Owning a Caribbean Charterboat
Sure, you can save a bit of money and have a bit of fun. But you need to be clear about what you want and expect, and bear in mind the difference between a 'boat' and an 'investment'. Your boat will be headed into a rugged trade.
There was a time when owning your own sailboat in the Caribbean was a luxury reserved for the very rich. But charter companies offer ownership deals that promise to quell the headaches of boat ownership and slow your outgoing tide of cash. In exchange, you'll have your own boat in an exotic corner of the world that will produce income for you when you're not onboard.
Practical Sailor readers often ask how this works and if we recommend it. So we delved into the nuts and bolts behind the dream.
The purpose of this article is not to rate companies or point you in the direction of specific fleets, for we have no objective method for testing ownership deals. Instead, we'll try to lay out a map of bareboat ownership programs, drawn from research and owners' experiences.
We focused on ownership of a bareboat in the Caribbean, with year-round sailing conditions that account for the majority share of worldwide charter traffic each year (56%, based on The Sailing Company 2000 Bareboat Charter Industry Study).
How It Works
Charterboats—like race horses and ingénues—enjoy their prime value when they are young, and boats in the bareboat trade have definite life cycles. In the first cycle, generally the first 3.5 to 5-6 years, boats are typically in a first-tier fleet of newer boats. In their second cycle, generally 5 to 10 years, they can move to second-tier fleets.
There are two basic models for ownership deals, with variations on each theme:
Guaranteed Income: First-tier companies such as Sunsail (now merged with Stardust into the largest charter company in the world, with 1,200 boats worldwide) and The Moorings (770 boats) offer Guaranteed Income programs. They will sell you a boat in their fleet and then guarantee you a set amount of income each month. The company pays for all the boat maintenance and insurance. The guaranteed monthly payment can be enough to cover your boat mortgage (depending on how you finance your boat).
Owner time onboard is limited; generally 4 to 6 weeks per year (with some variation, depending on when and where you charter). Boat selection is limited.
With Sunsail and The Moorings, you buy the boats they offer in their fleets. The best designs for chartering are the subject of another article, but the business has gravitated toward workhorse designs with multiple cabins and heads, a fairly high level of sleeping and sitting comfort (not stowage space), and some beefed up systems for cruising. By limiting the types of boats in a large fleet, companies streamline their maintenance and spare-parts ordering.
Percentage of Charter Income: Many companies offer a plan where the owner pays 100% of the maintenance, dockage, and insurance, but gets a high percentage of the charter income (we found companies that offered anywhere from 60% to 77%); the company takes the balance for marketing and managing the boat and booking charters. These companies also make money from maintaining your boat. Owners generally get unlimited time on their boats, and there is more latitude in terms of the types of boats you can purchase and the options you can put onboard.
Colorado owner Dave Ellen gravitated to this setup for that reason. His family of five sailors are also scuba divers and waterskiers, so they wanted a compressor onboard and a ski boat. Ellen also wanted a certain level of creature comfort, with air/conditioning and a second generator.
Ellen talked first with companies that offered a selection of stock boats. "They said to me, 'Here is our package and here are our boats. Why on earth would you want to do what you plan to do?'"
Then he met with the Catamaran Company, which specializes (logically enough) in catamarans and operates on a split—77% to the owners, 23% to the company. "They said, 'That's not a bad idea. Let's see how we can make it work,' " said Ellen.
Ellen and his family are now four years into their ownership of a Privilege 465 with Catamaran Co. They sail about six weeks a year. Charter income has paid both mortgage and maintenance so far, with some to spare.
In the percentage setup, there are no guaranteed payments and you have to cover your maintenance costs—so by definition it's riskier. But if you purchase a boat that's proven popular for charter and you pick a solid management company, you should be able to make a realistic projection.
