There are many financial considerations when buying a boat. These are my top 7 and they should help provide you with direction.
FINANCIAL CONSIDERATION #1: HOW MUCH BOAT CAN YOU AFFORD?
There is no standard rule but common financial sense should take priority. Boats are expensive and are considered luxury items. That being said, you should be able to either pay cash or finance a boat and not have it negatively affect your financial lifestyle. In my opinion, the cost of the boat shouldn’t be more than 10% of your net worth. The only time this differs is if you purchase a boat through a company. More on that later.
FINANCIAL CONSIDERATION #2: ANNUAL EXPENSES
Boats cost a lot to maintain. Unlike many people who drive expensive cars, you cannot “fake it” with a boat. Annual expenses related to your boat will cost you 10% of the cost of the boat. If you finance the boat expect those costs to rise to 20%!
THE BIGGEST MISTAKES PEOPLE MAKE WHEN BUYING A BOAT
FINANCIAL CONSIDERATION #3: USED VS. NEW
The first decision you’ll have to make is whether or not to buy a new boat. New boats are enticing because they are spotless, have full warranties, include all the latest gadgets and are promoted heavily on social media and at boat shows. By contrast, used boats don’t receive much love. They typically, have higher engine hours, cosmetic imperfections, and older electronics.
In my opinion, it’s always better to buy a used boat if you find a boat that meets the following criteria:
- It meets your needs
- Looks good to you
- Includes motor(s) still covered under warranty
- It still represents good value if you have to replace the motor(s)
The biggest surprise expense that can happen with a boat usually involves the motor(s), hence, the importance of full warranty coverage. If you think you’ll have to replace the motor, than it’s important to factor the additional cost into the overall price. If the total cost exceeds, or is close to, what a new boat will cost than either buy new or find a lower-priced, similar, used boat.
FINANCIAL CONSIDERATION #4: BOAT DEPRECIATION
Boats can depreciate a lot. I say “can” because it depends what type of boat you own and factors like quality, availability, popularity, etc. Buying used can minimize the sting of a boats’ initial depreciation.
A great example of minimal depreciation can be found in a classic Boston Whaler. I LOVE these boats not only because they generate great childhood memories, but also because they hold their value like no other boat. In 2011 I purchased a 1990 Outrage 19 for $6000. I bought a new trailer, installed a brand new OEM center console, new steering, new electrical system, new motor and new canvas and by the time I was done, I had an “all-in” price of $20,000. I sold the boat in 2018 for approximately $17000. Try buying a 19’ new boat for $20,000 today let-alone, selling a boat with only 15% depreciation after 7 years of use!
WHY A CLASSIC BOSTON WHALER OUTRAGE IS ONE OF THE BEST USED BOATS EVER
FINANCIAL CONSIDERATION #5: PAYING CASH VS. LOAN
Buying a boat with cash is normally preferable however, it depends on the type of boat, how it will be used and who’s buying it.
If you’re intention is to buy a boat to use periodically during the summer and it’s going to be stored in your yard or garage then paying cash is definitely best. If you’re going to buy a large boat and plan to use it as a second home and cruise it heavily, than financing may be a good option. Finally, if your company is going to buy a boat to use in fishing tournaments or to entertain clients than it may also make sense to finance. Also, it’s much easier to absorb the cost of a boat within a company vs. personally. In short, cost, usage, cash flow and potential tax deductions are all factors that determine if it’s best to finance or pay cash.
FINANCIAL CONSIDERATION #6: WHERE WILL YOU STORE IT?
The difference between keeping your boat on a trailer in your yard or garage instead of at a marina can save you around $500+/mo.
FINANCIAL CONSIDERATION #7: INSURANCE FACTORS
Insurance costs are affected by all of the following conditions; value, engine horsepower, number of engines, storage location, commercial or personal use, location during hurricane season, owner experience, etc. It’s important to understand this before buying your boat.
