Is Buying A Charter Yacht For You?

Preliminary "Soul Searching"

You and your family and / or friends have done some chartering and love it! You've been dreaming for years about getting your own yacht in the Caribbean or Bahamas or some exotic location. You've checked your finances and you are ready to "take the plunge", but how should you go about this? There are six major issues to investigate before you make this decision.

Let's Analyze

Will Buying A Charter Yacht Add To The Quality Of My Life?

Michel Benarrosh, the former commodore for The Moorings Owner's Group says:

"Since I purchased my first boat in 1995 from The Moorings (a Jeanneau 52), I have, of course, experienced some frustrations, some years with lower than expected charter income and some headaches of different varieties. However, to this day, I do not regret buying my 3 boats for one minute (I am now ready for my fourth one)!

It has given me a great opportunity to go cruising extensively in the most exotic sailing grounds in the world without having to worry about the maintenance of the vessel. Showing up is basically all I had to do! I got to enjoy a great activity with my son while teaching him about seamanship, marine science, and love and respect of the environment. I made a lot of great new friends and I own a boat partly paid for by charter income after 5 years of enjoyment. I can't think of anything I could have spent my money on that would have given me so much enjoyment and fulfillment over the years..."

If those are your sentiments, you are on the right track. It is very important that you and your family will benefit from the quality of life that owning and sailing your yacht brings.

Can I Afford The Yacht?

Before signing on the dotted line and engaging in this large financial commitment, you should know and understand what the financial impact will be on your lives in order to deal more smoothly with this whole process. Owning a yacht in a charter fleet will reduce the cost of traditional ownership and minimize your financial exposure and it allows you to enjoy sailing in fabulous and remote sailing grounds that you probably would not get to see otherwise at a greatly reduced cost. You get all the enjoyment with much less headache than with traditional ownership and you own the yacht at the end of the program, partly paid for by charter income. You get your guaranteed income every month or quarter and the charter company takes care of the rest, fairly worry free.

If you intend to use the boat during the contract, 2-3 weeks or more per year, it will make ownership less expensive than simple chartering, not to mention the extensive enjoyment you will get from the ownership experience. If you intend to use it less than 10 days, perhaps chartering may be best for you. Please be mindful that if you need to take out a 20-year mortgage instead of a 12-year mortgage "to make the numbers work", you may be in trouble. Some companies will paint a rosy picture but be warned: You will be severely upside down at the end of the contract, not a good scenario! So, charter yacht ownership has definite advantages but it is not a moneymaking investment unless treated as a *business in which case one has to actively participate in the business.

What Is My Exit Strategy?

You have to decide what you intend to do with the yacht after the end of the program (5-6 years). Do you intend to keep the boat at the end of the charter management contract, usually 4 to 6 years? If so, charter boat ownership is in effect a great way to enjoy sailing for a few years without major expenses, AND own the boat at the end of the contract while having the charter income pay for some or all of the mortgage. You will probably then take over the yacht and do long term cruising or take it to her "permanent" dock for your enjoyment. If, however you decide to roll over into a new yacht, there are some things that you should be aware of

  • Selling a used boat can sometimes be a long, and frustrating experience. Some models re-sell more easily than others and charter companies phase out several of the same models at the same time, hence flooding the market and driving the price down. Consider companies that do not dictate "cookie cutter" specifications and models. That way your yacht will not automatically be branded with the "charter yacht" stigma and could sell more easily.
  • Consider that there will be a 10% brokerage commission that will come out of the selling price, which would reduce the net income to you. You could negotiate a "no commission" deal if you do decide to roll over to a new yacht with the same company.
  • If the boat has not been sold before the end of the contract, you could move your yacht to a second-tier fleet. It is a very good, cost-effective strategy while waiting for the boat to be sold.

What Yacht Charter Management Company To Choose And Why?

Large Yacht Charter Management Companies

Companies like The Moorings (700 yachts / 28 bases worldwide), Sunsail (700 yachts / 40 bases worldwide) and Dream Yacht Charters (500 yachts / 37 Bases worldwide). Note: Although they are distinctly different companies, Moorings and Sunsail now belong to the same German company, TUI, a large travel concern. Because of their size, Moorings and Sunsail sell yachts that are sort-off cookie-cutter models (no customization allowed) and offers one management program. Dream Yacht Charters is privately owned and own a substantial amount of their own yachts, which instills a lot of confidence in the company's ability to manage yachts. They also allow owners to buy their yacht from several major brands and customize their yacht to their taste with a guaranteed income, unlike the other major brands.

Pros

  • Been around for a long time
  • Relatively financially solid
  • Large selection of boats.
  • Worldwide bases where you can sail boats similar to yours, using what veteran owners call "Reciprocals". Some companies (like Sunsail) even offer exchanges with land-based resorts.
  • The company will guarantee your income and will take care and pay for all the maintenance, docking, insurance, etc. You pay nothing. You can make a very accurate financial projection of where you'll be at the end of the contract
  • Standardized maintenance and hurricane procedures
  • Standardized, proven phase-out procedures.
  • If they go under, which is highly unlikely, you will sweat a little, but they will probably be bought out and you will not be left hanging.

Cons

  • No flexibility if you want a yacht model they do not offer, or if you want additional custom features or equipment on the yacht - except for Dream Yacht Charter.
  • Limited owner's use of the boat (9 to 12 weeks a year)
  • Customer service somewhat less personal

Medium And Small Yacht Charter Management Companies

The ones we like are Tortola Marine Management (TMM), Horizon Yacht Charters* and BVI Yacht Charters in the British Virgin Islands and CYOA in the US Virgin Islands. Typically, those companies have fleets of about 20 to 60 boats, a very close relationship with owners, and excellent customer service.

