Yacht Ownership Options

Are you weighing up the different options for yacht ownership? Are you looking to enjoy a sailing vacation without the hefty price tag of full private ownership? Let us look at the 4 main options available to you and how they differ in terms of cost and usage:

1. Private Ownership: This is the full ownership route, where you own the boat outright and can use it however you like. It is the most flexible option if you plan to use the yacht regularly, but it also comes with the highest costs—both upfront and for maintenance, insurance, and docking. You’re looking at the full financial responsibility, though this option might be the best if you plan on long-term ownership and frequent use.
2. Charter Management: In this model, you still own the yacht, but it is placed into a charter fleet when you are not using it. The yacht is rented out, and you get a portion of the rental income, which can offset the costs of ownership. Charter management is ideal if you are okay with your yacht being used by others while still maintaining the flexibility to enjoy it for as many weeks each year as you choose. There may also be tax advantages if you are using it for business purposes, though there are significant risks if the charter revenue projections do not pan out.
3. Fractional Charter Management: This program allows you to share your yacht with other owners and partners. Instead of purchasing the yacht outright, you simply buy a share of the LLC that owns the vessel, and your cost is based on the amount of usage you purchase. For someone who intends to limit their use of the yacht to a few weeks annually,  fractional ownership offers significant savings compared to owning a whole boat. You will also share the costs of maintenance and storage with other owners providing a good balance of cost and flexibility and this program may even provide some smaller tax benefits.
4. Fractional Charter Ownership: This is a hybrid of Charter Management  and Fractional Ownership. Generally, a few additional shares in the LLC that owns the vessel will be sold upfront with that additional sales revenue allocated to cover the operating costs of the vessel without having to rely on any retail charter revenue. This has all the benefits of Fractional Ownership with even fewer financial risks and more potential owner usage but with no tax-related benefits. 

In each case, there is a trade-off between the level of use you want and the level of financial investment you are prepared to make. If your goal is to use your boat around 3 to 6 weeks annually, fractional ownership or charter management could be the way to go, especially if you are looking to minimize risks and costs but if you want total flexibility and much greater personal use then fractional ownership probably will not work for you.

Ultimately, it comes down to a balance between financial comfort and your willingness to accept some risk. If you are planning to use the yacht just a few weeks per year, fractional ownership or a charter management program could help you manage costs, especially if you are okay with potentially subsidizing some of the losses through tax savings. However, if you are focused on flexibility and cost is not the #1 priority, private ownership may be more appropriate.

For comparison reasons only, we are going to use as an example a $950,000 44-foot catamaran in the British Virgin Islands to help compare the costs and benefits involved in the 4 main options available to you for ownership. 

Before delving into this, it is important to highlight the following additional considerations that should be borne in mind when making your decision:

Financing: Each of the programs may be financeable but for the purposes of this analysis it is assumed to be a cash purchase.

Tax Advantages: A word of caution! There are many yachting companies selling business and tax programs on yachts and these can be very valuable to some Owners and should be considered but be aware that the sales pitch tends to concentrate on the positives of the plan and glosses over the negatives, which can unfortunately be punitive if the information and projections on which they are based change or are not achieved. The bottom line is that there can be significant tax advantages to owning a yacht and operating it as a charter business, but you need to be careful and always review this with your tax advisor. 

Operating your boat as a business can be a good insurance policy if you consider it this way:  

“If the vessel generates the revenue and profit that the charter company is projecting then this will simply offset the depreciation of the vessel and the overall tax savings will be negligible. The Owner will however get the benefit of improved cash flow from accelerated depreciation but do not forget that this unfortunately must be repaid at the end of the program. 

If, however, the revenue comes in significantly under that projected or the expenses exceed the projections then an Owner can have both an operating tax loss and depreciation which can result in significant tax savings, but he will also face much higher out-of-pocket costs.

It therefore comes down to your comfort level of whether you would rather make revenue and breakeven tax wise or lose money and have Uncle Sam subsidize some of those losses. 

Usage Costs: The costs involved in each program do not include the costs of your personal  usage as the costs will depend on when you go sailing, for how long and with how many guests.

