Chartering a Ranger....cash flow, etc.

[Dene]

This weekend, my wife and dad-n-law moved our Carver from Brownsville to Anacortes, where it will be chartered for the summer. During the move, we met two terrific boat people, Les Lampman at EQ Marine and Jeff Gleckler at SkipperCress. We viewed a Rossy, a nice looking 22' Arime, Cape Cruiser, and the Ranger. All was preliminary because this next purchase is 5 years out, when we retire and boat full time. Right now, the Ranger is getting the nod, due to the price, finish, and it's new improved power option, the Cummins 150 hp.

But....do we have to wait 5 years to get one?

I've been doing some research with my charter company, who is slobbering to have a Ranger in the fleet. Here is a realistic cash flow estimate....

ANNUAL CASH-FLOW PROJECTION FOR A: 25.0 Ranger Tug
Value: $140,000 Based On: 9 Weeks Chartered

PROJECTED ANNUAL REVENUE

6 Weeks @ $2,250.00 = $13,500.00 (Prime Season)
2 Weeks @ $2,030.00 = $4,060.00 (Mid Season)
1 Weeks @ $1,690.00 = $1,690.00 (Low Season)

TOTAL REVENUE = $19,250.00

PROJECTED ANNUAL EXPENSES:
Turn around fee for each charter based on length of boat $ 2,385.00
Annual Insurance (including Owner's Liability) $ 2,230.00
Management Fee $ 5,775.00

TOTAL EXPENSES $10,390.00

ESTIMATED NET ANNUAL POSITIVE CASH-FLOW $8,860.00
(We recommend pricing competively the first year, and adjust the rate as bookings indicate. Maintenance expenses and Moorage depend on type and location of vessel.)

ADDITIONAL POSITIVE ADVANTAGES TO CHARTER BOAT OWNER:
Initial Exemption from State Sales or Use Tax @ 8.00% $11,200.00
Annual Exemption from Excise Tax @ 0.50% $700.00
Annual Passive Expense Deduction from Income $19,250.00


These figures might be conservative. My 30' Carver gasser chartered for 7 weeks last year. This year, it's booked for 4.5 weeks, and will likely do eight weeks. A Ranger would likely do better. Also, wear and tear is less, because only two people would charter it vs. a family boat (like my Carver). Also, since the Ranger is under warranty, there would be no repairs (in the first year). My '82 Carver, like most older boats, incurs significant repairs each year.

Here's the downside. My Carver is paid for. I would have to finance the Ranger at 1k/mo. payments, so the 8k "profit" it would receive would go toward that. But....that's like my rental property. My tenants are paying most of my mortgage. With the Ranger, it's conceivable that we could own the boat free and clear (in 5 years) while having the bulk of it being paid by someone else.

What say you?

-Greg

Ps. Would this purchase mean I could attend C-Brat functions?? ('')

[Bill Uffelman]

I'll take 4th of July week in 2009!

Bill Uffelman
Las Vegas NV

[Larry H]

So for $4,000 per year and a down payment, you will own the Ranger in 5 years, and you get to use it during the off season?

How much is the down payment? How long is off season?

[Dene]

She's your's, Bill. How about a roomy Carver for this 4th of July?

Larry.....I'd put 60k down (part of it coming from the sale of the Carver) and finance 80k. That leaves $925/mo. for 10 years at 7% interest (which I'd hope to beat). If the boat earns $8800/yr., then we're left with 3-4k each year to pay for it ourselves. I would accelerate that contribution to get it paid off in 5 years or wait to pay it off when our primary home is sold, since the tug would be our new home for all or part of a year.

Also, if they boat loses money, it's a write off, not to mention all the sales tax money we save.

As for offseason, we are avid winter boaters in the Bainbridge area. In fact, I prefer it. No crowds...no wakes....cheap moorage. Also, we prefer the central Puget Sound to the San Juans, so it's little sacrifice to give it up for the summer, so long as we can use it one or two weeks each summer. Last summer, our Carver was available to us on the 4th and Labor Day weekend. That's plenty. We use our Campion or ski boat on the Columbia during the summer, near our home in Kalama, Washington.

-Greg

[Larry H]

Greg,

That is one way to get a Ranger Tug!!

Do you have to commit to a term of 5 years in charter? Who makes good on any extra wear and tear on the boat?

I considered buying and chartering a sailing catamaran in the Caribbean once, but the financing didn't work out.

