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Discussion Starter · #1 ·
Hello again,

I suppose I should ask my accountant this question, but then I'd have to get an accountant...

I'm about to buy a new-to-me boat. Were I to finance, 20% down would leave me with a $25,000 loan, the minimum for many lenders, and the highest rates, currently about 8%. I am in the position to comfortably pay cash as well.

The only argument I can think of for financing is the opportunity to free up those funds for investment, hoping they'd return better than the loan rate I'd pay. However, I am currently as invested in equities as I want to be, and in reality the cash would make nowhere near 8% in a MMA or the bond market.

Does anyone have any thoughts to add for me?

thanks,
 

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Telstar 28
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Ed-

Given the current state of the stock market, it might be far better to finance the boat and put the cash (25k) into the stock market, as there are some really good bargains out there at the moment. By the time this recession ends, I'm guessing that the return on some of these bargain stocks is going to be well above the 8% interest rate you're looking at. :)

That said, I'd only go with the better high-end stocks...rather than anything riskier... A lot of good companies, which are doing well, have had their stock prices brought down by the current market situation, even though it wasn't really warranted in their specific case. YMMV.
 

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Ignoring, for the moment, the argument that you could earn more with your investment, it is never a good idea to finance anything if you don't have to - it will always cost more in the long run, particularly with any depreciating asset. In terms of strictly a financial decision which is the premise of your question, as Warren Buffet says, " never buy a depreciating asset".

Assuming you are going to buy it,and can afford to pay cash, the issue then becomes whether you can find any investment guaranteed to earn more than the cost of financing - if you do, please tell the rest of us...
 

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Of course, he could always get financing from one of those banks that are about to fail...and see if he can get a government bailout... :p :laugher:
 

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Discussion Starter · #5 ·
Ed-

Given the current state of the stock market, it might be far better to finance the boat and put the cash (25k) into the stock market, as there are some really good bargains out there at the moment. By the time this recession ends, I'm guessing that the return on some of these bargain stocks is going to be well above the 8% interest rate you're looking at. :)

That said, I'd only go with the better high-end stocks...rather than anything riskier... A lot of good companies, which are doing well, have had their stock prices brought down by the current market situation, even though it wasn't really warranted in their specific case. YMMV.
SD,

I too am pretty optimistic about the US stock market, and I've made some major buys over the last month (all at dramatic lows, thankyouverymuch!) I COULD put this money in the market too, but I feel well invested at this point.
 

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Ed-

In that case, buy the boat... and post photos of her. :)
 

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Discussion Starter · #7 ·
Ignoring, for the moment, the argument that you could earn more with your investment, it is never a good idea to finance anything if you don't have to - it will always cost more in the long run, particularly with any depreciating asset. In terms of strictly a financial decision which is the premise of your question, as Warren Buffet says, " never buy a depreciating asset".
Well- We can infer then that, as wise as he may be, Warren Buffett is not a boater.

On the issue of depreciation, it's one of the reasons that I looked for one of the oldest boats that offered (most) everything I wanted. Most of the depreciation should have already been taken by previous owners. (I know, I know, maintenance and upgrades majorly muddle that argument...)
 

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Wandering Aimlessly
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Paying cash means never having to worry about making a payment. You're free to sell, trade or otherwise use the boat in any manner you choose, for any reason you choose. Also, you aren't beholden to an insurance company for coverage you may or may not want.

The assumption of unnecessary debt, in the hopes of uncertain gains in speculative pursuits, is something I would avoid.
 

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Discussion Starter · #9 ·
Ed-

In that case, buy the boat... and post photos of her. :)
Will do SD. Will do. The survey is on Thursday. Pictures may not be too quick in coming though, as I may not be able to bring her home until spring. (Which totally bums me out. But this fall is a bear already, and I'm not sure the trip would be wise at this point. Besides, I'd just be bringing her to where it's more expensive to haul and store anyway)
 

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CASH= Its yours to do with what you want.
BANK=Its yours as long as you can pay the insurance and the payments.
Forget the investment thing.How do you want to live?How do you want to project yourself to others?{read kids}
Your choice
Mark
 

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ed-

so, what did you buy???
 

