The economy behind the yacht chartering (from the PoV of the yacht owner)

[prinex]

I had a nice long chat with one of the owners here in the marina. Long story short he owns a 24mt Sunseeker (a bit dated), he charters the boat out in the summer (at something like 20K Euro a week, including crew which is him as cook / skipper and another crew member that gets hired when he has some customers).

Things were not going as good as he hoped, the basically only week he managed to get some customers a exhaust pipe developed a tiny crack - enough to have him cancel the week.
Boat is now for sale (he did explain to me he list the boat periodically maybe someone "bites" and he gets to sell it) - I think he had enough.

There is also a AZ55 brand new which saw 4 days of charter last season, otherwise boat was not moved from the berth, a SL62 which also camped there basically with a nice sign "yacht charter" or the like for all the summer etc.

So are all of this business always at a loss ? Is there a scenario where the charter business makes real money for the owner/skipper - comparing risks, the madness of burecracy in the mediterranean, etc at all ? Or is just either super-wealthy trying to recoup some investment (or laundering money / tax write-off or the like) and they operate at a loss anyway at least from a business point of view ?

Pratically speaking, if someone would be starting in this business - does he have a chance at all ? (and no Im not leaving my IT Business to go cook breakfast on a boat...)

 

[jrudge]

To charter well you need

1. A new boat. The newer the boat the more popular it is.

2. Good location for both guests and boat support. Palma is one good example. Easy guest access. Itinerary is a lap round the island. Lots of nice places.

3 a decent charter agent

4. Repeat customers.

Old boats on part time charter in secondary ports will never get much traction.

 

[Aardee]

Is there a tax benefit in registering your yacht to your charter company rather than you as an individual, with you needing to prove you're a genuine charter outfit by advertising and completing the odd charter?

 

[jrudge]

In the U.K. generally no. If it is legitimate then fine but if not and only occasional charter then HMRC will take a keen interest. Likewise vat registration.

If owned by the company and you use it then there is a benefit in kind etc.

So if it is a real charter. Impact happy days. If not. Watch out.

 

[Tranona]

Is there a tax benefit in registering your yacht to your charter company rather than you as an individual, with you needing to prove you're a genuine charter outfit by advertising and completing the odd charter?

The only formal requirement is that the boat is appropriately coded. Ownership is irrelevant. It is extremely difficult to make sufficient business out of chartering to convince HRMC that the boat is a business asset such that you could treat the VAT on a new boat as an input. Most people who do "a bit of chartering" are hoping to cover some of their costs of running their private boats and are highly unlikely to generate enough income to even be VAT registered.

I once owned a "proper" charter boat and bareboat the breakeven point was approx 14 weeks usage a year. This was in the Med and I got usually 16-18 weeks a year which made a small surplus. That level of usage is virtually impossible to get in the UK

 

[DAW]

A few years ago, I spent some time analysing the charter market for vessels in the 30-40m range in the Med. This included discussions with several of the leading brokerages and yacht management companies on the viability of different business models. The consensus seemed to be that to fully cover the annual running costs (not including depreciation or major refits) you had to achieve a minimum of 12-13 weeks charter from a summer season that lasts about 18 weeks. Achieving 6-8 weeks of good charter income in July and August was possible if the boat was recent, in good condition, well located, priced correctly and fully available, but the shoulder seasons (May/June and September) were always much more challenging.

There was an acknowledgment from everyone I spoke to that very few vessels actually get close to achieving 12-13 weeks on a consistent basis and that most owners are chartering to partially offset running costs, not as a business to make a profit.

 

[prinex]

(not including depreciation or major refits)

Considering depreciation and interest payments I guess the old adage "if it flies floats or f..s is cheaper to rent" is still true !

 

[jointventureII]

I've never come across anything over 30m that actually makes money but, as previously said, plenty use it to offset the costs.

Chartering heavily will have an equally heavy impact on the interior of the yacht - expect frequent refits.

 

[roa312]

A few years ago, I spent some time analysing the charter market for vessels in the 30-40m range in the Med. This included discussions with several of the leading brokerages and yacht management companies on the viability of different business models.

Is it true that at the 30-40m and above size range, most yachts are already owned through company structures, and with the higher level of regulation at this size, maybe licensing/coding for chartering doesn't add significantly to the regulatory burden?

