Often I hear, “If you have the money, buy new”. So, is this the right advice? For me, a new boat means ‘as new’ condition, full warranty, dealer service and ready to go. In my view, a qualified yacht buyer has a choice and should ask himself: “Can I buy a pre-owned boat in ‘as new’ condition? What’s the difference in price? How much trouble should I expect?”
In this situation, two things are important – money and ‘as new’ condition. Regarding money, like with every purchase of a capital good, a cost benefit analysis is required to determine the amount of the investment, the operational costs and the resale value.
I believe it’s important to think in five- year periods. With a new yacht, warranty and extended warranty periods can run up to five years. After five years, major maintenance is due and this is work that must be done to maintain the value of the yacht.
Contrary to some thinking, yachts are not appreciating but depreciating assets. My rule of thumb is that, on average, a new yacht built by a respectable brand and properly taken care of will depreciate to 50 per cent of its replacement value in the first five years.
During the next five years, under the same conditions of good care, it will depreciate to about 25 per cent of its replacement value. After this first 10 years, the value will generally remain constant and reflect how much the owner invests in refits to keep the yacht’s condition pristine.
However, whether or not the seller of the yacht will obtain such prices is also dependent on the market cycle, such as whether it’s a buyer’s or seller’s market at that time.
No one needs a yacht, nor is there an economic justification for it. A yacht is a luxury product that’s ‘last in, first out’ in terms of the general economic cycle. The supply of yachts is such that it’s rare for builders to be truly sold out, with long waiting lists.
There are numerous shipyards and there’s usually one or more around that will offer a competitive deal. That means it’s rare for there to be a shortage in the supply of yachts, while their prices increase at a modest pace year on year, generally at around five per cent or less.
The other side of that coin is that, more often than not, there’s a shortage in demand, which results in a buyer’s market with depressed prices and long waiting times for the seller before his yacht is purchased. A one- year period to sell a yacht is not uncommon and in reality, it’s often much longer. That’s why it’s often joked that there are two happy days in owning a boat: the day you buy it and the day you sell it.
However, I disagree with that sentiment. The seller should manage his expectations by planning the sale of his yacht well ahead of time, as well as being realistic about the resale value. And the shortage in demand offers a great opportunity to a new buyer to buy a pre-owned yacht at very good value.
In my view, a buyer should be looking for a five-year old boat with records of comprehensive professional maintenance and care, cosmetically in ‘as new’ condition and ready to go. In my experience, an offer of 50 per cent of the purchase value will generally secure a deal.
Obviously, with more research and lower offers, a similar yacht may be found well under that price. This is where profit is created for the second owner because the same arithmetic applies over the next five years of the yacht’s life, with a depreciation to about 25 per cent of the original purchase value.
Regarding the general condition of yachts, a new buyer is better off now than 15 years ago as materials and machinery have dramatically improved in quality, and yachts have become easier to operate.
Still, a pre-owned yacht’s inherent complexity may be a bridge too far for an aspirant buyer with little or no experience about a boat’s operational side. But that should not worry him, provided he’s well advised in the areas where he’s not an expert.
In the process of purchasing a pre-owned yacht there are a number of clear steps to be taken. They break down as follows:
- Research the market for a pre-selection of yachts for sale that meet the buyer’s objectives
- View the yachts with a thorough in-water inspection of all visible systems
- Check with shipyards and dealers for common defects with the particular model
- Research prices and market conditions, including overseas markets
- Prepare a final shortlist of three target yachts
- Consider conditional offers on each target yacht
- Conditions to include right to survey, sea trial and final contract
- Once an offer is accepted, have the yacht professionally surveyed and sea trialled including a defect list, cost of repairs and valuation of the yacht
- Any defects that affect the seaworthiness of the yacht give you the right to reject or re-negotiate
- Complete and take delivery
- Make a plan to get the yacht refitted to an overall A1 condition
- Enjoy the yacht for the next five years of carefree boating.
Sound complicated? Actually, it is in many ways, but there’s plenty of knowledge around that you may use to your advantage.
A qualified surveyor – if they understand the type of vessel you’re trying to purchase – has valuable technical knowledge and should point out all the defects of the yacht. He is independent and paid for by the buyer.
He should be able to prepare an accurate budget of all repairs necessary to return the yacht to A1 condition. If negotiated smartly, most of the repairs will be paid for in part or in full by the seller by way of a discount to the accepted offer price.
A qualified yacht broker will be the most appropriate consultant to guide you through the previously listed processes and will have your interests at heart.
His role is to give you input about the market, assist with the selection of yachts, double check the valuation of the yacht, confirm the technical competence of the preferred surveyor, and make sure the process of sale and purchase is legally correct.
Transfer of ownership of yachts is a tricky business, in particular if the yacht is registered under an international flag of convenience. Registration, insurance and safety at sea are interwoven in the vessel documents and must all be inspected for validity and correctness.
All logbooks of the machinery maintenance, safety inspections and haul-outs are relevant and need to be properly verified. The yacht broker’s commission is usually paid for by the seller so there’s no excuse not to engage a broker to represent you. But like with the surveyor, you must make sure you find the right broker.
There’s always a large selection of well-kept, pre-owned yachts for sale. The trick is to identify them and then to purchase at the right price.