Experienced owners cautioned us here: don't be naïve and consider a charter company's projection of what the boat is expected to do as gospel. Ask for actual figures from a sistership at the same charter base to get a reality check. Tortola Marine Management (TMM)—a company with three Caribbean bases that are all owner-operated—sent us actual figures in an ownership packet, without our asking for them.
If you decide to keep your boat in charter after its term with a first-tier company, you can keep the boat working by moving it to a second-tier fleet. We found second-tier companies that worked on both the fixed payment and the percentage models. Moorings owns Footloose, in Tortola, which offers a fixed payment plan to owners and covers maintenance costs. Footloose takes Moorings boats from five to eight years old.
Second-tier fleet Bareboat Yacht Charters, based in St. Vincent, runs a fleet of 21 boats (they limit the fleet to 25 boats) and offers a percentage split of 60% to the owner, 40% to the company on charter income. They now manage boats that range from 1 year old to 17 years old, with the average age being 6 years old.
Older boats generally fetch a lower fee in the bareboat trade. And after five years of heavy charter use (20 to 30 weeks per year), second-tier boats are victims of their age, quality of construction and systems, and their maintenance history. (See sidebar, page 20, "Two Barefoot Boats.")
Experienced owners also point out that moving to a second-tier fleet after being in a guaranteed-income setup can be a tough psychological switch: In a first-tier fleet you receive a check every month for five years or so, while in a second-tier fleet you may be covering all costs of your upkeep.
Note that while we classify companies as first- or second-tier, these classifications aren't set in stone. Some first-tier companies keep older boats in their fleets, while companies that operate mainly on a percentage of charter income basis may offer guaranteed income programs for select boats. (See the chart on pages 18-19 for variations.)
Many owners we interviewed simply negotiated deals that best suited their needs.
Bareboats as Investments
There's a longstanding misconception that a charterboat is a good investment. Where or when the idea started, we don't know, but charter operators and owners told us flat out—before we even asked—that a charterboat is not a financial investment. Period.
In a 1994 issue of Forbes magazine, Jean Larroux (a then vice president of The Moorings) said of charterboat owners: "If it was just a financial decision, they would all own mutual funds."
Mutual funds, of course, don't grant you sunset cockpit views or long sunny days reaching in tradewinds. "Owning a charterboat is an investment in a lifestyle, not an investment in pure financial terms," said Hugh Murray of the Catamaran Company.
Owners concurred. "It's a good way to own a nicer boat than you would otherwise be able to afford, but it's not an investment where you'll make money," said Ginny Noyes, an Arizona-based owner who, with her husband, has owned boats with three different companies over the past nine years.
Charter or Own?
We interviewed people who have owned a succession of three, four, even five charterboats. They've traded up to a new boat at the end of each first-tier term. The goal they seem to share is not to own a particular boat, but to go sailing often in exotic locales. Ownership is a way to pay less-than-retail prices for time on board (depending on how many weeks a year you charter).
Texas-based CPA Mike Kimball, who has created a niche in advising boatowners on tax planning, advises potential owners to make a quick calculation to take a snapshot of the value of their sailing time (Kimball runs a website at yachtstaxadvisor.com).
For example, let's say you purchase a 39-foot bareboat for $165,000, putting 25% down ($41,250) and taking out a 15-year note at 7.5% interest ($1,147 per month). If you get a fixed monthly payment from your charter company (say, 10% annually of the original purchase price, which is what Sunsail offers in one of their programs) and you don't pay maintenance, your monthly income would be $1,375 per month, for a charter income after 5 years of $82,500.
If you target excess charter income to offset your debt, you would pay an extra $228 toward your loan each month. The total you'd pay for the boat over the five-year term would be $123,750 ($41,250 down; $82,500 in mortgage payments).
Making that escalated monthly payment, you'd owe approximately $79,200 on your boat loan after 5 years. If you could net approximately $82,000 from the sale of your boat (Kimball figures on 50% to 60% of the original purchase price as a sale price after five years of chartering, depending on what figure the client is comfortable with), your cost to own your charterboat for 5 years would be $38,450 ($123,750 in outlay, offset by $82,500 in guaranteed income payments and $2,800 back after selling the boat).
