Yacht Management Schemes

[GaryC50]

Hi

We have been looking at the various yacht management schemes and are quite interested.

You know the kind of thing - you buy the boat and place it in the hands of the charter company. They then manage its servicing and holiday charters and the income is split (after certain costs are taken into account).

I would be interested to hear of the experience, lessons learnt etc. of any other who has gone down this route.

Thanks

 

[Tranona]

Welcome to the forum

I bought my boat that way in 2001. There are many different variations on the theme depending on what sort of boat you want and where you want to keep it. Most are long term (typically 6 seasons) deals, and give you some use of the boat usually by way of a couple of weeks in peak season and more in off peak - with the bigger companies this can be through a points system that allows you to have weeks in different locations/boats. Some schemes you have to pay the whole amount up front and get an annual income depending on the value of the boat. Others you buy the boat and get a share of the income, perhaps with a guaranteed minimum. There are also schemes where you pay part, get the "weeks" but no regular income. In most cases the manager pays all the ongoing costs.

Things to watch out for are the security of your investment - sometimes constrained by limitations on ownership rights in the country where the boat is based, any additional usage costs like insurance, cleaning, management fees. Some deals may also carry currency exchange risks. Lastly and perhaps most importantly what you are going to do at the end of the contract. It is a very illiquid asset in that it is difficult to sell the contract (and boat) while it is running and at the end you have to take over the boat, although some operators have a buyback scheme. Look at the major operators and see how many boats they have for sale! The risk of damage or excess wear to the boat is not as great as you might imagine as the boats are usually well maintained. It does pay, however to keep a regular check on the boat. You also need to check out the Tax position, particularly VAT and tax on oincome because this varies, and of course may change between the time you take full ownership.

Is it for you? Really depends on what you are looking for. As a straight investment, probably not. Although the %age returns look high, residual values are unpredictable so you could lose quite a lot of money. So you have to get your return in different ways. Obviously the saving in charter fees is the biggest. So if you regularly take 3 or 4 weeks a year and fancy perhaps sailing in different locations, then it is attractive. In my case, less than 2 weeks charters covered the interest charges on the money I borrowed to buy my share of the boat. Can also be useful as in my case to get a boat fully paid for in the right location for retirement (although for various reasons it did not work out quite as planned).

Not sure now is a good time to get in - not as attractive as it was 10 or so years ago. There is excess capacity, the deals are not as attractive as they were and the cost of holidaying has risen dramatically (particularly in £sterling terms). As always, though looking at the past is not much help - it is your assessment of the future that counts. The size of the risk you take will depend on your attitude. I decided that the commitment would never be so high that it would significantly affect me if it all went pear shaped and I lost the lot. If you have a secure income and asset backing to cope with the potential downsides, then go for it.

Most of the above is also relevant to such schemes in the UK, but these are much less attractive as they do not come with the sunshine and sand element. Also somewhat surprisingly the boats get a greater hammering than when used as floating holiday apartments in the Med or Caribbean.

Hope this helps.

 

[Talulah]

Personally, in the current market I wouldn't consider doing it. I haven't researched the options but my gut feeling based on my sailing experience is that the return each year to offset costs just doesn't justify the wear and tear and loss of use.
To get a return the boat needs to be chartered out extensively at the peak times of year just when you want to use it. You could be better off finding a second hand lightly used boat for a lot less money which means you no longer need that annual charter income.

 

[RupertW]

We looked at this very seriously a few years ago, and came to the conclusion that you were effectively paying up front to charter your own boat without being able to do all those nice boat ownership things.

In other words you had to keep it vanilla so not adjusted to the kind of sailing and crew you would want, and with no opportunity to put your own stamp on it.

Then at the end of the period you would have a pre-bashed boat which might have had a lot of damage done and repaired or may have got off lightly. Either way that was the boat you had to buy or sell back. And it may or may not be based in an area that you are now tired of.

We thought we'd have much more control if we chartered over 3 or 4 year period, changing boats and sailing areas and companies to see what we liked in larger boats compared to those we had owned before. Then the plan was to choose and buy and ex-charter boat with all the hindsight gained, and with an absolute knowledge of the condition we were spending our money on.

So 18 months ago we finally got the boat we'd been building up to without missing out on any sailing in the preceding years. That is what worked for us, but others may understand the concept of feeling you "own" a hire care even though it's barely used by you until others have worn it out a bit.

 

[phantom18]

I wouldn't after seeing what goes on when we charter boats.Suppose if it were skippered it might be ok.Also resale won't be as good.

 

[vjmehra]

I was just looking at this, via the Moorings ownership scheme.

