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Does Buying New Make Sense Now?

Submitted onNovember 13, 2009 8 Comments, join the conversation

Brand new yachts for sale side by side in the Ft. Lauderdale boat show

It’s common knowledge that now is the time to buy anything IF you have the ability to do so. Cash is obviously a plus, but contrary to popular belief, there are still many sources for boat financing. Banks are happy to offer excellent loans to those that have dependable cash flow, good credit history and can comfortably make a 15% to 20% deposit. So if you are willing, ready and able…now what?

Brokerage or New?

A strong argument can made for either. While it really depends on the particular situation, studies show that once you choose a path you are likely to always follow it. A Power & Motoryacht reader study a few years ago showed that 70% of brokerage buyers were likely to purchase brokerage again while 50% of new boat buyers would do the same. This is to say that if your last 5 boats were all brokerage then you’ll probably save yourself a lot of confusion and time by sticking to the brokerage market…but what if the main benefit of brokerage (price discount) was also available in new boats? For the first time in at least a decade buyers are finding deals on new boats that rival the best deals in the brokerage market. So before you prove PMY’s poll consider the following:

Production Yachts…deals on stills:

Just like the rest of the world, high production boat manufacturers did not predict such a dramatic slowdown in orders. They continued building until they realized that the slump (or normalization as we see it) was here to stay. Many respected brands such as Hatteras, Sea Ray, Cabo, Viking, Hinckley, Ferretti, Pershing, Bertram, Carver, Marquis and Broward had to make mild to drastic adjustments from layoffs to shutting down temporarily or permanently.  Consumer’s reaction to economic fears and receding credit lines affected the boating industry no differently than the rest of the nation’s businesses. What this means for you is a surplus of inventory resulting in amazing opportunity to purchase new yachts at or below dealer cost.

You’ll find most of these deals in the sub 50 foot market where stocking dealers and manufacturers are working in tandem to rid their slips of stagnant product and keep the factory line busy. For the best deals, look for boats that have been on the market for a while, have several competitors on the listing sites and are not overloaded with optional equipment. The first two sound obvious, but the last is one of the keys to the deal. Non-essential equipment such as a watermaker and underwater lights are often expensive dealer add-ons so the seller is more likely to hold firm to a price to recoup that investment. Manufacturers might offer the dealer a discount on that stock boat or on the next one, but that doesn’t help the dealer’s post-delivery costs such as that watermaker. Find the stagnant boats, sort through the one with the least equipment and start your offers there. Chances are that you can get that same watermaker cheaper now than when the dealer ordered it 10 months ago.

Order and Save:

If you have the cash and time to wait for a new build then you might find the best deals of all. Consider that for the past year or so the attention has been placed on the brokerage market. The rationale being that with the economy tanking there would be many people desperately dumping assets to alleviate their financial position. That was true in some cases but  by now those that HAD to sell have done so. Meanwhile, many boat manufacturers are eagerly awaiting new orders. Until now most have continued operations by completing prior orders or their own inventory, but they will soon reach a point where they will need new orders to loosen up their credit lines. Here is where you can do very well. Buy a boat today at low 2009 prices and take delivery in 2010, 2011 or even 2012. The current drop in new builds means that when your boat is delivered you will be in one of the smallest classes of new yachts in decades thus strengthening its value. By purchasing at the right price and the right time you can dramatically reduce your depreciation curve (and in some cases even benefit from appreciation!). Right now it is very possible to purchase a 2012 boat for the same price as an used 2007!! New boat, new engines, ordered to your liking, full warranties, awesome price…and all because you were careful with your finances and have the patience to wait for your baby.

Choose Wisely:

You are willing, ready and able…with so many deals out there this gives you all the power, but Spiderman taught us that with great power comes great responsibility. No matter how tempting, don’t buy a boat as a financial investment. Buy because you love what the boating lifestyle does for you and your family. Let the current financial benefits remain a distant second in your decision. Be honest with your needs, do your homework and don’t hesitate to reach out to a professional consultant. Also, a common misconception is that you only need a broker when purchasing brokerage. Not true! A professional can help steer you in the right direction, find out the background story that the industry might not tell you, assist you in the negotiations and usually get you a better deal than if you went at it alone. It baffles us that most boaters would not invest $200k without the assistance of a financial advisor and an attorney, but they’ll spend $2,000,000 on a boat without any professional assistance. Get smart. Get help. Be happy.

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  • Your article is very acute. Particularly in regards to the professional assiatance. As designers we see this time and again. When looking at the cost of a custom yacht, the design and other fees are a relatively small percentage of the whole but they make the difference between seeing your dream come to life or making do with what the shipyard has decided to give you.
    The important thing, and this is a comment to Gary as well, is to do your homework on the builder’s present financial position. In this a professional is invaluable because this is a gossipy industry…of course it’s full of men!… so there are all the little voicesand tidbits to which a that a prospective buyer would never become privy.
    In regards to Nigel’s comment… you are more than correct for most boats but, as in most things in life, this is relative. However if you are looking to realize a dream it becomes a totally different matter. Many of the yachts which have been realised in the last 20 years are comparable to the greatest renaissance palaces. they are works of art.
    nd as far as the return on investment is concerned…I could name some yachts that we have either designed new or conceived the refit which have sold at a sizable profit, obviously in the old market.

    • YHD says:

      Thanks Carol,

      The theory of relativity is always in effect! Do you have any opinions on which elements of yacht design add the most value at the resale market? This is an important point for someone who is ordering a new yacht to consider, especially in today’s market.

      (question is open to all by the way)

  • gary schumacher says:

    Having a new boat built just for you is special, and something not many people get to do. However, problem in today’s market is many dealers want you to put up all the money, and take all the risk. They are not at risk to put up any funding, and are not making the commitment to stock product. You have to ask yourself if you are prepared to tie up large outlay for long period of time with no return on investment…and be confident the builder continues to have the funds and work force to produce a quality product.

    • YHD says:

      Hi Gary and thank you for your comment.

      Your feeling of uncertainty is shared by many and the smart builders are trying to do something about it. We’ve seen shipyards go to smaller payments on a month to month basis so as to mitigate the exposure for the client. Many American builders have been willing to post a bond for the value of the payments thereby assuring the client with a safety net. Perhaps the most appealing offer we’ve seen in the last months is by a financially robust (and rather impressive) shipyard in Asia that is only asking for small deposit as a commitment and they will build the rest of the boat with their own funding. The next payment is literally when the yacht is complete!

      The last 18 months have cleared the path for the better companies to stand out ad many of them are getting very creative on the financing end. Unfortunately some of the best builders weren’t always the best businessmen so we might see some shifts in where and what they build. Do your homework and pay close attention to the contract and you’ll sleep easier…don’t forget that those builders are equally nervous that the buyer might not be around to pay the boat off!

  • Nigel James says:

    There’s some reasonable advice here, but whichever way you look at it a yacht is still a hole in the water to pour money into. The most sensible way, by far, to have your cake and eat it is to charter, not buy – but then I would say that, wouldn’t I…?

    • YHD says:

      I guess it’s all relative to the size of the investment. Obviously the larger you go the more the expense and (usually) the less the boat will actually get used. There’s something to be said for being the only one that sleeps on that bed or uses that toilet…

      On the other hand, in this time of financial awareness its reasonable to expect an increase in charter conversion and shared vessel ownership. That’s not to be confused with increased charter activity, but rather in a switch from would be owner to charter client. Are you seeing some of this now?

  • YHD says:

    Thank you Murat. Do you have an experience you’d like to share with us?

  • Murat says:

    Excellant post. So true :-)

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