Before Buying a Charter Yacht:

Preliminary "Soul Searching"

As everything else on this web site, the information you're about to read is 100% genuine. It is based upon dozens of authentic experiences coming from past and current charter boat owners. And by the way: The writer of this section is a 3-time charter boat owner himself for a total of 15 years! We will do our best efforts to convey information that is as factual and objective as possible, with all the practical pros and cons. It is very important to understand that this is not a negative approach against charter companies. On the contrary, it is the charter companies that provide to the well-informed buyer/owner the opportunity to fulfill at least some of his objectives or sailing dreams in reasonable conditions, and enjoy one of the greatest lifestyle experiences there is.

So...You have been chartering for several years, and loving every minute of it. But now you've caught the bug: You've been dreaming about owning your own charter yacht. You had many conversations with your wife/husband and the kids. You checked your finances a dozen times, and you said to yourself: Hey! I can do that! Finally, you've made up your mind and you've announced to the family: "That's it! We're doing it. WE'RE BUYING A BOAT".

Now comes the hard part: How, and which company are you going to do this with? So many offerings, one more tempting than the other — you are getting more confused by the minute. You see, charter companies have one thing in common: They all carry lots of promises. But as you can imagine, they don't all equally deliver.

Relax! We're here to help you sort out this information overload. We will tell you everything you need to know about the reality of charter yacht ownership, including what charter companies will not necessarily volunteer to tell you. Let's start!

The Good News

Let me first say that ever since I purchased my first boat in 1995 (a Jeanneau 52 with one of the big charter companies), and all the way to 2010, I have, of course, experienced some frustrations, some bad years with lower than expected charter income and some headaches of different varieties. However, to this day, I do not regret for one minute buying my 3 boats (I am now ready for my fourth one!) It has given me a great opportunity to:

- Go cruising extensively in the most exotic sailing grounds in the world, without having to worry about the maintenance of the vessel: showing up is basically all I had to do!
- Enjoy a great activity with my son, and make him love it; bring him closer to me while teaching him a lot about seamanship, marine science and the environment.
- Make a lot of great new friends
- Own a boat largely paid for by charter income after years of enjoyment.

Not bad, right? In other words, would I give up the sunsets at anchor in the Virgin Islands with a nice cool drink? Or the phenomenal sailing in the Caribbean Trade Winds? NO WAY. I can't think of anything I could have spent my money on that would have given me so much enjoyment and fulfillment over the years. It is a great experience, which I will renew as long as I'll be able to.
It's just that before signing on the dotted line and engage in this large financial commitment, there are some caution signs one should know about, in order to deal more smoothly with this whole process.

Is Buying a Boat An Investment?

First and foremost, (although less and less charter companies try to present that argument), if you have been led to believe that this is a profitable investment in any way, we've got some news for you: Buying and owning a boat is anything but that, not by any stretch of imagination. However, if done the proper way, buying a charter boat may be a way to:

- Significantly minimize your financial exposure.
- Enjoy sailing in fabulous and remote sailing grounds that you probably would not get to see otherwise, and at a greatly reduced cost.
- Benefit from all of the above with much less headache than with traditional ownership. (Note: We wrote less headache, not no headache)
- Incidentally, satisfy your ego: Telling your acquaintances that you own a yacht in the Caribbean, the Med or in the Pacific is a guaranteed attention-getter!

The Homework

As for any large expenditure, you must do some significant homework beforehand. And remember: Do not get emotional about this. Deal with facts and numbers only.

1. Preliminary Tests
You must ask yourself 3 important questions. Depending upon you answer, ownership may or may not be for you.

Question 1:  Do I intend to keep the boat at the end of the charter management contract, usually 4 to 6 years? Or:.. Will I likely roll over to a new boat with the same charter company?

