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My nephew was way, way under water on a boat and could no longer make the payments. The bank took the boat last week and will likely lose nearly $100k when it sells. What should he expect the bank to do to try and recover the loss ?? Has anyone else had this experience ?? What did your bank to to recoup the loss ??
Your nephew should expect to get a a little letter in the mail from the government saying he owes tax on the "100k"
If your boat loan is tax deductible and your gains are taxable at the capial gains rate, the tax consequences for you would be close to zero, so the only math is whether you can make more than 6% on mostly risk free return, so that you profit by the loan - that is a lot easier to do than when you are penalized via the tax system at both ends.
The big problem seems to be, contrary to popular believe, the US tax systemhas gotten so progressive that families earning up to $150k a year can deduct everything, and as a result pay close to zero income tax, and those making more than $250k a year only get the option of buying their own, non-deductible tub of Vaseline.
I get an advantage on time value of money - the interest deduction is taken in the current year, and as a result the after tax cost of interest is truly the interest rate times (1-tax rate) every year.
The capital gain is taxed many years down the road, so I am getting the unrealized gain almost all pretax every year, while the tax will be paid well in the future.
When you run this through a discounted cash flow model, the after tax NPV is favorable even if the pre-tax rates are equal.
I am in the pay cash for toys group. That said, I don't see much difference if you pay $50k cash for a boat and have to sell it for $25k, or finance the $50k and sell it for $25k.. You're still out the $25k. I guess most (myself included) would rather lose the $25 when they buy it than when they sell it, maybe I'm not so smart afterall...
The difference is that the knuckleheads that financed not only probably paid a higher initial price (less negotiating power than a cash buyer) but they also paid all of that interest during the duration of the loan.
Yep, cash is king!
A dealer will kiss the ground that a cash buyer walks on right about now...
toys= pay cash and thats that period.said that a few years ago and all the mathmetical genius ' s disagreed. "oh my" now look at the situation !!!!!!!!!!!! time to pay the piper !!!!!! its all good . got a buddy that used to tell me all the time "why should I use my money as Ill use the banks" - he is shaking his head now !!!!!!!
Yeah! What happened to all of those "you only live once" guys now???
The difference is that the knuckleheads that financed not only probably paid a higher initial price (less negotiating power than a cash buyer) but they also paid all of that interest during the duration of the loan.
Yep, cash is king!
A dealer will kiss the ground that a cash buyer walks on right about now...
The sad part is that the "knucklehead" can borrow $90,000.00 on a $100,000.00 boat that is worth $75,000 the minute it leaves the dealer. While I just had to put $40,000.00 down on a $100,000.00 investment property that would cost $200,000.00 to build and produces over $1000.00/month in cash flow. Tell me how the banks and regulators can justify that.
The average CAGR is almost 11.3%, and there are only three of the 45 periods in the sample that are less than 6%. I will take those odds any day of the week, and twice on Sunday.
those may be YOUR returns, but they're not inflation adjusted real returns of the S&P. Come on Joe. You're presenting skewed data to support your argument. You're better off citing your own personal returns of x over period y to make your point. Again, assuming you consistently beat the market, and get double digit returns in periods when interest rates are in single digits, your strategy has a real good chance of working. But this is not some sort of universal truth of which 'everyone" could/shoud take advantage. nor can i imagine its a universal fact for all boat borrowers.
Why buy brand new?
1) I like new things.
2) No one else has buggered it up yet
3) I know it was never neglected
4) Easier to get service from place you bought it from
5) Easier to get financing
6) I get it my way
7) New things don't break as often
8) Far less risk
9) Full warranty
10) If new-to-you boat is 1-2 years old, what kind of bonehead buys new and takes that much of a bath after only owning for a year or two? Seller is either a) idiot b) lost his job & can't afford any longer, c) realized it was a lemon, or d) something catastrophic happened to it and he wants to dump it.
For people a & b, chances are they didn't take very good care of it, something that might bug some of you somewhat anal boat people (myself included).
For option C, maybe the boat has just had problem after problem, so the owner fixed what he could for cheap and wants to get rid of it.
For people in group d, maybe the boat sunk halfway, bathing everything in salt water for 24 hours, so he cleaned everything up and hopes to dump it before everything corrodes in 6 months.