I've sometimes been surprised to see the very largest superyachts chartered, even when the owners seemingly are in no particular need of the income. One example that comes to mind is the former Kismet yacht, which was promoted through several high-quality marketing videos and, I believe, appeared at various yacht shows around the world. I'm sure there are many other examples. But perhaps it's simply a case of “might as well,” since it's crewed 24/7 and the added hassle of coding and licensing isn't a major concern anyway.

 

[jrudge]

Also bear in mind that until a few years ago money was basically free. So the finance cost of the asset was negligible. That is now long gone.

Some years ago I did a back of a fag packet calculation that my own boat ( squadron 58 ) cost me about £5000 per week used. This will be more now. I use it 10-12.weeks a year. This excludes finance cost / deprecation.

At the time a squadron 58 was chartering for £12k pw. I assume more now ( but the cost is older so who knows ).

Take of the agents fee and you left with say £9k.

Add in cost of crew, take off the 5k. Hope nothing goes wrong. You might break even

Realistically 6-8 weeks charter a year ? All the best times that you can't use the boat.

Does not really stack up and close more hours and red wine on the carpet. This excludes finance cost which would kill the deal.

Bear in mind boats.co.uk pulled out of the charter market. They have people who can fix it , parts , know the market , a client base etc.

As a way to offset some costs maybe. To make money. Possible but difficult.

 

[roa312]

Some years ago I did a back of a fag packet calculation that my own boat ( squadron 58 ) cost me about £5000 per week used. This will be more now. I use it 10-12.weeks a year. This excludes finance cost / deprecation.

At that rate, I think you owe it to yourself to squeeze in a few more weeks at the boat each year. Otherwise, the numbers wont work .

 

[DAW]

Is it true that at the 30-40m and above size range, most yachts are already owned through company structures, and with the higher level of regulation at this size, maybe licensing/coding for chartering doesn't add significantly to the regulatory burden?

I've sometimes been surprised to see the very largest superyachts chartered, even when the owners seemingly are in no particular need of the income. One example that comes to mind is the former Kismet yacht, which was promoted through several high-quality marketing videos and, I believe, appeared at various yacht shows around the world. I'm sure there are many other examples. But perhaps it's simply a case of “might as well,” since it's crewed 24/7 and the added hassle of coding and licensing isn't a major concern anyway.

It's safe to assume that anything 30m or above with full time crew onboard is likely to be owned through a corporate structure. Depending on the flag state, this may also be a requirement for the commercial registration required for any charter activity. In addition, most owners want to enjoy the liability protection and privacy available to them through a limited liability corporate structure.

The regulatory requirements associated with operating a vessel of this size can be considerable and the assistance of multiple specialist advisors is usually required to manage and maintain compliance. Commercial use adds another layer of complexity, but probably not that much extra work or cost.

For many owners of bigger boats (+50m), the key to a happy boat is a happy crew and most good crews just want to be kept busy, visit new places and have the opportunity to earn the generous tips, etc. that go with a successful charter. The better charter brokers vet the clients very carefully and many are either already known to the owner or are repeat customers of the broker or the yacht. A few weeks of charter when a busy owner is not planning to use the boat anyway can be a win-win scenario, and it's not just about contributing to costs.

Wear and tear is often raised as a concern, but its not really a consideration for owners at this level ... carpets, linens, towels, soft furnishings, interior and exterior furniture, etc. are all replaced or refreshed frequently anyway. Following a charter, damaged or worn items are quickly repaired or replaced before the owner comes onboard and the cost is always billed to the offending party.

 

[Minerva]

The only formal requirement is that the boat is appropriately coded. Ownership is irrelevant. It is extremely difficult to make sufficient business out of chartering to convince HRMC that the boat is a business asset such that you could treat the VAT on a new boat as an input. Most people who do "a bit of chartering" are hoping to cover some of their costs of running their private boats and are highly unlikely to generate enough income to even be VAT registered.

I once owned a "proper" charter boat and bareboat the breakeven point was approx 14 weeks usage a year. This was in the Med and I got usually 16-18 weeks a year which made a small surplus. That level of usage is virtually impossible to get in the UK

It’d be interesting to hear your take on the owning a charter boat experience?