Pros

  • Customer service more personal and easier to get in touch with;
  • Concerns like Tortola Marine Management and Horizon voluntarily limit the bases fleets to a manageable size so they can take quality and personal care of their customers and boat owners;
  • Some have been in business for a long time. However, this is an active industry: Some companies might have a new management. Verify this.
  • More flexibility in choice of boats and equipment if you want a particular model;
  • Unlimited owner's use of the boat (except Horizon).

Cons

  • Financial status of the company has to be checked: If a small charter company goes belly-up, it will most probably disappear and leave you in a panic. However, the ones we show above have been in business for quite a long time.
  • No guaranteed income. Your financial projections always remain hypothetical. You will be hit hard on the income if another bad hurricane season hits the islands again.
  • Small choice of locations- sometimes only one location offered; thus no other bases available for "reciprocal time";
  • Maintenance and phase-out and hurricane procedures to be thoroughly checked.

Implications Of Your Yacht Charter Company Choice

The big guys (Dream Yacht, Moorings and Sunsail) typically offer

  • Guaranteed income even if your boat never goes out on charter. Income typically equals 8 to 10% per year of the value of the boat new.
  • All maintenance and expenses paid by the company. You pay literally nothing.
  • Use of reciprocal charters in many other locations worldwide
  • Generous but limited owner's use: 9 to 12 weeks a year, with a limit on weeks in hi-season.

The smaller outfits typically offer

  • Not-guaranteed, variable income equal to roughly 60 to 75% of the charter income;
  • Company performs the maintenance, but you (the owner) pay all expenses: you will be billed for maintenance, docking, insurance, etc. Those companies charge a mark-up on parts over cost.
  • Unlimited owners' use.
  • Few other locations geared to exchange programs.

We do not want to generalize because there are exceptions for everything and Dream Yacht Charters is a prime example of the exception. But in a nutshell, the big companies are better suited for owners who are happy with limited owner's use and who, basically, want a completely headache free, not-too-emotional kind of ownership. The smaller companies are much better suited for owners who want to own a particular type of boat, (TMM for example, will take almost any boat you'd like in their fleet) with customized features, like to sail a lot, maybe go out on their boat 2 months at a time, and like to be very involved with their boat.

So as you can see, your choice here can drive you in 2 completely different universes. You will have to carefully assess which one is best for your needs.

The Choice Of Boat For Charter: Monohull Or Catamaran

Obviously, your choice of boat will stem from your budget and although you might find some price differences between companies for similar boats, mainly because of equipment differences, eventually, you will get the same bottom line: "You get what you pay for". The main consideration is: Monohull (more affordable) or Catamaran. But that is another discussion. Once your budget is defined, several criteria should guide your choice.

  • Will you sail mostly with your wife/husband/significant other only? If so, you might want to look into a center cockpit: they often have the most comfortable owner's stateroom.
  • Will you often take the kids or friends along? If so, you will need more staterooms/heads. Would you consider the roominess and stability of a catamaran — great for young kids? Or are you a hard-core monohull sailor?
  • Assuming you will keep the boat after the end of the contract, will she suit your goals back home? Same question if you intend to go cruising for an extended period of time at the end of the contract.
  • Very important: All things being equal, all boats do not bring in the same charter income. Some boat sizes/configurations are more popular than others among charterers. Therefore, if you choose a contract with a percentage-based income (see contract section), you'll want to know exactly what kind of income boats similar to yours have generated over the last, say, 2/3 years. For that, during the course of your contract negotiation, you have to ask the management company to show you the listings of real bookings achieved by boats similar to yours, at the base you will choose.

The Boat Charter Location

This is a matter of personal preference but there are some things to consider.

  • If you plan to base your boat in the Caribbean, bear in mind that the Southern Caribbean, also called the Windward islands (Grenada, St. Lucia, Martinique), present more sailing challenges, with a lot of open ocean sailing, longer legs, and generally stronger winds than in the Northern Caribbean, also called the Leeward islands (US and British Virgin Islands).
  • Conversely, the northern part (US and British Virgin) offers an almost unlimited diversity of sailing grounds and anchorages in a relatively small area. Personally, this area has been my long-time favorite.
  • In the Bahamas and the Florida Keys, waters are much shallower, so catamarans are more suitable to the grounds and will let you go places that monohulls cannot access. In case you choose a variable income program, the Bahamas are (as of this writing) a very popular charter area bringing good income to a boat, especially a catamaran.
  • Very important: For similar boats, all bases do not bring in the same charter income. Some are more popular than others among charterers. Therefore, if you choose a contract with a percentage-based income you will want to know what kind of bookings boats similar to yours have gotten over the last 2 years. Thus, if for geographical preference, you elect to base your vessel in a somewhat remote area, we strongly suggest that you go for a contract with guaranteed income. Some remote locations, with the advantage of being very exotic, might also have the problem of lacking competent mechanics and surveyors. Even parts could be hard to come by.
  • Finally, check how practical and pricey the airline access from your hometown to the base you'd like is.

For More Information About Charter Management go to contact us:

Stephen Cockcroft – This email address is being protected from spambots. You need JavaScript enabled to view it. / Tel: 1-804-815-5054

Estelle Cockcroft – This email address is being protected from spambots. You need JavaScript enabled to view it. / Tel: 1-954-249-9764

Comments   

0 # Guest 2016-10-26 07:45
Hi,
Thanks great idea. Very useful to start a business.
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