for maintenance (the bits the charter company didn't do) and any kit I fancied buying. If you're going for good charterers you need to keep the boat in good condition. Yes, you can charter out older boats and skimp a bit on the maintenance, but then you can't charge as much and you can't be as fussy who you charter to.

Simply put, I concluded it is pretty near impossible to run it as a profitable business. Obviously if you do all the marketing and customer interaction yourself you've got 100% of the income to play with, but don't under-estimate the time, money & hassle to be put into that.

If you happen to have a boat in a marina where you can charter it out through a good charter company then you can subsidise the cost of owning the boat, but don't expect to cover a great deal more than the marina fees. You need a good charter company who has experience of dealing with charterers and will make sure your boat is looked after.

 

[truscott]

We figured that having our boat in charter, would help towards maintenance and mooring costs, and possibly add some extra income on top. To a certain extent, this is happening. However, the hidden costs associated with having her in charter, far outweigh any income so far. Things like linen, cushions, crockery, cutlery, charts, etc... Stuff that you don't really think of, all add costs. And the punters break stuff which goes un-noticed until the next lot come along. In some cases stuff just breaks anyway and isn't anyones fault but it still adds costs though. Everytime your boat gets looked at, or maintained, expect to see a charge on the bottom line (like 20 Euro, just to put a reefing hook on the boom!).

The positive side in our case is that we have a great team looking after her, and under their care, she really is in tip top shape. The negative side is that she really is a hole in the water sucking up all our available cash! From a cold hard biz view, we shouldn't have done it. On the emotive side, we love the boat and look forward to moving aboard and cruising on her soon.

Ultimately we go sailing for the love of it, and we fall in love with our boats because they bring us joy. Owning a charter boat (or indeed any boat) makes no financial sense at all! Thank god a lot of us have no sense!

PT.

 

[prv]

Having a boat in charter would mean I couldn't consider her truly mine - having others aboard using my kit, having to take personal stuff off, not being able to take off whenever I feel like it, etc etc. If I'm to sail a boat that's not all mine, I might as well be the one doing the chartering.

Pete

 

[Tranona]

dt4134 covers the pros and cons pretty well - and I came to the same conclusion when considering doing this in UK.

One alternative, and the way we went is to buy a boat through a charter management scheme in somewhere nice and warm like the Eastern Med or Caribbean. Once again there are pros and cons. If you can use the "weeks" you get as part of the deal then it can definitely be economic. In our deal 2 weeks a year and it was as cheap to own the boat rather than charter. Main drawback is what to do with the boat at the end of the contract. If, like us it was a way of buying the retirement boat then it can work out. If you need to sell you can drop a lot.

You have to put the "pride of ownership" bit to one side and recognise that for 20 weeks a year other people are using it. However, most management companies do a good job looking after the boat. Ours did 7 years - is now 10 years old and you would not think it has done the mileage it has. Part of this is location. The Ionian is very benign and boats are mainly a platform for drifting or motoring from anchorage to anchorage, so they have an easy life.

Compare this with the UK where they still have to be out at least 20 weeks a year - but in all weathers, often with large crews. The fixed costs are high - thick end of £10k for a marina berth and wear and tear much higher.

Hope this helps.

 

[jwilson]

It sounds like a great idea: buy a boat, charter it out for at least some of the time while using it yourself for the rest of the time, and make money hand over fist.

Somehow I suspect that the reality is a bit different. Chartering: a lot of effort for limited return; turning sailing into work; unwelcome restrictions on when you can use your own boat; expenses greater and income less than your "business plan" (aka "pipe dream") would suggest.

Has anyone hereabouts tried it? Any figures available to support one view or the other?

Yes - have a newish boat in charter, managed by a good company.

You cannot regard the boat as your pride & joy. If it gets totally wrecked you can buy another more or less the same. Newer boats are better as they are more standardised and 'turnkey' - you don't want to have specail briefing notes to comensate for particular quirks of older boats.

You will get damage, and much of this will be irritating - my particular bugbear is people who pull rusty mooring chains over satin anodised toerails and fairleads instead of over the bow roller. On the other hand 10 weeks charter a year more than pays all running costs, though it doesn't really make it a paying propsoition if you factor in depreciation and the work you do to maintain the boat yourself.

I try to go down for half an hour every changeover day to check condition and fix minor stuff, and put clean mattress protectors on the berths. If I am away I let the charter company do this. I don't expect to clean, but sometimes do a bit anyway.

It does for me mean that I have a newish, comfortable boat to sail when I do get the chance (this year not that much at all, but other issues caused that).

The downside is that when I do want to take the boat away for a few days or longer there's a lot of personal bedding etc to put aboard and take away again afterwards. You cannot leave your own stuff on board for charters.

Although new is good, the percentage return on capital is higher for older smaller boats - though they must have a very reliable start every time and run all day engine, and decent electrics.

 

[neil1967]

We bought to charter in Turkey (not sunsail); and so far it is working for us (3rd season) -income more than covers costs plus we get excellent holidays ourselves for little more than the cost of the flights. PM if you want more info.

