Life with Style – charter boat article – By Mark O’Donoghue
When is a boat more like an investment holiday apartment than an expensive weekender?
The notion of owning a boat means to most of us, delightful days on the water with family and friends, however with a never ending list of chores, monthly bills and large annual expenses.
Substitute the word boat for a family weekender (up the coast or in the mountains) and you have the non-nautical equivalent of the same problem. The amount of expense and upkeep required can often outweigh the benefits of occasional family use.
The solution to the family weekender problem is an investment apartment at Noosa. Here you have a property that you can use as conveniently as the family holiday house (well almost), with the added benefit that whilst you are not using it, there is a managing agent delivering paying guests and an income which not only covers the running costs, but also helps you pay off the mortgage. There is even a little bit of negative gearing in the offering.
In essence it is very similar to the Investment Apartment. Instead of a local real estate agent promoting and managing your property, a charter company (such as one of the six established charter boat companies in the Whitsundays) will manage all aspects of your charter boat from initial and ongoing promotion, through bookings, income receipts, briefings, on water support, end of charter turn arounds, as well as general repairs and maintenance.
Unlike a private boat or family weekender which is in essence, a pit to pour money into, the charter boat derives an income which not only covers the ongoing running costs, insurances, berthing, management fees etc, it produces a “net” income to the owner, which on a $400,000 charter boat may vary from $4,000 to $30,000 p/a depending upon location an use, more about that later.
Most charter boat owners will privately use their boat between 14 and 60 days a year dependent upon their personal circumstances and their location relative to the location of their boat, again more about that later.
The benefit of a charter boat is when you go to use it, the boat is clean, in good order and ready for use (as you would expect with your serviced apartment). However, like your serviced apartment, you will need to book it or run the risk that it is already booked out and finally there are restrictions in some areas around when you can use it privately such as peak seasons etc. Having said that, even the busiest boat in the Whitsundays (which means it’s earning you bucket loads of income) will typically be booked no more than 180 days a year so there are plenty of days where it is available.
Where can you have a charter boat, what sort of boat could be used and what are the differences between locations? Finally, even though the boat is providing some net income, are there any potential negative gearing benefits to be had??, well where do I start.
There are many places around the Australian coastline where bare charter boats operate and in the interests of brevity, I will address the 3 predominant fleet locations, however you may find smaller fleets in other locations.
In order of magnitude in fleet size and earnings:-
The Whitsundays is by far the largest of the fleets and the busiest location. With around 200 charter boats in the greater Airlie Beach/Shute Harbour/Hamilton Island area, boats are out on hire between 125 and 175 days a year. Historic net earnings to owners can vary as a return on asset value of 4% to 8% return p/a. The majority of income is earned in the high season from August to November and the typical use of the boat is bare charter with each booking being 5 to 10 days.
Sydney Harbour is next with around 50 charter boats, the majority being managed by 4 established charter operators. Boats are active around 100 days a year, mostly as skippered charter (ie go out with a qualified skipper provided by the charter company), often just for the afternoon and mostly midweek. Net returns to owners may vary from 2 to 4% p/a.
Finally Pittwater, on the northern outskirts of Sydney has around 30 boats managed by several established charter operators. Boats are active around 60 days a year, predominantly weekend use in the warmer 8 months of the year plus public holidays. You can expect 2 to 4% returns.
There are plenty of other smaller fleets in locations up and down the Australian coastline where there may be 5 to 10 boats. These areas include Hinchinbrook, Morton Bay, Port Phillip Bay, Gippsland Lakes to name a few.
Any charter boat in service needs to be “in survey” and be a quality well recognized brand. Any potential owner considering buying a charter boat should discuss the type and brand with the potential charter boat operator in the area they have an interest in locating their boat. They will not be keen on a Ferro Concrete Ketch.
The majority of charter boats are either Yachts or Sailing Catamarans, although there are a number of Power Cats as well as a few Cruisers in the fleets.