- You answered YES: GOOD. Charter boat ownership is in effect a great way to enjoy sailing for a few years without major expenses, AND own the boat at the end of the contract while having the charter income pay for some or all of the mortgage. (More about income and finances later).
- You answered NO: NOT GREAT. If you do not intend to keep your boat at the end of the management contract, or trade-in and roll over to a new boat with the same company, then you'll probably want to resell her.
If so, here is the skinny on what some charter companies might tell you:

- After 5 years, boats keep a resale value of up to 70%, and...
- Our brokerage company will help you sell the boat.

The reality - What charter companies/brokers will not tell you:
- Selling a used boat can sometimes be a long, and frustrating experience. Some models re-sell more easily than others.
- You seldom, if ever, get the price you thought you would—most definitely not 70% after 5 years or more.
- You will get several low-ball offers that will insult your intelligence.
- Your wait may be even longer when the brokerage house you chose has 8 or 10 charter boats similar to yours for sale.
- If the boat has not been sold before the end of the contract, you will have to keep paying the mortgage and the boat expenses without earning any income on the boat any more. A very tough position to be in!

Solutions to explore:
- Do not buy a boat and keep chartering as in the past.
- At the end of the contract, move your boat to a second-tier fleet. There are some very good ones, and that is a very good, cost-effective strategy while waiting for the boat to be sold.
- Find a charter company that facilitates a trade-up to a new boat. Guaranteed buy-backs are not offered by anyone on the industry. Some companies try to address all the inconveniences above and are offering options like selling the boat without charging a commission, if you buy a new boat from them (Dream Yacht offers that option).

Question 2: Do I intend to use the boat extensively during the contract (like, 3 weeks+ a year)?

-You answered YES: GOOD again. Significant use of the boat will make ownership less expensive than simple chartering, not to mention the extensive enjoyment.
- You answered NO: NOT GREAT. If you do not intend to use your boat a lot, but have answered YES to the first question, you may proceed further with careful consideration, and make sure you consider all negative factors closely.

Now, If you answered NO to BOTH questions 1 & 2, then I seriously suggest you reconsider. You're much better off continuing to charter as in the past since charter boat ownership does not present any advantage in your situation, except satisfaction of your ego (see above). It has been recognized over and over by charter boat owners that ownership does not make sense (financially or otherwise) if one does not use the boat much or keep her after the contract.

Question 3: Do I need to borrow over the reasonable ratios in regard to all my assets in order to afford the boat?

If it is the case: DO NOT DO IT. STOP READING RIGHT NOW AND FORGET IT! Alternatively, consider a smaller boat, until the numbers fit. Many owners find themselves "upside down" at the end of the contract, when they owe more money to the bank than the boat is really worth! Similarly, do not count on the boat income for anything else than paying down the mortgage every month. That would be a fatal mistake! In other words: You must apply all the charter income towards your mortgage or note, including any cash flow surplus you may get.

Last absolute death-trap to avoid at ANY COST: Using a mortgage that is for more than 12 years. Some salespersons (aka financial criminals) in the industry try to sell boats with TWENTY-YEAR mortgages, to make their proforma's cah flow look better. That is a GUARANTEE that you will be severely upside down on your mortgage. The dream boat adventure will then turn into one of your worst nightmares.

If you successfully passed your tests, you're in good shape! Now it's time to make choices.

2. Your Choices

We will assume here that you will acquire a bareboat (see bareboat vs. crewed discussion.) You have 3 main decisions to make: Which management company, which type of boat, and which location.
But before we get into this, I strongly suggest you try to talk to current boat owners with the companies you have in mind, but preferably not the ones the company has pre-selected. To do that, you can hang out at major Boat Shows (Newport, RI, Annapolis, MD, Oakland, CA, etc.) and ask one of the people attending the management company booth to introduce you to a couple of current owners. (There are always some owners hanging out there.) They should be more than happy to do this and you will have the effect of surprise. And/or go on the Internet: Boating newsgroups (Sailonline forum  http://groups.yahoo.com/group/charterboatowners/  www.traveltalkonline.com) will help you find owners. Do it. You will learn a lot.

