Are you considering buying a boat, or moving up to
a bigger one? Before you pull out your checkbook, you may want to
consider whether you want to share the purchase cost with others rather
than going it alone. Many companies are now offering an alternative
to owning your own boat — allowing more people to have a chance
at the boating experience by lowering the cost of ownership.
If you’re the type of person who needs to be able to go for
an impromptu cruise after looking out the window at a beautiful sunny
morning, sole ownership is definitely for you. Sole owners can personalize
their boats to their heart’s content — taking pride in
its uniqueness right down to that special name on the transom. But,
if this isn’t all that important to you, there are other alternatives.
The
Fractional Alternative
One alternative is fractional ownership. It is not a boat timeshare
program where a corporation owns many yachts at multiple locations,
and each shareholder has the rights to use any of them. Nor is it
a boat club, where boaters pay a fee for unlimited access to a fleet
of boats at one location. Fractional owners actually own a share of
one boat — possessing equity in that purchase.
Fractional ownership plans offer a more affordable way for a person
to get out on the water. “It’s a great alternative for
people who love to boat but can’t use the boat often enough
to justify the cost, time or commitment, and is ideal for people who
don’t like the hassles of maintenance,” says Great Lakes
BoatShare president John Pas. “Also it’s a more affordable
alternative for boaters who want to move up into a larger vessel,
but might not qualify for a higher loan.”
A number of companies are filing flight plans laid out by highly successful
aircraft joint-ownership programs and are floating joint-ownership
boat plans this year. These companies provide cleaning, maintenance,
insurance, and dockage. All the partial owner needs to do is climb
on board, cruise to his desired location, return when his time is
up, and walk away when the day is done. The boat owner pays for a
share of the boat up front, a monthly fee, and the cost of fuel —
for that, he gets his share of cruising time equally split with other
equity owners of the vessel.
Fractional sharing providers set up their boat plans as limited liability
companies (LLC) that can be treated as a partnership for tax purposes.
However, the biggest benefit of an LLC is that it limits the individual
boater’s liability from the other owners and from the company.
The LLC even continues if the fractional boat ownership company goes
out of business.
Experiment
on the Great Lakes
A few Florida companies have been at the vanguard of fractional ownership
because the year-round boating season allows for more shareholders,
while still maintaining substantial cruising time for each member.
Fractional Yacht Management, Inc. of Melbourne, FL and Dream Mobility,
with bases in Miami and Ft. Lauderdale, are just a couple of the many
companies offering a selection of boats in the Sunshine State. But,
it came as somewhat of a surprise when this plan migrated to the Great
Lakes — considering the short boating season.
Buying a boat outright in Michigan means that a person bears the full
cost of the six months that the boat is laid up for the winter instead
of a fraction of the cost under boat sharing. This year, Great Lakes
Boatshare LLC, in St. Clair Shores, MI, became the first company offering
fractional ownership programs in this region of the country.
BoatShare is
currently offering Regal and Silverton boats that sell in the $250,000
to $650,000 price range. “We may also start offering trawlers
(Nordic and/or American) in Northern Michigan and Wisconsin. These
boats are great for cruising and can extend the boating season considerably,”
says BoatShare president John Pas.
Because of the
relatively short northern boating season — May to October —
the company is restricting the ownership of each boat to four to six
persons to maximize each person’s usage.
How do the financial
costs between sole and fractional ownership compare? Pas has worked
up some figures using a new Regal 4260 Express Cruiser with a price
tag of slightly over $500,000. The total down payment for a sole owner
would be in the neighborhood of $110,000 when purchased from a dealer.
However, BoatShare is able to lower that price to $85,000 by dealing
directly with the manufacturer. As a result, sharing one’s cost
with three other owners lowers a member’s purchase price to
$21, 250.
