Charter management programs can make it easier and more affordable for you to own the boat of your dreams.
By Pierce Hoover
We've all heard the old saw about boats being floating cash disposals; the ownership experience akin to shredding $100 bills while standing in a shower. But despite our humorous complaints, we love our boats and consider the investment to be money well-spent. In fact, many of us would like to have even more funds to lavish on our favorite obsession. That's where I found myself recently when contemplating a purchase I'd always figured was still 10 years away.
The economic downturn has been tough on many boatbuilders, but it has also provided buyers a short-term windfall as manufacturers and dealers scramble to rekindle business with sales incentives and price reductions. Long story short, one such opportunity brought one of my favorite "when I retire" boats within range of my current financial position … well almost. Even though I could — bank willing — leverage the purchase, it was still somewhat difficult to justify. It was a lot of cash to tie up when I wouldn't have the time to fully enjoy the boat, and the monthly note would definitely cut into my overall lifestyle. Meanwhile, working to pay for my dream boat wouldn't leave me much time to use or maintain it.
Then the builder's sales rep offered a solution: charter management. Make a reasonable down payment on a boat, and let charter income cover the mortgage, insurance and maintenance costs. Right off the bat, I had questions and reservations. The idea of letting total strangers loose on my pride and joy seemed sacrilegious. Plus, I wasn't entirely certain this type of program actually could cover most or all of the hard costs.
My first step was to call around to a few charter companies to learn the specifics of placing a private boat into charter service. They were not only helpful, but also supplied me with the names of some satisfied customers.
The first such owner I spoke with was Fred Bunting of Grand Rapids, Michigan, who was a repeat customer of The Moorings yacht ownership program. Bunting bought a house in St. Thomas a few years back and figured it would be nice to have a boat available on a regular basis. He bought a 464 powercat through The Moorings in 2003, then upgraded to the new 474 model in 2006. "It's a convenient way to maintain a boat when you aren't there full time, and it also made financial sense," Bunting says. "Instead of buying a boat outright and losing money as it ages, I'm getting all the use I realistically need without the maintenance cost or effort, and there's even a positive cash flow."
Bunting says he uses his boat an average of five weeks a year, and even without assigning a value to that time, he feels the investment is justified. "On my first boat, when all was said and done and we determined all the costs and returns, my CPA figured I came out about $140,000 to the good," he says. "I've never seen a downside to the program. The boat is kept in good shape and the service is great." In fact, Bunting says he is so pleased with The Moorings program that he is considering buying a second boat as an investment. "My financial planner figured we could realize as much as 16 percent on our investment, plus all the fun that goes with boat ownership," he says.
The Moorings programs provide a guaranteed rate of return and minimize or eliminate the costs of ownership and operation, although the sales staff will point out the specific financial benefits of the programs vary according to each individual's financial strategy. Theirs are the industry's highest-profile and most popular ownership/ charter programs, but they are by no means the only such option for buyers of both new and used boats. In years past, I've hired a number of vessels through Southwest Florida Yachts, each of which was privately owned but operating as part of the company's charter fleet. These boats ranged from almost-new cruisers to vintage trawlers, but all were maintained to high standards.
Financial return is not the only benefit of the charter/ ownership equation. More often than not, private boats suffer from lack of use rather than overuse. And as more than one source reminds me, the additional wear put on a vessel from chartering is typically more than offset by the benefits of a strong maintenance program.
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About 15 years ago, Dr. Mark Robinson inherited Catnip, the family's vintage 1973 Grand Banks 32. "It was heavy with teak trim, all of it peeling and in need of some restoration," Robinson says. "We decided the best course of action would be to put it into a charter fleet." Catnip was entrusted to Canadian Yacht Charters in Lake Huron's North Channel. Within the first season, it was returning a positive cash flow, but the charter relationship yielded another significant benefit. "The CYC staff has done wonders," says Robinson. "For a boat that's 37 years old, it looks like new. I can't count the number of things they've fixed or replaced, and having it serviced every week makes a huge difference. Pay enough and you might get a marina to service your boat weekly, but no one except a charter company will take care of it as if it was their own because they have a vested interest in keeping it in top-notch condition."
Canadian Yacht Charters principal Ken Blodgett agrees with this assessment, but adds that Catnip was a special case. "We're no longer in the business of restoring old boats," he says. "We have some older vessels in the fleet, but we are now focused on newer models, including a PDQ 34 powercat that joined the fleet this summer."
Blodgett contends most people don't get to use their boats as often as they'd like and that's one reason charter management programs make sense. "Depending on the boat, it may or may not be realistic to expect positive cash flow, but by putting it into charter, you can definitely gain some tax advantages, defray much of the cost of ownership and ensure that the boat will be kept in top-notch condition," he says.
While some charter operators provide turnkey management and maintenance programs, others allow the boat owner to become more involved in the process. At Anacortes Yacht Charters, Mike and Kristin Lovell allow owners to choose their level of personal involvement. "Some want nothing to do with the maintenance, while others want to be highly involved, either to maximize revenue or just because they like to keep on top of things," says Mike. "As long as they can do a professional job, that's fine with us." As their business continues to grow, the Lovells have taken steps to ensure each boat receives top-quality care. "We divided the fleet among a number of captains, and each is responsible for a small number of boats," Mike says.
Like many charter operators, the Lovells can provide guidance to owners seeking to purchase a boat and place it in charter service. "We know which boats are best suited for charter, and we like to have diversity in the fleet," says Mike.
Roger Entreken has kept his Carver 57 in the Lovells' charter fleet for the past four seasons, and he says it's the only way he'd own a large boat. "There's no way I could see it making financial sense to tie up that kind of money if it wasn't producing some degree of revenue or tax benefits," he says. Entreken had been a longtime charter customer before deciding to become an owner. He says it suits his schedule quite well. "I do most of my boating in the early and late seasons," he says. "I don't like to get out there with the crowds, so I'm OK with having someone else use it at those times."
It did take Entreken some time to get used to the idea of other people using his boat. "You have to get comfortable with the idea that someone else might take it out and break something," he says. "It's a lot easier once you understand that accidents will happen, whether it's you or someone else using it. Most anything that gets broken can be fixed, and insurance covers 99.9 percent."
Entreken says sometime within the next five years he may take his boat out of charter service and begin using it on a more full-time basis. In the interim, he's happy to have it paying a good portion of its own way while also being maintained to a high standard throughout the season.
The more I spoke with owners like Bunting, Robinson and Entreken, the more enthused I became with the concept. Yes, strangers would be aboard my boat, but for the most part they would be knowledgeable mariners — fully covered by insurance — and these folks would be helping pay for a vessel that actually belonged mostly to the bank. Maintenance would probably be more thorough than I could provide, and the boat would be ready for my personal use whenever I found the time. Best of all, based on the resale history of the brand and model I'm considering, the boat should not lose value over the years and will be ready for that day sometime in the future when I might want to cruise off into the sunset.
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