If your 39-footer charters retail for $420 per day (averaging high season, "shoulder" season, and low season rates), in order to pay less-than-retail rates to charter, you'd have to sail more than 18 days per year ($38,450 divided by $420 factors out approximately to 91 days over 5 years, or 18 days per year). If you sailed an average of 4 weeks a year, for a total of 140 days over 5 years, your per-day charter rate is $274/day.
So, the amount of time you want to spend onboard is key, if you look at a bareboat buy in pure financial terms. But owners say other benefits weight this equation. "While it might make better financial sense to simply charter a boat when you want one, there's an additional feeling of being a part of the local community that ownership brings," says Canadian owner Rob Charuk, who purchased a 5-year-old Oceanis 400 and put it into a second-tier fleet. "Having the boat down there provides additional incentive to use it. I'm certain I wouldn't be making three trips per year if I had to trick three other people into paying for a charter, booking it, and all that hassle."
Dollars and Sense
The above model is a very rough calculation that doesn't factor in the following: tax deductions for depreciation; foregone earnings on capital invested; the cost of chartering your own boat (yes, sailing time is not always free to a bareboat owner—some companies charge a per-day fee for fuel/water/ice; some charge a flat turnaround fee to have the boat prepped and ready before and after your charter); potential income from selling your unused weeks (some owners who don't use all their allotted weeks sell them to friends, etc.).
For Kimball, the rough calculation we outlined is only a first step—a way to see if charter ownership makes basic sense. After that comes more number crunching, and financial and tax planning.
According to Kimball, for tax purposes a charterboat can fall under three different categories: a for-profit business, a second home, or a hobby.He recommends the for-profit plan for owners who are personally involved in day-to-day operations and honestly seek profits from their charter business. "The second home (or vacation home) tax plan usually provides the best overall result for owners of agency-managed charter vessels, because there is no disqualifying limit on personal use, and interest deductions are treated more favorably," says Kimball. He sees the hobby plan as the least advantageous.
When we asked charter companies for tax-planning guidelines, they recommended that owners talk to their own tax advisors. Says Kimball, "This type of tax consulting work involves subtle points and areas most people are unfamiliar with. But, there are choices that can be made, and the results of those choices over a period of five years are substantial."
Please Locate the Exit
Charterboat owners talk about phase-outs and exit strategies, which seem to be too-technical terms for a purchase you are making for pure pleasure. But how you end your charter term has a bearing on how you begin.
At the end of a first-tier term, you can sell your boat; take delivery of your boat and bring it home; take a trade-in for a new boat (some companies offer a guaranteed buy-back price for your boat, if you move up to a new boat in their fleet); or extend your boat's working life and move it to a second-tier fleet.
SailOnLine.com is a website targeted to charterers and charterboat owners. In an article covering the decision-making process of buying a charterboat, they ask you first how you'll end your charter term.
Keeping your own boat gets high marks. You've enjoyed sailing time in the Caribbean and used charter income to help offset your mortgage in the first five years.
Selling your boat doesn't get high marks. "That is something the charter companies don’t really tell you. Selling a used boat is a very long and painful process," reports one owner, on his third boat.
Many charter companies will offer one-stop shopping; after your boat has served its charter time they can sell it for you through their brokerage division. It sounds easy, and the company may assure you the boat will sell for a certain percentage of the original purchase price. But do your own research to see if that's a realistic number. If you can live with a resale figure at the bottom end of the scale and escalate your mortgage payments so there's little chance you'll owe more on the boat than you can sell her for, you won't get any surprises at the end.
Remember that you'll still be paying your boat mortgage and maintenance if the boat hasn’t sold by the time its charter term is done and the boat stops earning income. Some owners plan ahead and list their boat for sale well before the charter term is up.