I like the not paying sales tax and excise tax right away. I assume the charterers pay sales tax on the charter fee.

[Bill Uffelman]

The Boss has plans for the 4th this year but I can stake my claim for 2009. BTW I think we prefer a red, blue or green hull. 8>))

Bill Uffelman
Las Vegas NV

[C-Hawk]

The man's a thinker

I thought about doing that with my motorhome- had a local RV rental agency begging me for it when I bought it in 2001. I use it too often on the weekends to have to schedule for my own MH. We spend the weekends in it while we are down at the Landing where we store the boat.
Good luck.

[lloyds]

I went that route once. Placed my really nice Freedom sailboat in charter with Elliott Bay Yachtshare. At the end of the year it basically paid for the slip. There is required maintenance fees, whether it needs maintenance or not. The worst part for me, because it was in timeshare, was that I had to get in line to use it just like the other lessees. And those folks learned how to play the game pretty quickly. Although I don't remember all the details, I never found the tax benefits to be there. As I recall, Federal doesn't let you deduct the mortgage interest. And Washingtons' excise tax was a killer. The charter companies paint a pretty rosy picture, but I found it to be a bit less than rosy. Not real bad, just not rosy. They will usually have a seminar each year for the owners in which an accountant with charter knowledge will come in and tell you all that works, and all that doesn't work. That is when you really need to start making decisions. And then there is the heartburn of letting others take out your special boat. At Elliott Bay there was a professional captain that took all the lessees out for a weekend on the boat to teach them the systems and sail handling and all the other things they needed to know. But each time it came back there were various things that needed fixing or correcting.

[Dene]

Good questions and comments....thanks!

I think there are distinctions between a charter and a timeshare. I fully own the boat and it's strictly my decision whether to charter it each year or not. There is no obligation on my part to use it. The charterers pay the sales and excise tax. If I withdraw the boat from charter, then I'd be on the hook for sales tax when I register the boat, based on the value of the boat at that particular time. My plan (when I retire) would be to move the boat out of Washington to Oregon or somewhere else, thus avoid it all together.

As to excessive wear and tear, each charterer pays a damage waiver up front. For example, the last charterer broke a stanchion and so he ended up paying for it. Maintenance fees are high because they require the boat to be in top notch shape, which I appreciate. I'm not a DIY guy, so it's terrific to have a team around me to address the issues as they arise. Also, charter boats tend to sell better than those which sit unused in the marina year after year. The Carver now is a better boat than when I purchased it, and much of the improvements were paid by other people.


-Greg

[Westfield 11]

I have chartered out of Anacortes with AYC for the last few years and have been very impressed by the quality of the boats. I would rather buy a used boat that had been in AYC charter than a new boat. The used boat will be in like new condition with all systems up and running and all the bugs worked out. Every boat has come with a complete Ops Manual and inventory too.

[thataway]

I commented earlier this AM on the charter options. It looks as if you have some experience. But Having owned a 30 foot Carver (diesel aft cabin--maybe slightly different, but same hull and probably mainatance) , and knowing those boats, there is a world of difference. You have a 2008, very nicely finished boat. How will you feel if it gets dinged up--which it probably will (even with the repairs)--there is all still the long range issues. That includes the unknown use of a diesel engine (what if a charter runs it at WOT to get the 22 knots he wants) all of the trip-- Is there some insurance or other plan which will cover the rebuild of the engine? Consider that these are expensive engines (vs the gas blocks) to rebuild--and there probably will be some rebuild at 2000 to 2500 hours if the engine is run hard (estimate by Bob Smith owner of American Marine Diesel--who was the Ford Lehman/Perkins destributer in the US).

This is a very personal decision--but I have both seen and owned boats which were in charter in the past and had some pretty hard use. I do think that I would feel differently about a 2008 $160,000 (make that well over $200,000 after interest)--and a $35,000 1982 Carver......

I also don't under stand about sales tax--Washington does not charge sales tax on boats placed in charter? All other states want the sales tax when you register the vessel. How about the IRS rule of personal use vs charter use to allow write offs? --again questions for accountants.

Again, it will be very interesting to see how it works for you--and we well might consider chartering, but since I am at a point when grand kids will go with us, we would want a larger boat--thus what is the market for only single couples in a boat this size--and cost to charter?

Regards,

[Larry H]

Bob,

Yes, Washington does not charge sales tax on boats purchased for charter. The sales tax is collected on the charter contract.

For a full explanation, here is a link to the Washington law.

PDF File

[Dene]