Calculating Depreciation

[rob1699]

Following on from some posts in recent weeks regarding the price of 2nd hand boats, in order to help me with my own boat sale and possible purchase would this seem a reasonable method of working out approximate depreciation on a 3 year old boat:

17.5% in the first year (ie the VAT element)
10% in the 2nd year
10% in the 3rd year (or possibly more taking into account the red diesel factor)

So, a boat that cost £300k in 2005 is worth approximately £210k in 2007. In other words almost 1/3 less than its new price?

Week after week the same boats are advertised, most of which seem to be not far short of their new price some 3 years prior and not selling. /forums/images/graemlins/confused.gif

Expert thoughts appreciated!

Rob

 

[sidney]

This is the conundrum that puzzled me! Or is it a case of look at the price of a current new equivalent, deduct the VAT and then deduct (it seems) anything from 2.5% to 10% (not many work out at 10%!) to still come up with a value invariably below the asking price (even in some cases allowing only 2.5% each year). It seems it is just always going to be a case of the heart running away from the head if you are a buyer and if you are a seller just waiting for someone to fall head over heels for your boat, when their heart rules their head! /forums/images/graemlins/confused.gif

 

[Bandit]

This is not a simple question and it depends on many factors.

Think of cars , ford focus say 100,000 come onto UK roads there is a very clear patern from new to 5 years old with the old adage that the most expensive year of ownership is the first with say 25% depreciation, equally it is probably worth 20% less the day after it left the show room.

Boats dont work in the smae way the Norwest 42 is a new model and only 12 are built a year and delivery is say 12 months .

This is large production runs of middle of the road cars where dealers have any number in stock providing you have not got peculiar tastes in extras you can drive one away that day.

Remember the new beetle when it first came out was getting sold in the US at a huge premeium over retail and second hand were being sold for more than retail.

With a boat it can depend on:
Delivery times some are two years, some are ex stock.

Some models are very desireable some are not.

The geographical location of the boat and likley sale market make a difference, a purchaser in the UK who wants to use a new boat in south coast Uk will I assume pay more for a secondhand model in Lymington than in the Orkneys, equally a boat in the the med, France etc that is not VAt paid makes it more difficult to sell to the guy in the UK.

When the boat is in the UK the purchaser will think nothing of driving accross the country in his Range Rover Sport and using two tanks of petrol at £70 a tank to view a boat but is unwilling to fly to channel islands to see one although in steaming time for the boat the Channel Islands may be closer.

In general highly desireable boats with long waiting list for new dont depreciate much, I saw a 5 year old Botnia Targa 31 sell last year for the same price as the owner paid for it.

The owners are the worst judges of value as they all think the boat is worth more than they paid for it and they think thay their 5 year old navaids which have been suerceded twice and are now half the price of what they paid are worth a fortune.

Who is selling the boat also makes a difference a nearly new boat that has been a part exchange sold by the main dealer has a written ir implied warranty whereas one sold by an individual has not so the former is likely to sell for more.

The only way is to look at the asking price for similar models, look at delivery for new boats , bear in mind that most boats doe not reach asking price second hand (although some do )form a judgement in your own mind and ask yourself what it is worth to you, what do you have to spend on the boat to replace the navaids for example, where is it what is the delivery cost etc.

Also look at lots of examples with her in doors before you buy I would bet that after ten boats you do not end up buying the boat you thought you would.

 

[RogerRat]

[ QUOTE ]
This is not a simple question and it depends on many factors.

Think of cars, Ford focus say 100,000 come onto UK roads...

Norwest 42 is a new model and only 12 are built a year and delivery is say 12 months.

[/ QUOTE ]

So why think of cars? Absolutely no comparison with a mass producer like Ford compared to Morgan, Aston Martin, even Rolls Royce! /forums/images/graemlins/confused.gif

Yet here we are talking about boats, so there is even less to compare with FairPrinSeeker!!! Boats are far more emotive and expensive than any of the cars. Don't forget also that most people need cars where as the boat market is almost pure leisure and quite tiny in terms of units sold.

The question was, 'Can you calc depreciation?' and from your answer you could have just said 'no'.

