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Big Chicken Baby
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Paying outright means that all of the money that you would be spending on interest can go into your cruise kitty or into upgrades, refits, whatever.

Others may have different opinions but I think debt is just a really bad idea, especially for something that is essentially a luxury and a depreciating one at that.
 

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Waiting For Spring
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I just got a $10,000 RRSP loan from my bank and am repaying it over one year. I was planning on dropping my tax refund ($5000) on the loan to pay it off quicker but the interest rate for loans is so cheap right now I am only paying $161.xx in interest for the whole loan!!! That's insanely low! If you can get good terms there is no reason not to finance.

It is all personal preference though. Run your budget and see if you can carry a monthly payment along with your current bills or if you just want to pay outright.
 

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PRO: You can get a much bigger boat than cash outright
CON: You have to carry insurance
PRO: Contrary to the first note, you will have *MORE* money for upfront upgrades as you will preserve your capital rather than spending it on the cash outlay itself
CON: Over 20 years on a typical boat note, you'll pay a ton more for the boat than cash up front.
PRO: For some people, this tax deduction on the interest paid on the note can knock them into a lower tax bracket...saving mucho bucks.
CON: If you have to sell in the future, you may be under-water and have to bring money to the table
 

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Telstar 28
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One point about insurance—Most marinas require you to carry some insurance, regardless of the boat being paid for or being financed. The difference in cost between liability only and the agreed-value insurance that the bank's usually require isn't all that much.
 

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Financing a boat or anything else preserves your capitol short term and increases your expenses and overall cost full-term.

Unless you get the right papers and the boat qualifies as your HOME, in which case you can take the usual IRS home mortgage (mortgage, not loan) deductions for it as a first home. That may change the balance of whether you are actually paying interest, or coming out ahead.
 

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Discussion Starter · #7 ·
Thanks All
Your words hit the spot. My next question is what are the pros & cons of insurance and the prices. Again the boat would be in the $40-50 grand range and would be sailed for a year or so in New England (USA) and then on long term cruises.
Ditch
 

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Telstar 28
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Too many variables to give a good estimate. The variables include whether the policy is liability only or agreed value? Area of sailing coverage? Type of boat? Length of sailing season? etc....
Can you give me a basic idea of the yearly insurance cost on a 1985-1995 36ft mono?

Ditch
 

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Banned
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The most important insurance variable could well be your sailing resume, experience, training, etc.
 

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Big Chicken Baby
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Comprehensive quotes we are seeing are from 1% to 2% of agreed value depending on where the boat is kept, where it is sailing, etc.

We've opted for a 50 nautical mile comp policy, then will add an additional policy once we start cruising out ot the US. International coverage gets a bit more expensive.
 

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I'm not a tax professional... but according to IRS publication 936... "For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities."

There is also a 14 day stay on qualification (but I believe that is only if you are renting it out).

Anyways... if you are in a high tax bracket it might not be worth it to pay off the boat (just as it may not be worth it to pay off your home mortgage). Of course that assumes you are using the money you could use to pay off the mortgage wisely (such as investing/saving the money) not buying more boat toys :)
 

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Big Chicken Baby
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I guess I am the only one who sees a benefit in paying cash for a boat so I will outline what made our decision. Keep in mind, I'm a Ramsey fan so that certainly colors my perspective.

We ran the numbers and the amount we would save using the tax write off was less than what we would save on interest. You can write off the interest but you still have to pay the interest. For us, it did not alter the tax bracket we were in at all.

We are purposefully buying less boat than the tables say we can afford. We are keeping cash in reserve for repairs,upgrades, etc. By doing this, we aren't stretching our budget to a level that leaves us exposed to financial risk.

Due to the economic conditions of my husband's industry, he will be unemployed sometime in the fall. Because we have always, always lived below our means, never borrowed money and have saved as much as we possibly can for years and years we get to spend the time while he searches for a job on our boat. If we had a monthly mortgage payment, we wouldn't have that luxury.

Things are so uncertain economically right now, I just think it is prudent to be as cautious as possible. If you finance the boat and spend the capital you save on improvements, what will happen if you suddenly become unemployed? I have seen too many people lose their jobs in the past 6 months and have to worry because they have mortgage payments, car payments, credit card debts etc.