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Ed-

Post photos when you can.. :) Good luck on the survey.
 

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I recently had to perform the same calculus. I chose to to put down a fairly large percentage and take a loan for the balance. I generally prefer to pay cash for luxury items like a boat but not this time. My reasoning was:

1. I feel comfortable that my job is secure and I will be able to make the payments.
2. If I'm wrong about #1, I'd rather have cash in the bank than a paid for boat.
3. There are always some big expenses you either want to make, or will unexpectedly have to make with a new to you boat which may further deplete your cash reserves.
4. If you were in a position to pay cash now, but opt to maintain a larger cash reserve and the market does come roaring back making you feel really flush, there is nothing to prevent you prepaying the loan.

Good luck which ever way you decide to go.
 

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Good luck with the boat survey & trial.
Usually I am a cash & no credit guy but right now I think cash in hand may be better than cash in a boat. The economics are SO very uncertain that the flexibility of having cash over the short-term may be more prudent than the normal good advice to pay cash & live debt free. If you can do an early payoff on the loan if things stabilize that would be good. You can also take a homeowners deduction on the interest since the boat WILL qualify as a second home...reducing real interest to the neighborhood of 5% and you might easily achieve that if the market does a bit of a rebound. One thing I CAN tell you from recent experience is that a boat is NOT a liquid asset...indeed it more closely resembles the frozen arctic!
All best whichever path you take.
 

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Mud Hen #69, Mad Hatter
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Hello again,

I suppose I should ask my accountant this question, but then I'd have to get an accountant...

I'm about to buy a new-to-me boat. Were I to finance, 20% down would leave me with a $25,000 loan, the minimum for many lenders, and the highest rates, currently about 8%. I am in the position to comfortably pay cash as well.
Well, you're in luck 'cause you just did (ask an accountant). Me.

Look at it this way: You're talking about $31K for the boat, so would you spend $78K for the same boat tomorrow? That's about what you'll pay the bank for that $31K boat with interest over the life of the loan. (you didn't state the loan 's term so it could be more or less)

Do you think you can beat 8% with the cash as an investment? Maybe. Do you have the fortitude to leave it ride undisturbed for 10 or 15 years? Six months ago my brother bought a low-risk $10,000.00 bond from a well rated firm called Lehman Brothers. Worth $18.00 today.

You want a GOOD investment skip the boat entirely. Buy high-grade coins or real-estate. Boats are a poor commodity - though a good used boat can be sold for a profit if you buy right and maintain it well (and by yourself without a yard's labor fee). And if you paid cash. ;-)

I just paid cash for the boat I bought. Financing is an industry because it pays to offer it, not necessarily participate in it. If the boat did something to generate income that would be a different story. But as most are a drain of funds throughout their life you're better off using your income for maintenance and upgrades than as loan repayments.
 
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Well, you're in luck 'cause you just did (ask an accountant). Me.

Look at it this way: You're talking about $31K for the boat, so would you spend $78K for the same boat tomorrow? That's about what you'll pay the bank for that $31K boat with interest over the life of the loan. (you didn't state the loan 's term so it could be more or less)

Do you think you can beat 8% with the cash as an investment? Maybe. Do you have the fortitude to leave it ride undisturbed for 10 or 15 years? Six months ago my brother bought a low-risk $10,000.00 bond from a well rated firm called Lehman Brothers. Worth $18.00 today.

You want a GOOD investment skip the boat entirely. Buy high-grade coins or real-estate. Boats are a poor commodity - though a good used boat can be sold for a profit if you buy right and maintain it well (and by yourself without a yard's labor fee). And if you paid cash. ;-)

I just paid cash for the boat I bought. Financing is an industry because it pays to offer it, not necessarily participate in it. If the boat did something to generate income that would be a different story. But as most are a drain of funds throughout their life you're better off using your income for maintenance and upgrades than as loan repayments.
That's a fine post.
 
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