Great Lakes BoatShare makes its money on the acquisition of the vessel,
as well a management fee on the owners' monthly fee. The boat does
not carry a loan, but each owner of the Regal pays an annual fee of
around $7,000 which includes maintenance, insurance, weekly cleaning,
pumpouts, towing insurance, summer dockage and winter storage. The
company also makes a profit on charges for special services such as
catering and a handling fee at the time the vessel is sold.
| Before
You Buy Into A Fractional Yacht Plan |
| •
Make sure that the company is offering a variety of yachts
to select from so that you are not forced to buy a share
in a boat that is not completely right for you.
• Some companies move the yacht’s location
and cruising range to fit the seasons — Chesapeake
in the summer and Florida in the winter. Check that cruising
plans are convenient for your needs.
• Ensure that any deposit is held in escrow until
all shares are purchased. Set a time limit for refund
if shares are not purchased within a reasonable time —
consider a six-week limit.
• Fractional companies assess each owner an upfront
cost to establish a capital fund covering unanticipated
repairs. This fund should be part of the Limited Liability
Company, and a fully audited financial statement should
be provided annually to include expenditures from this
fund.
• Pick a plan that offers a convenient and flexible
procedure for scheduling, such as on-line scheduling.
Determine how holidays and weekends are to be allocated
and determine how far in advance bookings can be made.
• Ensure that you will be able to sell your share
if the need arises. Determine if there are any restrictions
or penalties connected with selling your share.
• Find out what the brokerage fee is for selling
the yacht at the end of the contract, and determine what
the procedure is for purchasing another boat.
• Review the owner regulations to understand what
the restrictions and requirements are connected with yacht
usage — many regulations restrict pets.
• Each plan should have an owner orientation and
training program on the specific yacht. Make sure that
the program qualifies you in all aspects of boat operation. |
|
Going
Strong in Florida
Pas says he reviewed the successful operation of Fractional Yacht
Management, Inc. of Melbourne, FL, before setting up his program —
including their Web site. Fractional Yachts offers more affordable
models than Great Lakes BoatShare, such as a share in a 2003 Wellcraft
Martinique 3300 for $18,575 down and $276 a month, compared to BoatShare’s
$603 monthly charge for its 42-footer.
“Money is not the issue with fractional ownership, time is,”
said Fractional Yacht Management owner Mark Casburn. “All of
our customers can easily buy their own boat outright, but don’t
have the time to provide upkeep or the desire to worry about security.”
Programs
For the Rich and Famous
Having a 42-foot boat on the Great Lakes is neat but at the other
end of the spectrum are the megayachts offered by YachtSmart of North
America headquartered in Arlington, VA, or Monocle Management LTD
of Fort Lauderdale, FL.
YachtSmart’s shares in a 2004 Azimut 85 are already sold out.
A single share of this $4.2 million vessel went for $425,000. “Shareholders
put $125,000 down and finance the rest,” said YachtSmart’s
president Jonathan Metcalfe. “We have 30% of these owners already
committed to moving up to our new offering of a 35-meter Italian built
Benetti yacht. Money is definitely not an issue with our buyers, quality
time on the water and not at the dock is.”
Monocle on the other hand, has a 237-foot Asante Wavepiercer with
20 staterooms for $1.75 million per share. You get the full run of
the yacht for one week and the extra staterooms come in handy when
you want to take along a dozen or so friends. The annual operating
expenses are split among the fractional owners — this can be
a tidy sum when all the operating costs are considered. All of these
yachts come with a qualified crew, a chef, and plenty of water toys.
Tough
Business to Start Out In
Fractional ownership has not been fully embraced by the maritime industry.
It can be a very risky business. William Mirguet, who started Drake
YachtShares in 2002 regrettably had to suspend his operation last
February because of limited capital. “It’s simply too
expensive to educate the public through advertising, and I wasn’t
getting much help from the editorial media. Nevertheless, I firmly
believe the drawbacks of fractional yacht ownership pale in comparison
to its benefits and eventually will become a mainstream approach to
boat ownership. The economic savings and ease of use are too compelling
for it not to eventually succeed,” he said.
— By Dick Thompson
©BOATU.S. MAGAZINE 2004