I can not help but think the safest course of action is to buy a boat for cash, figuring in some of the reserves for insurance, maintenance and refitting and put the money you would spend on a payment into savings or investments for a rainy day. I am afraid its only drizzling now but a real storm is coming soon.

There. That's my opinion and it is worth exactly what you paid to hear it. :)
 

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Mimsy,

I like your attitude. Our similar attitude has kept us looking over jumping at a couple of boats.
We want a boat (drool!) but want to be on the water and "solid ground" financially.
 

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Discussion Starter · #16 ·
Thanks again.:) Next I would like to hear your opinions on this scenario. Say I buy a 15 year old 33-36ft mono hull that’s been blue water sailed for around $35grand I keep $10 thousand in reserve for upgrades, repairs and insurance (liability, ?comprehensive?) and moor it in Northern New England (Belfast Maine) and sail New England for a year preparing the boat and myself for a long term cruise; after the year is up, set out. What is your advice about this scenario in regard to insurance and other factors you see fit to bring out?
 

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Thanks again.:) Next I would like to hear your opinions on this scenario. Say I buy a 15 year old 33-36ft mono hull that's been blue water sailed for around $35grand I keep $10 thousand in reserve for upgrades, repairs and insurance (liability, ?comprehensive?) and moor it in Northern New England (Belfast Maine) and sail New England for a year preparing the boat and myself for a long term cruise; after the year is up, set out. What is your advice about this scenario in regard to insurance and other factors you see fit to bring out?
Without knowing your experience - zilch....
 

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For one, boat insurance rates have nothing to do with your sailing resume. All they base it on is the boat value, year, home port, etc.

I tend to be a quite financially conservative, and believe you should never buy a boat just because a table or some dealer says you can afford. You have to be the judge of that. However, I learned from an old salt that a boat is an investment. No, it's not a financial investment. It loses money, but it is an investment in the quality of your life. Regardless of your financial situation or the economy, the only thing that's sure to depreciate daily is your life expectancy! While it isn't prudent to dig yourself too big of a debt-hole, financing can be useful. When contemplating the purchase of a boat that costs nearly as much as my house, I looked at the difference between saving and paying cash for a boat, and the total cost of financing. I then asked myself "Is it worth paying that extra amount of money to have the boat now, instead of waiting until later". For me the answer was "yes". This may be corny or over-dramatic but what happens when that day comes, and you finally have all the money saved up, and you're ready to live the dream, and then the next day you find out you have cancer and a month to live. Life is short, and you gotta do your living while you know you can.

Finally, sailors by nature are self-sufficient bunch. Nobody understands your situation better than you; you have to evaluate your situation and figure out what you can do. Ultimately, your real responsibility is to the safety and well-being of you crew---that is to say, the first priority is to take care of your family. Once that's taken care of.....bon voyage!
 

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I'm going to speak to your original question, and probably piss off a lot of people.

Pro: You can "buy" something you can't afford.

Con: See above.

Let me get this straight - you're going to borrow money and go in debt to buy a toy. Excuse me if I come right out and call this silly.

The only thing you should ever borrow money for is a home, or a significant, money making business investment. In both cases you should perform due diligence and be very careful. That's right, in my world car payments are silly.

When you buy a boat the spending has just started. There will be upgrades, maintenance, stuff.

I know, to most of the people here a boat is not a "toy". Will it be your primary residence?

Banks don't loan you money as a favor. They plan to make a profit off you. Buy something you can pay cash for and it will be a joy to your family rather than a burden. If that means cruising on an older 30-32'er at first, it's worth it.
 

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Discussion Starter · #20 ·
Soulfinder Thanks for the financial and life goal oriented post. I agree one should not let life pass by without tasting it. But I think for me I should just down size boat wise opposed to a loan. I believe I can keep the same goal and schedule I just will be on an older smaller boat.
"For me the answer was "yes". This may be corny or over-dramatic but what happens when that day comes, and you finally have all the money saved up, and you're ready to live the dream, and then the next day you find out you have cancer and a month to live. Life is short, and you gotta do your living while you know you can."

Sahara:
I feel strongly against loans. And agree with "The only thing you should ever borrow money for is a home, or a significant, money making business investment. In both cases you should perform due diligence and be very careful. That's right, in my world car payments are silly." I have a mortgage now only because it is and will be a good long term investment.

ArtbyJody:I have no physical sailing experience; my partner is the experienced one.
 
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