On Board Boats

Chapter 2

To Buy, or Not to Buy


Indeed, that is the question. This question is fraught with a great many loose ends. It greatly resembles a ball of string with many ends dangling off of it. From a distance the ball, like this question, seems quite self-contained and easily identified. As you get closer to it you find that the image becomes fuzzier, and finally when you get right down to it you find that one end of string leads to another aspect of the whole ball of string. My intent here is to show you how I brought some structure to the question.

Before I begin my version of the issue let me reassure you that buying a boat is a financially daunting proposition and therefore worth some careful thought. From the prologue you have no doubt gathered that I would have liked to buy a boat many years ago. All that has ever stood in my way was money. And now that I am an owner, the money aspect has kept me awake more than one night. There is at least one book on how to sail on a micro- budget. I did look at one of these books. My retort is that my son has the right idea about sailing on a micro-budget. That is, he does it in the bathtub. There are just no two ways about it: Sailing will involve a non-trivial sum of money. If, like my family, you must live within a budget, can look forward to college tuition payments, and anticipate retirement in thirty years, then you will have to make some hard decisions and may have to make some sacrifices. When I think about what people spend on entertainment, then the cost of sailing is not quite so daunting. Remember, concert tickets are twenty dollars each. Then there is parking, dinner, a babysitter and maybe some recreational drugs. By the end of the evening the bill is close to one hundred dollars. Do you do this every weekend? If so then you probably won't be able to afford a sailboat and continue your other freespending habits.

The standard recommendation in books of the genre to which this book belongs is that one starts by joining a sailing club and serving as crew on other club members' boats. In this fashion you learn about sailing at someone else's expense. The learning process includes an assessment of how much your new friends are spending on boat ownership and an assessment of the time commitment involved in maintaining the yacht. Also, the clubs regularly charter a group of boats for a club cruise. This activity gives you the opportunity to sail on many different types of boats and possibly in different locations. This of course all depends on the good will of the clubs and the membership. You would be surprised at how quickly the good will disappears when you have a small child. And that is not to mention the problem of finding the clubs. Now that I am on the inside of the sport I have heard of a great many more sailing clubs in my area than are listed in the Yellow Pages. And the reception that you get as a 'walk on' can often range from chilling to frigid. Many of us are not the clubby sort, or have already had our fill of clubs run by volunteers for amateurs.

Another of the standard recommendations is that you charter rather than buy. The rub is that you must be able to document your expertise as a skipper. This is only fair since you are asking someone to entrust you with a sailboat which may cost $100,000 or more, while giving them a credit card imprint which has a credit limit of $5000. Depending on the charter company, this documentation may be as simple as your resume and a brief test before letting you sail off into the sunset. In other instances they may expect you to have successfully completed a sequence of either their own sailing courses or American Sailing Association accredited courses.

If the prospect of ownership is financially daunting then it behooves you to find out the costs of the club and charter alternatives. We decided that the cost and time of being involved with a club, accredited sailing courses and adjusting to other families' plans and schedules was considerable. In fact, when compared with the eventual financing and usage of our own boat we decided to buy.

As a way of adding some perspective to what follows let us consider the situation of rank amateurs. Before you will be permitted to take out a boat independently a responsible charter manager will require that you have demonstrated competence and/or a successful relationship with other known charterers. In the present instance, that of a rank amateur, the charter manager will require that you have a week of lessons under your belt before being allowed to charter a boat in the thirty foot range. If there are two of you, and you are willing to share the instruction boat with another couple, this week will cost you about $2200 this year on the Chesapeake. I arrived at this figure as an average of four or five sailing school programs. Some were much higher, having highly regarded reputations. Others can be much lower, but my assessment of the caliber of the program makes the expense of dubious value. Lest you forget what you have learned in that high intensity week, you may decide to sail another four long weekends in the first year. If you share direct charter expenses with another couple, include the cost of transportation, and incremental food costs over what you would have spent at home this will add another $2000 to your undertaking. This gives a total of $4200 in your first year. The following year, with a one week charter and five weekends, you will spend another $3000. These costs can be reduced considerably by participating in a sailing club. But taking advantage of the lower expense may make your sailing expeditions less frequent and reduce the flexibility of with whom you sail. Also, at the end of several years you have no equity in a boat to call your own. On the other hand you don't have the headaches associated with cleaning teak and chrome, winterization and summerization. These are non-pecuniary expenses that have to be evaluated by the individual.