I seem to be on the email list for sunsail and get periodic “investment opportunities” to buy a boat for them to charter out.

Whilst I can see kind of see the appeal whilst I work and only get 4 weeks cruising a year, I can’t help but think that they can get access to better finance deals than Joe Public. If the IRR was that great, they wouldn’t be looking for individuals to own the boat they operate.

 

[markc]

It’d be interesting to hear your take on the owning a charter boat experience?

I seem to be on the email list for sunsail and get periodic “investment opportunities” to buy a boat for them to charter out.

Whilst I can see kind of see the appeal whilst I work and only get 4 weeks cruising a year, I can’t help but think that they can get access to better finance deals than Joe Public. If the IRR was that great, they wouldn’t be looking for individuals to own the boat they operate.

A friend of mine bought a Sunsail chart boat a couple of years ago, and so far he's pleased with it. I'm not sure of the exact process but he bought the boat and Sunsail use if for 4 years, and during that time he can use Sunsail boats in any location for a number of weeks free of charge and at the end they give him the boat back. The opportunity to sail for free during the first years made the deal stack up. I do wonder how hard his boat will have been worked and what condition it will be in when it's handed over?

 

[benjenbav]

It’d be interesting to hear your take on the owning a charter boat experience?

I seem to be on the email list for sunsail and get periodic “investment opportunities” to buy a boat for them to charter out.

Whilst I can see kind of see the appeal whilst I work and only get 4 weeks cruising a year, I can’t help but think that they can get access to better finance deals than Joe Public. If the IRR was that great, they wouldn’t be looking for individuals to own the boat they operate.

A couple of years ago I did an appraisal of the proposition of buying probably two boats and running them through Sunsail, based on the numbers they quote. I don’t know how much room for negotiation there is on their starting point because it was completely underwater as a commercial investment and any imaginable compression of the margins wasn’t going to bring it back to the surface.

If you want to end up with a 3/5 y/o well used, but well maintained yacht that you’ve had quite a few weeks use of in the meantime it makes much more sense. But I was looking at it purely as an investment and judging it against what I could do with similar money elsewhere.

 

[Time Out]

Also if your yacht is commercial >24m the ‘owner’ / UBO will have to charter their own yacht if they want to use it. There are a number of schemes to facilitate this and make it easier of course.

 

[ari]

Some years ago I did a back of a fag packet calculation that my own boat ( squadron 58 ) cost me about £5000 per week used. This will be more now. I use it 10-12.weeks a year. This excludes finance cost / deprecation.

That's very interesting. So about £50,000 - £60,000 annually to run a Squadron 58, not including, as you say, finance/lost opportunity costs? Or the cost of something expensive breaking or needing replacing (there's always something every year in my experience). So chuck in, what, £20K for the former and £20K for the latter/depreciation and we're at about £100,000 a year total running costs? Wow, so much for boats costing 10% of value to run!

I might be able to afford to buy one (I'm guessing at circa £350,000?) - I certainly can't afford (or at least justify) the cost of running one!

Should have tried harder at school!

 

[Tranona]

The 10% of value has always been nonsense - used by lazy people who don't understand (or don't want to know!) what is involved.

 

[jfm]

That's very interesting. So about £50,000 - £60,000 annually to run a Squadron 58, not including, as you say, finance/lost opportunity costs? Or the cost of something expensive breaking or needing replacing (there's always something every year in my experience). So chuck in, what, £20K for the former and £20K for the latter/depreciation and we're at about £100,000 a year total running costs? Wow, so much for boats costing 10% of value to run!

I might be able to afford to buy one (I'm guessing at circa £350,000?) - I certainly can't afford (or at least justify) the cost of running one!

Should have tried harder at school!

I must say that I find including the "opportunity cost" in your boat running costs is a bit mad and illogical. I never do it. Each to their own of course.

(I'm referring to the interest that you would have received on your cash if you had not spent it on a boat)

 

[petem]

Wow, so much for boats costing 10% of value to run!

The 10% rule is garbage IMO. As boats get older their value reduces and their running costs increase. And it takes no account of the differences in the largest and most variable expense, the mooring cost.

Makes no sense at all.