Charter boats typically stay in fleets for 7 – 8 years, although they may stay longer in some of the southern or smaller fleets. Additionally a number of fleets will consider near new boats provided they are of sufficient age and quality.
Where you do have a robust charter boat business (yes it is your business, the charter company simply manages the boat for you) that has good prospects of turning a taxable profit within a few years of business commencement there is good chance that you will be afforded the benefits of negative gearing and so you don’t die wondering, you can find that out up front by seeking a private and binding ruling from the ATO and yes there are accounting firms who have specialist expertise in this area.
Having decided that a charter boat could potentially be a good idea, there is lots of research you can do.
- Do some internet searches on charter boat companies in areas you may consider placing a charter boat. This will give you an idea of the brands and types of boats they manage and an overall feel for the business.
- Talk to boat suppliers to find out which fleets are looking for additional boats specific to their brand.
- Figure out which location would be most ideal for your circumstances. Just the same way you may chose an investment unit in Noosa, Nambucca Heads or Narooma, where you may be looking to trade off income against a closer location and greater convenient of use, you need to do the same for a charter boat.
- If the Whitsundays is ideal as it is a high income earning location and your intended use is to fly up a couple of times a year for extended periods, then that’s for you
- If you live in Sydney and having access to the boat for more regular use such as twilight sails, family days etc, then a lower earning, but more accessible boat in Sydney Harbour or Pittwater may be a better fit.
- Talk to the charter boat operators to gain an understanding of the historic income and expense profiles on similar boats.
- Visit their base to get firsthand knowledge of the existing fleets’ condition and overall management. Ask for a list of existing owners to chat with to gauge their historic experience and satisfaction with the charter boat operator.
- Contemplate the manner in which the boat will be acquired and paid for. Cash is always the cheapest form of debt, however other alternatives are available such a using a line of credit against your home or a traditional boat debt which is in reality just the same as a car loan (only slightly larger), ie financed over 5 years with a 40% residual balloon at the end of the initial term which can be refinanced over a 2nd term.
- Use one of the Charter Boat Business Models available via the charter boat companies, boat suppliers or specialist charter boat financiers to test the overall financial outcomes of such a business (both from a cash flow and deductibility perspective)
- If all looks to stack up and appears to have a profile which may facilitate some negative gearing, seek a private and binding ruling from the ATO to confirm the validity and tax deductibility of your charter boat business. As mentioned, there are specialist accounting firms who can assist in this specific process.
So having decided at a conceptual level, that this may be an investment worthy of further contemplation it may now just be a case of figuring out the “what where and when”.
As an old advertising man told me years ago, a boat is the perfect weekender as the view can vary every day and you don’t need to mow the lawn!
Mark O’Donoghue – Financier
Mark is the principal of The Finlease Group which specialises in providing finance to the SME sector. In addition to running a business which funds over $350mil p/a in equipment finance with offices Australia Wide, Mark has a passion for the boating and charter boat industries.
For more information on Charter Investment, please do not hesitate to contact us.
This article has been provided by Finlease, a specialist broker in marine finance for over 20 years.
Multihull Solutions highly recommend Finlease (Australia) Pty Ltd as financiers for boats.
Finlease are experts in the area of boat loans, both power or sail, for pleasure or business. They’re also boat enthusiasts themselves and understand how to finance a boat purchase.
The Multihull Solutions team has worked with a number of marine finance companies over the years. However, no company has stood out like Finlease. Their knowledge of the boating industry, in particular charter, is clearly ahead of their competitors.
So whether you want a boat loan or a boat lease, they can search amongst around 20 lenders for the solution that’s right for you. Then they’ll process the application and manage the whole process to make marine finance easier, so you won’t be left waiting in queues.
Finlease (Australia) Pty Ltd
Contact: Mark O’Donoghue
Unit 26, 177-199 Pacific Hwy, North Sydney NSW 2060
PO Box 1013, North Sydney NSW 2059