Back to the question at hand. In essence the decision to buy a sailboat involves calculating the opportunity costs of alternative uses of your time and money. The advent of the personal computer makes this a much less onerous task. For some people these calculations, when aided by a PC, become a form of recreation. The power of the personal computer is that it allows you to create a parametric model of the expenses involved. Once the model has been built it is then possible to play "What if" games.

We decided fairly early what we were prepared to spend on an annual basis for the purpose of sailing and ownership. From there we proceeded under the conventional wisdom. Given the sum of money, we searched the advertisements for the most boat our money could buy. Given the modest financial commitment we were prepared to make it looked as though we would buy an aged, used boat. In the day and age of fiberglass there are plenty of fiberglass boats with a lot of life left in them. Before even looking at boats we put together a planning budget on the PC using a popular spreadsheet program. In this budget you want to include both recurring annual expenses for the operating portion of the analysis and one time expenses and cumulated operating expenses for the capital budgeting process. Our budget looked like the following table:



Boat Seatrout 28

Purchase Price


Down Payment


Closing Costs

(.02xPurchase Price)


Excise Tax

(.05xPurchase Price)


Amount Financed


Mortgage Terms

Interest Rate




With this given information one must then go forward and construct a budget or business plan for owning the boat.  We did this in the table which follows.  Not all of the numbers are 'real', but the serve the purpose for illustration.

First Year

Life of Boat

Downpayment plus closing cost


Mortgage Cost



Mooring Fees

1000.00 10,000.00

Winter Storage

500.00 5,000.00

Annual Tax and Fees

100.00 1,000.00


577.88 5778.75


50.00 500.00


1,000.00 10,000.00



Interest Deduction

(906.79) ( 5430.35)


6405.62 56738.84

In the example shown here the manufacturer and size of the boat are fictional. But the price is about average for a boat of that size, under ten years old, with three sails, an inboard diesel and in reasonably good condition. You would of course change the figures to reflect the particular boat you have in mind.

For each line item there are two columns: one for the annual expense and one for the lifetime expense. The lifetime column assumes that you keep the boat for the ten year life of the mortgage. You will note that these items are ten times the annual column. To be perfectly correct one should allow for some inflation over the period of ownership. Also, your future expenses represent an annuity that you are paying to other parties, thus these future payments should be discounted at some interest rate which reflects your opportunity cost of money. You could use the interest rate paid on certificates of deposit adjusted to reflect how important boat ownership is to you. Such discounting is accomplished quite easily with the same future value routines available in any spreadsheet program. The idea is that if instead of spending $1000 next year on slip fees you had put it in the bank what would it be worth five years later. In the table shown I have neither discounted the future nor adjusted for expected inflation. I neglected these frills so that the discussion would be somewhat easier to follow.

The greatest single expense up front will be your downpayment. The downpayment is usually 10 or 20% of the purchase price of the boat. In many cases the finance company will include in the amount to be financed the excise tax due at time of purchase. They do this because marine lending has become quite competitive and they want to make their terms as attractive as possible. In fact, if you shop around you can probably beat the lending terms being offered on residential mortgages. Note that I have included a line for closing costs. This line is provided for those who live in an area where the marine mortgage industry is not very competitive. It may include an application fee and/or an origination fee.

The amount financed is the purchase price of the boat, less the downpayment, plus any closing costs. Remember, these can be adjusted to reflect the fact that you may be financing any tax due on the purchase, shown as $1926.25 under the tax line. The amount financed, with the terms of the loan (interest rate and number of years of the loan), become the input in several lines of the operating expense part of the table.

Your spreadsheet should be programmed as generally as possible. For example, if your downpayment will always be a fixed percent of the purchase price of the boat then the line in the spreadsheet should be programmed accordingly. That way, for each boat you are contemplating purchasing, you need enter only a dollar amount for the purchase price. The same rule applies for closing costs and taxes due.

After the downpayment, assumed to be twenty percent of the amount financed, the periodic mortgage payments are your greatest annual expense. Most spreadsheets include a sub-program to allow you to compute the monthly payment which retires a given debt at the end of a certain number of years. The input is taken from the lines for amount financed, interest rate and term which appear at the top of the table. If your spreadsheet is written so that it can refer back to these lines then you need only alter the few lines at the top of the table in order to change all of the relevant entries down below. You should separate the mortgage payment into principal and interest, as the latter may tax deductible and is used as an input further down in the table.

