Buy vs Financing spreadsheet comparo - SailNet Community
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post #1 of 4 Old 04-04-2010 Thread Starter
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Buy vs Financing spreadsheet comparo

I was intrigued by a post I stumbled across in a search last night about financing a boat. The OP was going to finance his boat from rental income on his home. My plan is similar except I was going to buy the boat outright from my savings, and then contribute back to savings with my rental income. It seems to me that financing a depreciating asset is a losing proposition, but thought I'd at least take a look and see where it went.

I built a quick spreadsheet in Google Docs to look at the two options...I'm not especially finance/accountant oriented and I'm not sure my logic in building the sheet is sound (and I've made quite a few assumptions).

The idea was to be able to look at the the two different options and see the real and opportunity costs. Anyways...thought some of ya'll smarter than me could take a peek and see if I was framing the problem correctly or suggest an alternative way of looking at the data.

The sheet tabs represent the 2 options, and the 'Raw Data' tab is where variables should be changed/manipulated.

Any discussion appreciated.
The link to the spreadsheet is below:

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post #2 of 4 Old 04-04-2010
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Scott, I'm not sure why you are looking at those factors since there are things like the residual value of the boat that frankly MAKE NO DIFFERENCE with regard to how you are going to PAY FOR IT.

And you are totally missing the fact that if you finance the boat and the lender gives you a proper mortgage on it, you may be able to take an income tax deduction for the interest on the HOME MORTGAGE on the boat. How much that is worth to you depends on your tax bracket and whether the IRS will allow you to deduct that home. (Boat or house doesn't matter.)

The only other things that matter are:
1-With a boat loan you will be REQUIRED to carry insurance and meet survey standards
2- What does it cost you every month? The principal will be the same either way, so it is strictly how much you pay in interest, versus how much you lose by not putting the cash to work elsewhere, at whatever rate of return you'd normally get. Some folks are getting 4% after taxes, others 20% or higher. If the loan is 7% and the IRS effectively reduces that to 5%...the only question is whether you can make more than that by not buying the boat outright, and investing in something else.

It really is that simple.
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post #3 of 4 Old 04-04-2010
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This may be a simple way of looking at it, but unless your savings
ROR is higher than the interest on the loan, then it makes sense to purchase the boat outright rather than pay interest to a bank.
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post #4 of 4 Old 04-04-2010
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Like you said, it's never a good idea to finance a depreciating asset. You lose any way you spreadsheet it. It is that simple. The only issue is if you want a boat and can't afford a cash transaction, many people ignore the real cost.

Insurance is a moot point as it is a cost regardless.

Tax deduction is also a moot point as you only effectively regain a portion of the finance charge depending on your tax bracket - the transaction cost is still significant.

There is no logic to financing unless your desire exceeds your financial ability to buy it. Financing is a purely emotional purchase.

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