Possibly the most important factor in your decision will be your intended usage of your boat. If you intend to go sailing one week every month then you probably should not be considering Fractional Ownership. Similarly, if you are looking to use your vessel in various locations throughout the year then Private Ownership will generally be your only real option. Please bear in mind that most boat buyers start with great intentions of constant use but life has a habit of getting in the way of recreation and vacation and so it is very unusual for Owners to ever get to use their yacht as often as they initially intend.

Private Ownership

The real selling point of Private Ownership is that it gives an Owner total flexibility to do what they want, when they want, with whom they want and for as long as they want. The downside to these benefits is that these freedoms and flexibility comes with significant costs. 

Upfront Cost: If you want to own a 44-foot catamaran in the Caribbean for the exclusive use of family and friends then you are looking at a retail price of around $950,000. 

Operating Costs: The general rule of thumb of the annual costs of operating your own boat is around 10% of the initial cost. Based on almost 30 years of continuous charter operation, our research shows annual operating costs of a vessel like this to be around an average of $85,000. 

As you will not be using your vessel full-time, you should hire a management company to provide a Guardinage Program to oversee and keep an eye on your vessel and its maintenance, as well as having it ready to leave the dock when you arrive to use your boat. 

Vessel Resale: Upon the resale of your boat, it will generally sell for significantly less than your original purchase price due to the cost of depreciation involved in ownership. As the largest retailer of new and used catamarans for the past 36 years our data shows that privately-owned catamarans that were not chartered currently experience around 40% depreciation over a 5-year period or around $68,000 per year. This figure also includes the brokerage-commission expense of selling your boat at the end of your usage.    

Tax Advantages: Unfortunately, with a private vessel there are few tax advantages as the usage will all be personal. This means that the Owner will totally bear the costs of depreciation on the vessel. 

Summary: Private usage therefore costs you approximately $150,000 annually but gives you pride of ownership and exclusivity with no outsiders sleeping on your boat. 

Full-time Charter Management

With a Charter Management Program, the management company will not only take care of your vessels and oversee its maintenance, but they will also take care of the marketing and booking of reservations, meeting, and greeting guests and the entire operation of charter, a complete one-stop shop!

Upfront Cost: As with Private Ownership, the upfront cost will be the same if you want to own a 44-foot catamaran in the Caribbean in a Charter Management Program, around  $950,000.

Operating Costs:  In general, chartering the vessel in a full-time program, assuming the vessel has no mortgage, should, at a very minimum, cover the entire costs of owning, operating, chartering, and maintaining the vessel and generate an average annual return of around +$50,000 over a 5-year period. Returns will be higher in the earlier years and decrease as the vessel ages. 

Vessel Resale: If operated in full-time charter, the depreciation of your boat will be greater than that of a privately-owned vessel due to 2 major factors. Privately-owned vessels tend to have significantly less wear and tear on them due to much less use and in addition they are generally a 3-cabin layout which is much more appealing to a future brokerage buyer who is generally not looking to charter the boat and prefers to have a much bigger cabin for himself. Depreciation will therefore be around 50% on a charter boat averaged over 5 years, which is around -$85,000 per year. 

Tax Advantages: As previously stated there can be tax benefits by writing off your depreciation but always remember that this will also mean you will also have to pay tax on the income the vessel generates. 

Summary: Charter Management will therefore cost you approximately

 -$35,000 annually but will still give you the benefits of ownership while giving up certain privileges including the loss of privacy which comes with owning a rental asset. 

Fractional Charter Ownership 

Fractional Ownership can be a good solution to allow you to enjoy all the benefits of being a yacht owner but without the hefty costs and responsibilities that come with full ownership. By splitting ownership with others, not only is the initial investment lower, but the ongoing maintenance and operational costs are much more manageable. 

When combined with a Charter Management Program, owners can still generate revenue from the yacht while enjoying the luxury of a dedicated concierge service to handle the logistics. It is a smart way to maximize the value of owning a luxury yacht without the stress of managing it alone.

