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How do you buy a 5 million dollar yacht?

Discussion in 'General Yachting Discussion' started by visualfxpro, Jan 7, 2013.

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  1. visualfxpro

    visualfxpro New Member

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    I'm just curious how most people are doing it. I don't actually need to know how YOU did it, just want to see how most are. Feel free to share what you have heard as well as your experiences. This is what I'm looking for. If we were talking about cars, a possible answer could be:

    -Determine needs:
    commute? Utility? Pleasure?

    -Shop around:
    Go to dealerships, search online and observe price trends to prepare for negotiations.

    -Get a 5-10 year Loan approved for your maximum price

    -Pick a vehicle and begin negotiations:
    Go back and see your top choice again to be sure you really want it.
    Go for a test drive and see if you truly want it and make sure nothing is wrong with it.

    -Have it inspected to make sure it's a solid buy and worth the asking price
    Negotiate price.
    -Put 10%-20% down as a down payment

    -Bring in a bank check for the balance and title goes to bank with lien.

    -Drive home in your new car and make payments for 5-10 years while accruing interest.

    So you get the idea. Want to see if people are paying cash. If not, how much they put down and how do they finance? Are they buying under a business or partnership name or as an individual? Do they hire a negotiator or negotiate themselves?
  2. K1W1

    K1W1 Senior Member

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    Hi,

    All of the above and then some
  3. Bill106

    Bill106 Senior Member

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    My experience is limited to the sportfish market but all of the seven figure builds I've done the checks were written and drawn on personal accounts. None to date have been financed nor owned through joint or corporate ownership during construction although some have since become a major asset of a corp. for charter purposes. One of the more savvy owners told me his rule of thumb was to keep the value of the yacht below 1:100th of your net personal worth.
  4. NYCAP123

    NYCAP123 Senior Member

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    Hiring a negotiator can be extremely effective. I just helped a buyer knock the price down over 1/3 (well over $100K in savings). Not sure if hiring a negotiator is the right term though as I was paid to helped him locate, check out and compare several boats as well as guiding him through the negotiations and the entire process. All I charged was a modest day rate for my time plus expenses and he gave an appropriate bonus when we were successful.
  5. aviator4512

    aviator4512 Member

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    I understand the principal on the 1:100th of net worth, but not sure how much truth there is to that number. That means that somebody worth $10million would have a spend of around $100k which wouldn't buy you much in this day and age...hardly a "yacht"! Just like if you are worth $100million, you could probably swing a couple million dollar vessel versus only a million in spend. I understand it's just a rule of thumb - similar to the 10-15% a year (purchase price) to operate/maintain a vessel.
  6. visualfxpro

    visualfxpro New Member

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    Yeah, I don't know about that either. I'm usually very cautious so 1:100th would be right along with my style, but that is VERY cautious even for me. The way I look at it is I want to to minimize risk and I don't want it to cannibalize my net worth such that I'm just bleed cash and hurting myself in the long run. I would say $20 million to $40 million (minimum) in the bank is about my comfort zone for a $6 million yacht. However, it's NOT just about net worth, it's also income and expected growth. If I somehow accumulate $20 million but I'm only bringing in $1 million/year...then the deal gets a little scary and sounds like a bad idea.

    I simply cannot have an unnecessary yacht draining my funds. I need to be growing at all times and never declining. I also want annual growth to be strong, so I don't want the yacht to be something that is going to slow growth significantly. It should basically be inconsequential to me. Buy it, don't buy it, whatever. I should not be like "Oh, if I buy it, then I have to cut back on ____". It's just too much risk to be playing around.

  7. Capt J

    Capt J Senior Member

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    Well, let's say you buy a $3 million sportfish. You could easily blow through $500k-$1mill a year in expenses, running all over the map, crew, tackle, tournaments.....etc.

    Let's just say that you have a net worth of $300 mill. and you're making a 5% return, thats $15 mill a year....you still have to maintain the houses and all of the other things you have......
  8. visualfxpro

    visualfxpro New Member

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    Good stuff. I think a lot of people get stuck on acquisition costs and forget about ownership costs. $2 million seems like no big deal for a Microjet, until you find out about the management fees and maintenance.

  9. travler

    travler Senior Member

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    there are a lot of variables. For most of the guys i know it depends on what we want. some of us have had large boats and found them to be a pain in the wallet and to much drama so it is easier to find a boat you like with a crew that is compatible and go that way. i bought a boat once and cruised around the world for two years then sold it. now i just charter in the areas i like, but i am not your average person either

    just some thoughts

    travler
  10. visualfxpro

    visualfxpro New Member

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    Around the world eh? I'm envious but I don't know if I would have the guts. I'd hate to run into pirates or a bad storm, :)

  11. triggerfish23

    triggerfish23 Member

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    I have a friend that ran yachts up to 70 meters and has seen buyers think they're getting a great deal on a 40 meter yacht not knowing that it costs $2 mil/year to actually use it.

    Your example was obviously over simplified, but that's pretty much the drift from everything I've experienced. I would hire a consultant that you like/trust sooner rather than later. As NYCAP did, those with experience and knowledge can save a lot of time and money in the long run. Remember, brokers only get paid if they sell something regardless of who brings them to the table.

    Some owners prefer to buy with cash, I've also spoken/worked with a few owners that are financing right now because they can get the money so inexpensively. The current rates allow savvy buyers to make more than they pay on their points.

    Same with the registration in their name vs a company. It all seems to hinge on their financial profile and highly paid accountant's instruction.

    Good luck.
  12. ArielM

    ArielM Senior Member

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    Great topic, however unfortunately i think many owners are purchasing boats well above their means. Net worth and cash flow are extremely important when purchasing a pure luxury item. 1% of net worth is a little too catious in my books. i would stay closer to 2-3% assuming i have safe investments and my cash flow was stable.

    Aside from the upfront cost and maintenance i think one big element which gets over looked is that these boats/yachts are depreciating assets and that this loss of value each year needs to get factored in.
  13. karo1776

    karo1776 Senior Member

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    YOU don't...
  14. visualfxpro

    visualfxpro New Member

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    I think another rule of thumb is if you NEED financing you can't afford it. I believe that once you pass the $1 million mark, you need to be able to buy the item outright even if you don't choose to. That is only the requirement to even think about it I think. You could have enough to get 2 yachts cash and still not really have enough. Income versus net worth must be considered. We are of course talking about making a "wise" decision rather than talking about what is possible.

  15. Berean

    Berean Senior Member

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    If the 1:100 rule is hard and fast I guess that makes me a risk taker. If I thusly abided I would be in a kayak!:D


    Cheers!
  16. Scottbee

    Scottbee Member

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    I hear ya there! But I think we're really talking about a very "non linear" rule here.

    If you just applied it broadly to all boats, heck, 95% of the boat owners couldn't/shouldn't buy a boat at all. The SeaRays of the world would be out of business because the vast majority of their buyers have little or no net worth.

    But I can see the logic when it gets up to the multi-million dollar yachts that require crews and dern-near full time maintenance. The depreciation is steep and the upkeep is high. Almost need to look at it like a disposable asset.
  17. brunick

    brunick Senior Member

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  18. glashole

    glashole New Member

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