Pat Crocker, a Texas-based emergency room surgeon, focused on resale values as he researched charterboats to purchase. He wanted a sturdy boat he'd feel comfortable taking offshore, and decided on an Island Packet 380. Through conversations with brokers and research in the BUC book, he estimated that Island Packets held their value well. He picked Island Yachts, a small company in St. Thomas that is owner/operated and manages a fleet of 15 Island Packets (they are also the local Island Packet dealer). The company offers a split of 60% to the owners and 40% to the company, while owners pay maintenance costs. Crocker put a high percentage down on the boat (some 40%) and plans to have much of the boat paid for at the end of the 5.5-year charter term.
So far, the boat has done about 28 charter weeks per year and has covered its mortgage and maintenance costs. Crocker is pleased with the quality of the maintenance work done by Island Yacht owners Andrea and Skip King, and feels his asset is being well preserved.
The "phase out" is when your charter management contract ends. Your boat should be returned to you in a condition that reflects fair wear and tear. According to owners who have been through the process, that does not mean the boat will look like new, but it does mean all equipment should be in working order.
If you haven't been involved in your boat's maintenance, owners advised that this is the time you should definitely get involved. "The end [of the charter term] can be traumatic. If you sit back and do nothing, you're bound to have problems," says Ray Paleczny, a Moorings owner who moved his second boat to a second-tier fleet.
SailOnLine.com (written largely by those with big-fleet experience) outlines a phase-out game plan. They recommend you start planning one year in advance. Go over all the company's maintenance records on your boat and look at charterers' debriefing sheets. Take a cruise on your boat about three months before you're due to take delivery, and use that time to go through every inch of the boat and make notes on any equipment that doesn't work properly. You should also hire a surveyor to go over the boat during the final haul-out.
After that fact-finding, you'll have a detailed list of issues that need to be addressed. Once you and your charter company agree on what work will be done, SailOnLine recommends you follow up on a regular basis to make sure jobs are being completed.
In September 1996, The Moorings Owners' Group was formed. A conversation among owners started as e-mail chat and was later formalized into an association. As Commodore Michel Benarrosh remembers, the group called The Moorings to tell them they had an owners association and the owners wanted to meet with the management.
"The reaction was mixed, to say the least," said Benarrosh. But, he estimates, if you factor 700 boats at an average price of $200,000 per boat, owners were bringing some $140 million in working capital to the company. "We thought we should be treated accordingly," said Benarrosh.
Over time, says Benarrosh, the group has built a good working relationship with Moorings management, for they have a common goal: to create and maintain a good product. Having a phase-out manual that details this final chapter of the charter agreement was something owners pushed for. Now, The Moorings has a manual. Not every company has taken this step.
There's not enough space here to go into detail on every issue owners raised, so here's a summary of the main tips we gathered.
Understand the Business: Owners talk about their charter companies as their partners, so it behooves you to understand how companies function. Some make money from selling boats, chartering, and brokering phased-out boats; some are on tighter margins, making money from charters and the occasional brokerage deal. Some have a corporate structure, and you'll deal with different offices as an owner; some are small and family-run.
Charter companies come and go. Research how sound they are. Unhappy owners didn't do their homework. "Yes, I’ve seen some unhappy owners. Their eyes were not open when they got into this," said Delaware owner Earl Sparks, who kept his boat working successfully for 11 years with The Moorings, Footloose, and Barefoot.
Get Involved with Your Boat. When you're on board, take a day and travel from stem to stern to note any gear that's not working or inventory that's missing. Give the list to your company and make sure items are addressed. Remember that maintenance crews don't live onboard your boat, and in the high season, boats sometimes get turned around too quickly between charters.
Talk to Current Owners, especially as you consider what boat to purchase and which company to go with. Their first-hand experiences will be your best guide. Ask the company for referrals; find owners at boat shows; visit SailOnLine.com for community links and to look at lists of owners selling charter weeks and charter boats. One resourceful soul sought owners out at beach bars as he chartered and considered ownership; invariably there were one or two in the crowd. "First, they'd rave about their boats—and then they'd share their war stories," he said.