Why buy used?
1) Cheaper due to depreciation and already has electronics.
2) ?????
It's not dumb to buy used, and it's not dumb to buy new. Each has its advantages.
Why buy used?
1) Cheaper due to depreciation and already has electronics.
2) ?????
#1 You can get twice the boat for the same price.
#2 They come rigged with lots of free stuff new boats don't have.
#3 Far less risk, as your both not stuck with it at the price you paid, and it's been tested for you.
#4 All the new boat fixes and propping etc.. have been done. It's ready to go right now.
#5 I could go on and on. New boats are for people in situations where money is no object. The point is: Few new boat owners are in a situation where money is no object. They could have twice the boat and not be in a situation where they can't get out of the situation for what they paid to get into it. Pretty simple! A mistake so many make. I just watched my neighbor buy a new boat and it hurt so bad. He got a decent boat but he has owned it for less than 6 months and he probably could not sell it for 1/2 of what he paid right now. And it still needs stuff that would have came on a used boat. if you can go get exactly what you want with the electronics you always dreamed of and pay someone to install it all perfect with no thought toward cost, then buying new is definatly the way to go. If that's you, you will sell it in two years and buy a new one with the latest and greatest everything, and take the hit without blinking. If you got a new 21 fter because you couldn't afford a new 28 fter you arn't to smart.
__________________ AKA, The SKIMMER! No way am I reading all that crap!
The difference is that the knuckleheads that financed not only probably paid a higher initial price (less negotiating power than a cash buyer) but they also paid all of that interest during the duration of the loan.
Yep, cash is king!
A dealer will kiss the ground that a cash buyer walks on right about now...
There is a big flaw in that line of thinking. The dealer stands to make more money over the long run by doing a finance deal. Cash may be king for many items; but if something can be financed a dealer will almost always prefer that you finance since they will make more money. When negotiating price of an item I never tell someone my method of payment.
There is a big flaw in that line of thinking. The dealer stands to make more money over the long run by doing a finance deal. Cash may be king for many items; but if something can be financed a dealer will almost always prefer that you finance since they will make more money. When negotiating price of an item I never tell someone my method of payment.
The only "flaw" is that the dealer will be making more money!
And that was my point! Educated cash buyers control the sale and pay less.
And trust me, there isn't a dealer in the country right now that wouldn't jump on a cash paying customer over a financed one (of course they would want both, but which one is a guaranteed sale???).
Yeah, in good times the dealers drool over someone that is happy with $400/month payments. Those buyers usually don't worry about the price, just the payment.
In order to get the boat that was suitable for what I needed and where I needed to go, I had to use credit. I used my homes equity and bought my boat and paid off my car loan . I only have a mortgage and line of credit as far as debt so it enables me to pay for it, and still afford to use it. I may be a little up side down ,but Im not selling it or my home any time soon. If i had to sell the home I could still pay all of it off and walk away with a nice chunk. I would still then have the boat. It works out for me.
And my rate is in the high 2%'s.
In order to get the boat that was suitable for what I needed and where I needed to go, I had to use credit. I used my homes equity and bought my boat and paid off my car loan . I only have a mortgage and line of credit as far as debt so it enables me to pay for it, and still afford to use it. I may be a little up side down ,but Im not selling it or my home any time soon. If i had to sell the home I could still pay allof it off and walk away with a nice chunk. I would still then have the boat. It works out for me.
And my rate is in the high 2%'s.
Sadly, that is what a lot of people thought.
Then the sh** hit the fan...
Now look where they are.
"It'll never happen to me" was a popular phrase around here a few short years ago... Then it got real quiet.
those may be YOUR returns, but they're not inflation adjusted real returns of the S&P. Come on Joe. You're presenting skewed data to support your argument. You're better off citing your own personal returns of x over period y to make your point. Again, assuming you consistently beat the market, and get double digit returns in periods when interest rates are in single digits, your strategy has a real good chance of working. But this is not some sort of universal truth of which 'everyone" could/shoud take advantage. nor can i imagine its a universal fact for all boat borrowers.