Upfront Cost: This will totally depend on the number of Owners buying a share in the vessel but in general if you purchase your yacht with 4 partners then your  1/5^th share in a 44-foot $950,000 catamaran in the Caribbean operating in a Fractional Ownership Program with full Charter Management will cost around $165,000.

Operating Costs: In general, chartering the vessel in a full-time program should probably breakeven after covering the costs of owning, operating, and maintaining the vessel over a 5-year period with fewer weeks available for paid charters because of the personal usage of the 5 owners. This in turn will limit the amount of time each owner can use the boat.

Vessel Resale: Upon the resale of your boat, the depreciation of your boat will be like that of a charter vessel due to the same factors. Depreciation will therefore more likely be around 50% on a charter boat averaged over 5 years, which is around $85,000 per year including the cost of selling your boat at the end of your usage. However, this annual depreciation cost will be shared between 5-7 owners. 

Tax Advantages: This plan may qualify for tax advantages but as an Owner is only liable for 1/5^th of the profits, losses or depreciation, the tax advantages open to an Owner are also proportional and generally do not tend to be significant. Again, your tax advisor should advise you on this.

Summary: Fractional Charter Ownership will therefore cost an owner approximately. -$15,000 annually while still giving pride of ownership, even though you own a rental asset. 

Fractional Ownership 

This is the same program as Fractional Charter Ownership but with additional owners in the vessel to remove the need for the vessel to generate any retail charter revenue allowing the owners and their guests to exclusively use the yacht. The vessel will still be under the Guardinage and Management of the charter company which allows all the Owners to have all the benefits of charter management as well as a dedicated concierge service to handle their own use. These programs tend to work better over a 3-year period rather than a 5-year program. 

Upfront Cost: This will generally involve 2 additional owners over the standard 5 owners so if you purchase your yacht with additional 6 partners then your  1/7^th share in a 44-foot $950,000 catamaran in the Caribbean operating in a Fractional Ownership Program with full Management will cost around $165,000.

Operating Costs: The revenue from the sale of the additional 2 shares should be enough to cover the costs of owning, operating, and maintaining the vessel over the 3-year period. In addition, each Owner will be able to use the vessel for numerous additional weeks  due to there being no weeks needed for paid charters.

Vessel Resale: Upon the resale of your boat, the depreciation of your boat will be like that of a charter vessel due to the same factors. Depreciation will therefore more likely be around 50% on a charter boat averaged over 5 years, which is around $85,000 per year including the cost of selling your boat at the end of your usage. However, this annual depreciation cost will be shared between 5-7 owners. 

Tax Advantages: This plan will not  qualify for tax advantages as this will once again become a private vessel.

Summary: Fractional Ownership will therefore cost an owner approximately $15,000 annually but will also allow significant usage and much less financial risk. In fact, some of these programs will remove the financial risk altogether. 

So, which program will work for you? 

Some people like to buy a 1-year-old car with low miles when others will only consider buying a brand new, shiny, latest model car. Some people prefer to let the previous Owner take most of the depreciation involved with a new car purchase and do not have an issue buying a car that someone else has used for a year. 

Each of these different programs therefore have different benefits and each one meets unique needs. Private owners want to conventionally own their boat just like they own their home and their car. Charter owners also want to own their boat like they own their home but do not mind others renting it out when they are not using it, more like a second home. Fractional owners are not as concerned about being the exclusive owner, but they do want to be able to use ‘their’ yacht and go sailing without any of the actual headaches or costs of exclusive ownership.

So, all of this simply comes down to which type of program suits you best and meets your needs! 

Do not hesitate to reach out to a professional at The Catamaran Company to discuss your specific needs and have them advise on what ownership structure would work best for you and your family

Operating Budgets for Each Program 

1.        Private Ownership

2.        Full-Time Charter Management

These figures above represent the first year of charter management. Annually it is expected that maintenance and operating expenses will reduce the net profit by around 25% each year. 

3.        Fractional Charter Management

These figures above represent the first year of charter management. Annually it is expected that maintenance and operating expenses will reduce the net profit by around 25% each year. 

4.        Fractional Ownership

These figures reflect $80,000 annually allocated to cover operating costs over a 3-year period. These funds were collected upfront from the sale of 3 additional shares.