For most buyers, a yacht is an investment unlikely to increase in value. Instead, it is one driven by passion. A yacht, typically considered to be any luxury seacraft over 40 feet in length, range widely in value, from around US$300,000 for popular, newer models in the 40-foot range, to between $10 million to $80 million for superyachts measuring over 90 feet and several hundred million dollars for megayachts measuring upwards of 250 feet or more. Market research firm Global Industry Analysts projects the global yachting market to reach $74.7 billion by next year. One thing is clear, more people are seeking superyachts. Even traditional hoteliers have jumped into the market with the introduction of the Ritz-Carlton Yacht Collection, originally set to launch in 2020, and its three custom-built yachts designed to blend the accessibility of a hotel with the luxury of a superyacht.
While passion can sometimes drive strong investments, it is rarely the case with yachts. Unlike most real estate investments, such as a prized art collection or a cellar of rare wines, yachts almost never yield positive investment returns. Regardless, if your passion has you set on buying one, here’s a useful guide to help you evaluate and acquire your yacht.
1. Understand Your Yachting Goals and Needs
Whether you’re buying a yacht for casual fishing, personal recreation, client marketing or for a charter business, it’s important to understand your goals for yacht ownership and the costs associated with those goals. Because operating costs for yachts run high, many owners treat them like vacation properties and use the charter market to offset an average of sixty percent of the cost of maintenance. If charters will be part of your ownership plan, be prepared to negotiate with charter brokers and make certain that your insurance matches your intended usage. Many yacht programs result in greater than anticipated losses for their owners simply due to holes in charter agreements or inadequate insurance coverage, both of which can be avoided.
2. Be Prepared for a Significant Investment of Time
Buying a yacht is not unlike the process of buying a home. Yacht buyers often start with a yacht broker, who, like real estate agents, generally have information on yachts available across the market; can help define and set budgets; and assist in arranging showings and sea-trials. While you may find this process enjoyable, it could take months and span geographies while brokers locate suitable yachts for your particular make or model.
Though home buyers rarely acquire property without an attorney, the same cannot be said for many buyers, who overlook the value of such counsel for yacht acquisitions, even those purchases that are in the millions of dollars. Sophisticated yacht buyers find significant comfort in seeking legal counsel for the myriad of steps required for the successful purchase of a yacht, including evaluating offers and purchase and sale agreements; rating the results of the due diligence; opining on the adequacy of insurance policies; holding deposits and escrows; and contracting with captains and staff. Diligence on a yacht purchase includes working with an accredited marine surveyor to obtain a survey or report which evaluates a yacht’s systems, condition, and seaworthiness. Legal counsel is also used to decide upon a vessel’s flagging, registration, and home port; decisions that depend upon usage and location and can have significant tax implications.
3. Diligence, diligence, diligence.
Owners sometimes find themselves unhappy after buying a used yacht because they find that a yacht’s condition was not as advertised. Diligence is the key to discovering a yacht’s true condition. Your diligence team should include your lawyer and a qualified marine surveyor. Unlike lawyers, however, surveyors are not regulated or licensed. An indicator of competence is professional affiliations with the American Boat & Yacht Council (ABYC), the National Association of Marine Surveyors (NAMS) or the Society of Accredited Marine Surveyors (SAMS). It is important to engage a surveyor familiar with the type or brand of yacht you’re interested in and, most importantly is 100% committed to your best interest. A surveyor recommended by your broker or by the seller, as well as a surveyor with an affiliation to brokers, dealers, repair facilities or whose income depends on the sale or repair of watercraft may be compromised by a vested interest other than to you. Continue your search with someone else.
4. The Purchase Price is Just the Beginning
The acquisition cost of a yacht is just the beginning. Continuing costs include dockage, crew salaries, insurance, fuel and maintenance. In our experience, a yacht is often the single largest personal asset that a client owns. Owners can expect to spend about 10% of the purchase price of a yacht annually on operations and maintenance; a cost of $1 million a year for a $10 million superyacht. While it may be obvious, the larger a boat, the more to maintain it, and the more the required crew and salaries.
Salaries and staffing costs can be significant. A 120-foot boat with four crew members can easily cost $27,500 a month. Deckhands earn an average of between $3,500 to $5,000 a month plus living expenses, depending on the yacht size, while Captains earn an average annual salary of $1,000 per foot.
5. Don’t be Afraid to Walk Away
While you may be ready to move forward with your purchase, it is also important to choose advisors and counsel willing to convey the message that you may not be prepared for yacht ownership in general or ownership of the yacht you conducted diligence; a message best delivered during the diligence and pre-purchase process, If yacht ownership is proven not to be for you, walk away and remember that charters offer an excellent alternative allowing the yacht-life without the aggravation, hassle and cost of yacht ownership.
Utilizing their own yacht ownership and operational experience, the advisors and counsel of Troca Global acts as trusted counsel to yacht owners and charterers. If you are considering purchasing a yacht and are seeking counsel or would like more information, please contact yachts@trocaglobal.com
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