 The Charter Companies: You will find lots of companies on the market, large to small. Here are the pros and cons for each.

Large Companies: There are 3 large companies:

Dream Yacht Charter - About 950 boats 35 bases worldwide

Moorings - About 250 boats, 20 bases worldwide;

Sunsail - About 500 boats, 40 bases worldwide.

Note: Although they are distinct companies, Moorings and Sunsail now belong to the same  company (KKR), a large New York private equity firm.
Moorings and Sunsail sell boats that are sort-off cookie-cutters (no customization allowed) and offers one management program. Dream Yachts lets owners buy their boat from several major brands and lets buyers customize their boat to their taste in many cases. It is currently the only charter company to offer this with a guaranteed income. They also offer 5 or 6 different management programs.

Pros:
- Been around for a long time.
- Relatively financially solid, but ask for recent financial statements anyway (not an easy one, but some companies volunteer it).
-Large selection of boats.
- Worldwide bases where you can sail boats similar to yours, using what veteran owners call "Reciprocals". Some companies (like Sunsail) even offer exchanges with land-based resorts.
- The company will guarantee your income and will take care and pay for all the maintenance, docking, insurance, etc. You pay nothing. You can make a very accurate financial projection of where you'll be at the end of the contract.
- Standardized maintenance and hurricane procedures.
- Standardized, proven phase-out procedures.
- If they go under, which is highly unlikely, you will sweat a little, but they will probably be bought out and you will not be left hanging.

Cons:
- No flexibility if you want a boat model they do not offer, or if you want additional custom features or equipment on the yacht - except from Dream Yacht Charter.
- Limited owner's use of the boat (9 to 12 weeks a year);
- Customer service somewhat less personal, although Dream Yachts makes lots of efforts on this aspect, with smaller bases and easy access to management.

Medium and Small Companies
The ones we like are Tortola Marine Management (TMM), Horizon Yacht Charters* and BVI Yacht Charters in the British Virgin Islands. CYOA in the US Virgin Islands. Typically, those companies have fleets of about 20 to 60 boats, a very close relationship with owners, and excellent customer service. *Recently, thanks to its collaboration with the German boat bulder Bavaria, Horizon has grown much larger and has opened several bases throughout the Caribbean and USA.

Pros
- Customer service more personal and easier to get in touch with;
- Concerns like Tortola Marine Management and Horizon voluntarily limit the bases fleets to a manageable size so they can take quality and personal care of their customers and boat owners;
- Some have been in business for a long time. However, this is an active industry: Some companies might have a new management. Verify this.
- More flexibility in choice of boats and equipment if you want a particular model;
- Unlimited owner's use of the boat (except Horizon).

Cons
- Financial status of the company has to be checked: If a small charter company goes belly-up, it will most probably disappear and leave you in a panic. However, the ones we show above have been in business for quite a long time.
- No guaranteed income. Your financial projections always remain hypothetical. You will be hit hard on the income if another bad hurricane season hits the islands again.
- Few locations- sometimes only one location offered; thus no other bases available for "reciprocal time";
- Maintenance and phase-out and hurricane procedures to be thoroughly checked.

Implications of Your Charter Company Choice
The big guys (Dream Yacht, Moorings and Sunsail) typically offer:
- Guaranteed income even if your boat never goes out on charter. Income typically equals 8 to 10% per year of the value of the boat new.
- All maintenance and expenses paid by the company. You pay literally nothing.
- Use of reciprocal charters in many other locations worldwide
- Generous but limited owner's use: 9 to 12 weeks a year, with a limit on weeks in hi-season.

The smaller outfits typically offer:
- Not-guaranteed, variable income equal to roughly 60 to 75% of the charter income;
- Company performs the maintenance, but you (the owner) pay all expenses: you will be billed for maintenance, docking, insurance, etc. Those companies charge a mark-up on parts over cost.
- Unlimited owners' use.
- Few other locations geared to exchange programs.