The remaining lines in the table come in no particular order, except that in which they came to mind. Mooring and slip fees usually are based on the size of the boat concerned. A bit of research in your area will reveal the rule used and the average amount. If their is a discernible rule then you will want to write your spreadsheet to reflect this. For example, I found that a mooring in my area was $1000 for boats of less than thirty feet. Therefore, I wrote my spreadsheet using a 'logical if' statement that chose one fee for a small boat and another fee if it was a large boat. The spreadsheet checked the top of the table for boat size in the initial line. Winter storage fees were dealt with in a similar fashion. Many marinas are now multi-use facilities. That is, they include pools, tennis courts and golf courses. Perforce, these will involve much greater expense than a simple mooring. However, membership in such a club/marina may make it unnecessary to join a separate swim, golf or tennis club in another location. If this is the case then you may want to reduce your entry in the spreadsheet for the marina fee by an amount equal to what you would have otherwise spent for equivalent non-boating facilities.

Insurance, Annual taxes and registration fees are also predictable in a manner that depends on the size and/or value of the boat and should be so programmed. It is worthwhile spending some time shopping around for your insurance coverage. Marine insurance is competitive, though expensive.

Fuel will depend on the size of the engine involved and the amount of motoring you anticipate doing. Because this is so sensitive to individual behavior it is probably easiest to just put in a flat budgeted figure here.

Maintenance should include the cost of putting your boat into hibernation in December and getting here back on the water in the spring, as well as a guess for the replacement of lost or broken equipment. As boat ownership is usually a long term commitment and often involves 'trading up', you should also include depreciation at this point. On the basis of used boat prices in your area you can predict the resale value of your boat after being in your hands for ten years. Using straight-line depreciation you can allocate the difference between your purchase price and the resale price to the maintenance line item. Note that depreciation is not an explicit expense, and it is tax deductible only under very special circumstances. However, it can be looked at as a form of forced savings to ensure that you come to grips with the eventual loss in value of your boat and its replacement.

The next item in the table is resale price, which I already mentioned. This requires a great deal of realism on your part. Very few boats are going to appreciate, even in nominal terms. It is best to be very conservative.

The interest deduction depends on your annual interest expense and your marginal income tax bracket. You calculated the annual interest expense at the beginning of the table. Under the new tax rules you will fall into one of only a few tax brackets and should be easy to determine. However, the interest expense is deductible only if don't already own a second home.

The final line shows the annual operating expense for owning the boat of your choice. After shopping around for a boat, a mortgage, likely mooring fees, and insurance you can enter the pertinent information in your spreadsheet and have comparative cost figures in very short order. Hopefully what I have done here is to provide some rational structure for an otherwise irrational decision.

Having set up the budget on a spreadsheet meant that we could change a few key numbers and the others would be recalculated.

When you start searching for the boat of your dreams you should have some idea of your budget and the use to which you will put the boat.  Will you be using it for daysails or weekends, longer trips, ocean or coastal cruising?  The boat needed for these different activities will affect your choices.  Read some sailing magazines for about a year in order to get an overview of what type of boat is best for what purpose.  Read a few books on the subject of what makes a good boat.  Go to some boat shows.  There are great shows in Atlantic City, N.J., Newport, Rhode Island, Annapolis, MD, Chicago and Miami.  Charter if you can.  Join a sailing club.  There is a used boat show in Annapolis.  Unless you have deep pockets or have a lot of time and skill, don't buy a boat from an unknown builder.

When deciding on our first boat I was not all knowledgable about builders and prices.  You would do well to be informed.  There is a mulitple listing service called BUCNet that the brokers use.   It is supposed to show listing prices by year and make on boats in the market.   From this you can ascertain what is available.  The BUC Used Boat Price Guide is supposed to show prices at which boats were sold.  Depending on who you talk to it is either fact or fiction.  There is also the NADA Large Boat Appraisal Guide as a source of information.  Ask to see these before you start bidding on a used boat.

Not knowing of the existence of these guides when shopping for the first time, I built a statistical model of used boat prices from the data available in all of the boat listings I could find.  In the end I had about 200 observations.  The data included information on year of boat, builder, sail inventory, roller furling, engine, length, etc.  Since my work was done more than ten years ago I won't state specific findings.  The most striking result of my effort was the way the market values certain builders in the resale market.  We eventually bought a new boat and my statistical model helped me choose a builder I could live with.   

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