Regards

Neil

 

[temptress]

I had a SIGMA 362 i chartered out some years ago. Never AGAIN! The idea was to offset the cost of the boat as i was working abroad and not using it that much. I still regret doing it. The wear and tear was huge, adding in the maintenance to keep the boat, equipment and sails up to a reasonable standard, subtract the 'handling fees' for the agents and I lost money and had a boat getting worn out at the same time. I would have been better off just keeping the boat sitting idle!

IMO don't do it.

 

[BrianH]

I had a SIGMA 362 i chartered out some years ago. Never AGAIN! The idea was to offset the cost of the boat as i was working abroad and not using it that much. I still regret doing it. The wear and tear was huge, adding in the maintenance to keep the boat, equipment and sails up to a reasonable standard, subtract the 'handling fees' for the agents and I lost money and had a boat getting worn out at the same time. I would have been better off just keeping the boat sitting idle!
IMO don't do it.

Agree 100%. I did it once too many years ago and it broke my heart. I did make a little money but it was no compensation for the thoughtless wear and tear inflicted on my boat. Many charterers have no scruples whatsoever how they treat a rental object, coupled with the fact that many of them don't have a clue about handling a sailing boat.

I had the extra problem that the small charter agency I was with used my boat as a maintenance vehicle for the other yachts - motoring around with spares aboard when I wasn't there. The engine was totally knackered and I had to re-engine. I didn't find that out until long after I left them.

 

[dslittle]

Stepping stone

dt4134 covers the pros and cons pretty well - and I came to the same conclusion when considering doing this in UK.

One alternative, and the way we went is to buy a boat through a charter management scheme in somewhere nice and warm like the Eastern Med or Caribbean. Once again there are pros and cons. If you can use the "weeks" you get as part of the deal then it can definitely be economic. In our deal 2 weeks a year and it was as cheap to own the boat rather than charter. Main drawback is what to do with the boat at the end of the contract. If, like us it was a way of buying the retirement boat then it can work out. If you need to sell you can drop a lot.


Hope this helps.

This is exactly how we got into 'yacht ownership'. Our first yacht was based in the Ionian. We had limited times that we could sail, we couldn't afford to buy and maintain a yacht full time, we were pretty inexperienced with regards to maintenance and we weren't sure that we wanted to commit to the full time thing. It weas a stepping stone between chartering and real ownership.
The people we initially bought from maintained the yacht and chartered her for us (they were a small size business living over there).The initial sales pitch was that the yacht would pay for itself AND give us a small income. The reality was that the yacht paid for itself (I did make a small profit when I sold her...) During that time we got out six or seven weeks a year and had some great holidays in the sun. We made friends with our 'business' partners and gained the knowledge that we wanted to do this for real.
Our circumstances have now changed, in that, we now have the time (and the money!!!) to have our own 100% yacht in the UK. In due course we shall return to the Med with our own yacht and repeat some of our great times at more leisure.
Taking into account the caveats already mentioned, I think that this is a great way to find out if it really is for you (and yours) without totally committing yourself. Horses for courses...

 

[Seajet]

I agree with PRV & others, I chartered my then Carter 30 out for a season, and though I was very careful as to who to, I was a bag of nerves until she safely returned.

Never again with my pride & joy...

The point about 'linen and things one doesn't think about' is a good one; of course there will be insurance costs too, and if taking things to extremes ( and one may have to from now on, with underwater camera inspections etc ) - look at the recent case of the charter boat from Falmouth which returned without her keel, it would seem the charterers didn't mention what must have been a 'nudge' on the Scillies about equal to the flattening of Hiroshima, as they wanted their deposit back !!!

 

[ytd]

we had a charter boat with a major company here in Aust. for 5 years. They don't normally keep them on after 5 years. Overall it was a good arrangement since the investment was cash neutral but provided a good tax deduction due to depreciation charges.

The bad things were very high maintenance and this all comes out of your 60%. We replaced 2 engines in the 5 years. One charterer returned the boat saying it was great except for the annoying squeal near the wheel. It was the overheat alarm - new engine. Also cushion covers, flogged sails and continual blocked heads.

You are in a bit of a bind when it comes to maintenance. If you skimp the charter company tends to drop your boat further down the list for charter. Naturally they like to rent out the newest/nicest boats first. Similarly with personal use. If you use it during peak times that's guaranteed income you lose out on.

If you treat it as an investment that returns a well worn boat at the end of the charter period it's great.

 

[Sailfree]

we had a charter boat with a major company here in Aust. for 5 years. They don't normally keep them on after 5 years. Overall it was a good arrangement since the investment was cash neutral but provided a good tax deduction due to depreciation charges.

I started with a sailing school. Boat was worked hard and even when not out used as a dormatory for shore based courses.

Decided next boat would be conventional charter. One disadvantage of this I found out 3 yrs later.

You can claim depreciation on a capital asset and get a tax rebate but only if its a service. Therefore skippered charters yes bareboat no. Cost me £10,000 after a tax investigation.

If you want to offset part of your cost and don't mind the lack of "ownership" try chartering but with current tax situation I would not do it now if I was starting again.

 

[alant]

Fools Gold?