Do you see where we are going here? I do not want to generalize because there are exceptions for everything. But in a nutshell, the big companies are better suited for owners who are happy with limited owner's use and who, basically, want a completely headache free, not-too-emotional kind of ownership. The smaller companies are much better suited for owners who want to own a particular type of boat, (TMM for example, will take almost any boat you'd like in their fleet) with customized features, like to sail a lot, maybe go out on their boat 2 months at a time, and like to be very involved with their boat.

So as you can see, your choice here can drive you in 2 completely different universes. You will have to very carefully assess which one is best for your needs.

The Boat Type: Obviously, your choice of boat will stem from your budget. And although you might find some price differences between companies for similar boats -mainly because of equipment differences- eventually, you will get the same bottom line, as in "You get what you pay for". The main question is: Monohull (more affordable) or Catamaran. But that is another discussion: just know that the massive, long term trend is driven by catamarans, especially in the Caribbean. Once your budget is defined, several criteria should guide your choice.

- Will you sail mostly with your wife/husband/significant other only? or....
- Will you often take the kids or friends along? If so, you will need more staterooms/heads. Would you consider the roominess and stability of a catamaran — great for young kids? Or are you a hard-core monohull sailor? 
- Assuming you will keep the boat after the end of the contract, will she suit your goals back home? Same question if you intend to go cruising for an extended period of time at the end of the contract.

Very important: All things being equal, all boats do not bring in the same charter income. Some boat sizes/configurations are more popular than others among charterers. Therefore, if you choose a contract with a percentage-based income (see contract section), you'll want to know exactly what kind of income boats similar to yours have generated over the last, say, 2/3 years. For that, during the course of your contract negotiation, you have to ask the management company to show you the listings of real bookings achieved by boats similar to yours, at the base you will choose (see below.) Most companies will show you "proformas" of future potential bookings. Not good enough. Proformas can be deceiving, vague and optimistic. Insist for the real stuff. If the company has nothing to hide, they should have no problem disclosing this information to you.

The Boat Location

This is a matter of personal preference, but here are some criteria. If you plan to base your boat in the Caribbean, bear in mind that the South Caribbean, also called the Windward, (Grenada, St. Lucia, Martinique) present more sailing challenges, with a lot of open ocean sailing, longer legs, and generally stronger winds than in the Northern Caribbean, also called the Leeward, (US and British Virgin Islands, St. Martin). So your sailing self-confidence and your anchoring technique will have to be up to par in the Windward.

Conversely, the northern part (US and British Virgin) offers an almost unlimited diversity of sailing grounds and anchorages in a relatively small area. Personally, this area has been my long-time favorite.

In the Bahamas and the Florida Keys, waters are much shallower, so catamarans are more adapted to the grounds and will let you go places that monohulls cannot access. In case you choose a variable income program, the Bahamas are (as of this writing) a very popular charter area bringing good income to a boat, especially a catamaran.

Very important: For similar boats, all bases do not bring in the same charter income. Some are more popular than others among charterers. Therefore, if you choose a contract with a percentage-based income (see contract section), you will want to know, again, what kind of bookings boats similar to yours have gotten over the last 2 years (see above, section 2.2.) Thus, if for geographical preference, you elect to base your vessel in a somewhat remote area, we strongly suggest that you go for a contract with guaranteed income. Some remote locations, with the advantage of being very exotic, might also have the problem of lacking competent mechanics and surveyors. Even parts could be hard to come by.

Finally, check how practical and pricey is the airline access from your hometown to the base you'd like.

Well, you have done your homework, made your choices, and you feel comfortable. You are armed to the teeth and ready to go to the next step: Contact several charter companies and start getting a feel for the real thing. But as we hope you understand by now, this is not a simple process, and we urge you to carefully tale all the steps above!