The sums do look interesting, in the example they gave me, this is how it works out:

Example based on a Yacht in St Lucia Yacht Price £180,000

Guaranteed Income is 9% of purchase price each year

10% initial deposit – paid on signature of agreements £ 18,000

Balance paid on factory completion date or as otherwise agreed £ 162,000
(Buyer pays registration cost to register boat in their name)

Annual revenue paid to owner by Moorings – GUARANTEED £ 16,200
Total revenue paid to owner over 4.5 years £ 72,900

NET COST OF YACHT £ 108,000

Therefore the boat has depreciated by less than 40% you should be able to sell it and make a capital gain vs book value, but you also need to factor in the financing costs, therefore if you are financing at say 5%, you only make 4% pa, which all of a sudden makes it look loss making.

That said, you also need to factor in the money saved from having a pre-booked charter every year, so it actually could be a close run thing, especially if you can pay a bigger deposit and reduce the financing cost.

(I've only had these numbers for approx 10 mins, so haven't bothered rationalising them properly, so apologfies if there are any glaring errors there)...

 

[Angele]

I was just looking at this, via the Moorings ownership scheme.

The sums do look interesting, in the example they gave me, this is how it works out:

Example based on a Yacht in St Lucia Yacht Price £180,000

Guaranteed Income is 9% of purchase price each year

10% initial deposit – paid on signature of agreements £ 18,000

Balance paid on factory completion date or as otherwise agreed £ 162,000
(Buyer pays registration cost to register boat in their name)

Annual revenue paid to owner by Moorings – GUARANTEED £ 16,200
Total revenue paid to owner over 4.5 years £ 72,900

NET COST OF YACHT £ 108,000

Therefore the boat has depreciated by less than 40% you should be able to sell it and make a capital gain vs book value, but you also need to factor in the financing costs, therefore if you are financing at say 5%, you only make 4% pa, which all of a sudden makes it look loss making.

That said, you also need to factor in the money saved from having a pre-booked charter every year, so it actually could be a close run thing, especially if you can pay a bigger deposit and reduce the financing cost.

(I've only had these numbers for approx 10 mins, so haven't bothered rationalising them properly, so apologfies if there are any glaring errors there)...

Well, given those numbers you quote I certainly wouldn't look at it as an investment, but then buying a boat rarely is.

Also, is the amount of income guaranteed net of all costs or are you liable for some of them (e.g. insurance)?

Have you looked at alternatives? Is it possible to do a boat share arrangement in the places you are considering? I think I would rather be a part owner of a boat with other like minded sailors than the owner of a boat that might be getting trashed/dinged by charterers.

 

[Tranona]

That is the sort of calculation that makes them superficially attractive. As I pointed out above the downside is that you are locked into an illiquid asset for 6 years, and the sale price at the end is unpredictable - look how many boats the big operators have for sale. For them the attraction of the owner type deal is that it removes the risk to them of having unsaleable boats at the end, passing that risk to the owner.

It really only works if you habitually charter for your hollidays and intend doing it for a long time, so potentially quite good for syndicates. Or, as in our case getting the boat fully paid up at the end in a nice location, plus enjoying effectively free use in the meantime. However, for many people a 6 year time horizon is too long - a fellow owner lost his job just as he had to take over the boat. Could not even afford to pay the VAT and ended up selling back to the operator at a 40% discount on what he expected.

BTW historically these deals were set up under a French scheme that allowed (French) buyers (of French boats) to offset the whole capital against tax in the first year and the income was classified as "compensation for delayed delivery" so therefore also tax free. Those days have gone, but the basic model remains because it suits the operator - they make their profit when they sell the boat new plus take a good cut of the ongoing income.

 

[Newbuyer]

We have done this twice, in 2001 and 2004. If you are looking at this as a way to make money, then I would forget it immediately, and I belive the return on investment has worsened as th boats have become more expensive and the returns stayed the same. However for us this was a way of owning a boat abroad that we wouldn't otherwise be able to afford. Much depends on the Company you decide to go with and the people who run it. We love Croatia and decided to go with the Pivatus base in Pula having hartered with them one season. I can only say that it was a wholly positive experience. They really looked after the boat and I enjoyed the experience of being to turn up and go and leave it for someone else to clean and take care of the maintenance. I know a lot of people believe that maintaining a boat is part of the enjoyment of owning it, but I can't say that I'm one of them.

 

[vjmehra]

As an investment it makes no sense...as a potential way of getting a cheap charter over the next 5 years (if you have disposable cash) its arguable, but the risk/reward payoff is highly questionable!

I've really only started looking into this whole concept, but from what RupertW and Angele say (and definitely from the figures I got sent by Moorings it seems that it is an unprofitable approach.

I think (personally) the part ownership, i.e. 1/10, 1/12 or whatever, seems far more appealing!