Those came directly from the CAGR database. And inflation is irrelevant to this because the loan and the boat are all in nominal dollars. The operating question here is what are the cash flows on the full transaction of purchase and sale of the boat for a cash deal versus a financed deal. Those would be measured in nominal dollars and everything discounted back if you wanted NPV.
The statistics don’t lie. The odds are that the return over my purchase/investment horizon will significantly exceed my 6% cost of financing.
Anyone that has a balanced portfolio that is diversified, and is trying to decide whether to liquidate and pay cash or finance would have this simple universal truth. The overwhelming odds are that for a long term borrow and buy scenario, their returns will exceed the cost of borrowing.
The only way one would not come to that borrow conclusion would be to either ignore the statistical probability, believe that the market has fundamentally been altered, believe that they can not achieve returns at the market level in the future, or be so risk averse that they prefer to lock in the cost even though the probability-expected value of taking that cash-purchase course of action is quite unfavorable to the borrow alternative.
I only read the first couple pages than stopped, because most of you are total idiots!!!
I have 6 paid houses, 10 boats, 5 cars, 20 hookers... all paid in cash.,,,, blah blah blah
Who gives a chit what you own and how you bought it! Most of you that say i bought brand new 60' Sport Fisher cash probably live in a damn trailer living your dream life on the internet. This is a boating forum and if you want to say “i bought my boat cash" fine. Nobody gives a damn about how rich, and how much stuff you have. Maybe some of you are looking for a ... Damn MrBertram63! I wish i could be you for a day and have all your nice stuff. My life sucks i need to borrow money from the bank to make my life enjoyable!
I only paid cash for boats for the past 10 years, but they were not nice boats. Most of them 80's and 90's with original power, that always had an issue.
I recently took out a 5 yr loan on $15k ($25k boat), and probably the best thing i ever did! I have saved more money a month not fixing stuff, and on gas (twin old mercs vs twin 4 strokes) than my monthly payments. So i think of it as an investment, and enjoy the water 5 times as much as my cash boats.
The ones that say it is such a great feeling to have a boat that you "own" free and clear... I am sure it is, but it is an awesome feeling out on the water fishing compared to sitting in your yard pulling apart your older outboard that left you stranded the day before.
Cash, credit, and hand me down boat..... Whatever gets you on the water to enjoy life!
Rule of thumb is you always want to own depreciating assets for less than you can get out of then if you need to in a pinch.
That's a good rule, but its corollary is that the quicker you need to sell, the less you will get. This is the rule that makes pawn shop owners millionares.
The sad part is that almost everyone goes underwater after they buy a boat, whether it is paid for in cash or credit. If you buy a boat in 2009, it will be worth less in 2010
In addition to the cash value of the boat decreasing, despite upgrades such as electronics and accessories, maintenance and storage will take large chunks of cash.
A mythical 30' average boat up here in new england will cost you about $10k in cash per year between slip fees, dry-dock, mechanical repairs, and running costs.
There ain't no way you are coming out of this whole.
And if you bought before the market meltdown, you have a significantly smaller cash value in your boat now as a result.
The size of the hole we have lowered ourselves into is relative to the original purchase price, but we are all in that hole.
The only question is how painful will it be to climb out. People with large cash payments sunk into their boats can walk away cleaner, but they will still leave a lot of that cash in the hole.
You can pay now, or you can pay later, but you will still pay.
Boats are not investments. Non-commercial boats are not second sources of income. Boats are cash sucking leaches that we would all be financially better off without.
And by the way, you can substitute kids for boats in that last paragraph and it would still be true.
__________________
Terry Jason 35, Yanmar 370 hp, Lots of fun at a leisurely pace
Good illustration. What I got from your message is:
We're all throwing money into that "hole" of depreciation. The only difference between cash buyers and monthly payers is WHEN the money gets thown into the hole.
Thanks!
Good illustration. What I got from your message is:
We're all throwing money into that "hole" of depreciation. The only difference between cash buyers and monthly payers is WHEN the money gets thown into the hole.
Thanks!
True dat - and depending on your circumstances, HOW MUCH you leave in the hole can be lower with 90% financing, OR lower with all cash. Someone with savings several times the cost of the boat, and who is an average investor, with a relatively long planned timeframe for holding the boat, will statistically leave less in the whole all-in with financing at today's rates.