Maintenance is Key. How your boat is maintained determines its value when it comes out of charter. Every company will assure you their maintenance program is strong, but of course you need to find out first-hand. One owner, as he considered potential companies, used a charter to take maintenance tours of different fleets; he looked at their boats, asked to see the maintenance facilities, and talked with maintenance staff.
When you pay for maintenance, you should get a detailed log with your bill each month. Larger companies that don't charge for maintenance don't do that kind of reporting. (With The Moorings you can read your maintenance log when you visit your boat.)
When you consider the maintenance issue, understand that different companies have different business models: some charge you to maintain your boat and make money in that area; others cover the maintenance and have to factor that function into their own costs. Some of the smaller companies deliberately limit their fleet size, so they can comfortably manage and maintain the boats in their fleet. Ask about turnaround time between charters. Some companies may let boats come in and go out in the same day, while others give themselves 24 or 48 hours to make sure things are right. Look in your contract to see if maintenance issues are spelled out (frequency of haul-out, routine replacement of lines and parts, etc.).
Charter, the Litmus Test: Many owners picked their companies after chartering with them. This gave them a direct view of how they operate, how they maintain the fleet, and the talent of the staff at the base. Big companies can take advantage of economies of scale; for example by being able to stock more spare parts, for less money, for a standardized fleet of boats. They also can be talent-magnets. On the other hand smaller companies can often offer a more personal, friendly approach with no loss of skill or service.
People at the Base are Important: Owners who were actively involved with their boats took time to get to know the people who cared for their investment. For some, being with a small company (where the base manager may be an owner or part-owner of the company) was important. Those with bigger companies spent time building relationships with staff at their base.
Look at Options for Sailing Elsewhere: If you're going to spend several weeks a year in the same cruising grounds, you'll eventually want a change of pace. Look at your options for using your charter weeks on boats in other locations. The larger companies offer reciprocal use at their bases around the world (some owners picked their companies based solely on this feature). Some smaller companies can also arrange a swap.
When we started this article, we thought researching recommendations on owning charterboats would be straightforward. But we soon realized the only way to make sense of the equation is, as usual, to factor in your personal goals: how much time you want to spend on board, what kind of boat you want, what you plan to do with the boat at the end of the charter term, and why you want a charter boat in the first place.
We interviewed first-tier owners who were able to pay their mortgage and maintenance costs during the first five years of charter, some with excess to spare. The deals where charter income can cover your costs in the first-tier years are tempting. But if you don't plan to keep the boat, look ahead—at resale values, trade-in options, and prospects for second-tier chartering. Then do the math and do some soul searching, for the bottom line may not follow logic at all: Sailors own sailboats because they love to sail, not because it makes financial sense.
Ask California owner Bob Divine. He kept a Beneteau 405 in The Moorings fleet for five years, then moved it to a second-tier fleet for six months. He's since moved the boat to the States to sell: the boat is no longer generating income, but he still has a boat mortgage to pay, and the boat's been listed for eight months. You might say Divine is one of the unlucky ones—but only in financial terms. When asked if he'd do it again, he didn't hesitate for a second. "Yes, I would do it again. I've enjoyed the experience."
Contacts— Barefoot Yacht Charters, 784/456-9526, www.barefootyachts.com. The Catamaran Company, 954/566-9806, www.catamaranco.com. Florida Yacht Charters and Sales, 800/537-0050, www.floridayacht.com. Footloose Yacht Charters, 888/952-6013, www.footloosecharters.com. Island Yachts, 800/524-2019, www.iyc.vi.The Moorings, 800/521-1126, www.moorings.com. Sunsail, 800/327-2276, www.sunsail.com. Tortola Marine Management, 866/660-4857, www.sailtmm.com.