It sounds like a great idea: buy a boat, charter it out for at least some of the time while using it yourself for the rest of the time, and make money hand over fist.

Somehow I suspect that the reality is a bit different. Chartering: a lot of effort for limited return; turning sailing into work; unwelcome restrictions on when you can use your own boat; expenses greater and income less than your "business plan" (aka "pipe dream") would suggest.

Has anyone hereabouts tried it? Any figures available to support one view or the other?

Some years back, Jenneau I think, were suggesting deals based on following scenario -
£100,000 purchase cost.
£20,000 deposit,
£80,000 marine mortgage.
Gross charter income (to owner) = £19,000 pa
Costs, marina/repairs/insurance/servicing marine mortgage = £7,000
Net 'profit' = £12,000pa
All for a £20,000 investment!
Too good to be true?
Probably, but many bought on the above basis.

Another model, was the following -
£100,000 purchase cost.
Charter for 5 years, covering all costs, with no profit.
At end of 5 years, sell boat, now worth £75,000 (tax free).
Do this each year, thus ensuring an income stream of £75,000 tax free pa thereafter.
One guy who proposed this, bought one boat, but due to lack of fund from a seperate business failure, could not continue with the scheme, but is still convinced it would have worked.

Take your pick.
I dont know many who have 'made money' out of the marine business.
Many look as if they are, but thats another story.

 

[Tranona]

Think those are fairy tale figures - I have never seen such hopelessly inaccurate figures in all the schemes I have looked at.

In your first one £7kpa would not even service the mortgages let alone any other fixed costs, so I doubt anybody would have been taken in by them (if indeed anybody was seriously offering them).

Most of the management schemes I have looked at are fairly realistic - and few promise making loads of dosh! The key benefit they sell is providing low cost access to a boat you could not justify or afford on your own. The value of that depends on whether you "cost" that at market rates for your usage or as an opportunity cost. So in my case 2 weeks a year (at full rates) was more than my annual servicing cost of the capital.

The risks are that the boat gets trashed and most importantly the residual value of the boat at the end of the contract if you don't want to continue owning it.

It is clear that it works for some people because of the way they value the non financial benefits which can include such vague notions as "I own a new 40 footer in a prestige marina/exotic location and it doesn't cost me an arm and a leg".

 

[alant]

Think those are fairy tale figures - I have never seen such hopelessly inaccurate figures in all the schemes I have looked at.

In your first one £7kpa would not even service the mortgages let alone any other fixed costs, so I doubt anybody would have been taken in by them (if indeed anybody was seriously offering them).

Most of the management schemes I have looked at are fairly realistic - and few promise making loads of dosh! The key benefit they sell is providing low cost access to a boat you could not justify or afford on your own. The value of that depends on whether you "cost" that at market rates for your usage or as an opportunity cost. So in my case 2 weeks a year (at full rates) was more than my annual servicing cost of the capital.

The risks are that the boat gets trashed and most importantly the residual value of the boat at the end of the contract if you don't want to continue owning it.

It is clear that it works for some people because of the way they value the non financial benefits which can include such vague notions as "I own a new 40 footer in a prestige marina/exotic location and it doesn't cost me an arm and a leg".

Not 'my' figures, just quoting others.
Also, the £7000 pa, about 8.75%, surely depends upon what the interest rate was back then.

 

[Tranona]

Not 'my' figures, just quoting others.
Also, the £7000 pa, about 8.75%, surely depends upon what the interest rate was back then.

I know they weren't yours (or hope they weren't). Marine Mortgage rates are usually 3-4% above base.

I am just looking at a quote I had in 2007 for a Bavaria 38 on a 3 year deal. Boat was £96k, additional equipment plus coding £13k (with a hired raft). Income £6kpa.(5.5% return) Usage 25 days - value at market price around £5.5k. I estimated residual value after 3 years of £80-85k.

Compare that with the deal I had on my boat in Greece. Purchase price under £40k (48% of total cost). 6 year contract, similar usage. Financed by additional mortgage on house with average rate of less than 5% - ie £2kpa. Normal charter rate £1400 week, Residual value about the same as purchase price.

 

[westernman]

I am just looking at a quote I had in 2007 for a Bavaria 38 on a 3 year deal. Boat was £96k, additional equipment plus coding £13k (with a hired raft). Income £6kpa.(5.5% return) Usage 25 days - value at market price around £5.5k. I estimated residual value after 3 years of £80-85k.

That residual value looks very optimistic to me.

For a well used charter boat??

 

[Tranona]

That residual value looks very optimistic to me.

For a well used charter boat??

No. 6 2008 boats currently on the market, two look ex-charter and one definitely. All asking £90k+.

Remember all prices included VAT and new boats of similar size/quality have risen typically 25% in £ terms since 2008, so a comparable new boat would be £145k+ to the same spec.

Actually would probably sell pretty well in today's market and unlikely to drop over next year.

 

[Ceejay]

Only do it if you live and breathe yachts, but don't expect to do much sailing yourself.
I'm very practiced at maneuvering between pontoon and fuel berth. I have only sailed 4 days in the last 3 years. There are so many reasons for this that I could probably write a book.
CJ