At the end of the day most of us know what our boat is worth and what the replacement will cost, depreciation only comes into the thought process when we're try to rationalise spending too much on the next one ! /forums/images/graemlins/wink.gif /forums/images/graemlins/cool.gif

 

[gjgm]

lets first agree that depreciation means dimish in value over time.
Other posts have mentioned a number of factors that effect a boats asking price; I d suggest supply and general state of the economy/boat market/consumer confidence are also major factors. The other problem is that there isnt a public knowledge about where boats are actually selling.. we only have public knowledge of asking prices.
Maybe a more practical idea is to work towards what the asking price should be;you can then enjoy all those fireside chats about where an offer should be /forums/images/graemlins/tongue.gif
For the first 5 years, I dont think your formula is too wrong in general terms. I might loosen it a bit to 15pct year one, 7pct therafter;might have to adjust a bit back in if new prices have moved up/down meantime. That will often come out with a figure that seems a bit low to examples for sale, but then , hell, just add that 10pct brokerage bill on to the price, and hey presto , you get the same numbers /forums/images/graemlins/grin.gif
Of course if people see other examples at £100k say, they probably dont start by thinking, ok well, less 10pct maybe for the offer, and then 10pct for the broker, and bloody hell, theres nothing left for me.
I think it does show that its wise to be very flexible on pricing. Number one is to to get offers. Next choice is accept or reject, but if you cant even get an offer... well, your are wasting your time having the boat up for sale, I always think.
Accept that the boat is definitely worth less than you would like it to be. Make a committed decision to sell it. I really believe that most people dont have that emphasis. They have the emphasis not on a sale, but on achieving a price. Emphasis is on the wrong part of the deal.

 

[Bandit]

Funnily enough "NO" is a little less informative than an explanation which I hope is what I gave, and my point was there is no comparison with a mass produced car and luxury cruiser with an annual production of 12.

On mass produced boats sold in large numbers such as Bayliner you can say 15% yr 1 and 10% yr 2 etc but on larger short production runs with long waiting lists you cant.

Also factor in the chap who trades in his boat every two years for a larger model and he does vey well untill the day he decides to get off the merry go round and then he is in for a great shock.

There also seems to an anomaly where with current production second hand models of say 35ft there is a good secondhand market when you start looking at the 50 to 60ft £0.5m to £1m range there seems to be a worse percentage drop after two years because aparently the people in this market have so much money they would rather buy new and there are some bargains provided you can afford the running costs.

At the end of the day the rule is that there are no rules it is willing vendor and willing purchaser , market conditions apply, you are talking about a luxury not a necessity and it only takes one to sell a boat and one to buy a boat.

 

[Whitelighter]

Some boats suffer negative depreciation - they go up. It is all a case of supply and demand when you sell.

 

[Deleted User YDKXO]

I said last time that I don't accept the 'you always lose the VAT in the first year' adage. This comes from the car trade in which leasing co's buy vehicles, claim back the VAT and finally sell used in the market and, as so many cars are leased in some way, the used car market is based on the value of ex VAT vehicles coming into it so the private buyer 'loses' the VAT. But it does'nt work like this in the boat market as most boats are bought VAT paid and there are'nt thousands of ex VAT leased boats coming onto the used market and there's no Glass's guide either

The value of a used boat is solely determined by what somebody else is willing to pay for it, not some predetermined notion of % depreciation per year or a Glass's guide price. You could certainly lose 1/3rd of the purchase price of a new boat in 3 years if you bought the wrong boat, thats for sure. On the other hand, if you bought a new boat with the following characteristics

1) Established well respected manufacturer
2) At the start of it's model life because when you sell it in 3 yrs, it will still be a current model and buyers will be attracted to it for that reason
3) Currently has extended delivery times because, hopefully, it will still have extended delivery times in 3 yrs and your used model will be sought after

Spend your £300k on a new boat with the above characteristics and it will get most of your money back when you sell it

 

[gjgm]

17.5pct just happens to be in between a probable 10 and 20 pct drop in value, but you could equally say 12.5pct, or 15 pct, or 20pct. Just convenient to say VAT, even though there is no valid link.
I still believe most boats lose in value during year one. Id go more for 10-15pct, but then only the buyer and seller can create the real number.

 

[RogerRat]

[ QUOTE ]
Funnily enough "NO" is a little less informative than an explanation which I hope is what I gave, and my point was there is no comparison with a mass produced car and luxury cruiser with an annual production of 12.

[/ QUOTE ]

I'm pretty sure we agree and I accept that your reply was a well considered explanation of some of the key factors affecting variable rates of depreciation.

Thanks.

I was being a little flippant with the 'No' remark. /forums/images/graemlins/blush.gif
But the motor trade is not a fair parallel and is so often mentioned here. /forums/images/graemlins/confused.gif