Why Buying a Boat Could be a Risky Investment for Lottery Winners
So, you’ve recently come into a lot of money and you want to make a splash (pun intended) by buying a boat. You’re excited to spend your days out on the water – a fishing line, a cool drink, and maybe even a burger in hand. But before you head over to your local yacht broker or boat dealership, it makes sense to step back and consider the level of investment involved, as it could end up being a lot more expensive than you thought.
Unfortunately, many new boats can lose more than 15-20% of value in the first year, even if they’re kept in sterling condition. While the rate of depreciation usually slows down a bit after the first two years, those depreciation rates mean that in some cases, a $200,000 boat may be valued at only $100,000 just 5 or 6 years after it’s been purchased. Thus, if a financial emergency happens and you need to sell your boat – or if your other investments didn’t perform as well as you expected and you want to shore up your portfolio, you may not be able to get that much cash out of a recently-purchased boat.
Even if you have more than enough savings to take care of the cost of the boat and you’re okay with never getting any of that money back (which is actually a safe attitude to have when purchasing a depreciating asset), there are still other financial considerations to take into account.
First, let’s talk about storage. Unless you are lucky enough to live on the water with a dock, you’ll need to pay to store your boat at a nearby marina – and, depending on the size of the boat, that can get pricey.
Second, there’s maintenance. If your boat is small and you take excellent care of it (that includes winterizing it in colder climates), you may be able to keep costs down. However, if you don’t know much about boats, or you’ve decided to purchase a larger vessel (like a small or medium-sized yacht), you’ll likely need to hire others to conduct regular maintenance and repairs.
Speaking of bigger boats, if you’re looking to purchase a yacht large enough to need a captain and/or crew, you’ll need to pay salaries, as well as pay for food, board, and essential supplies for each employee – which can often cost thousands a week (if not more).
Just because you love boats doesn’t necessarily mean you need to commit a large amount of your time and money into owning one. Many companies offer daily, weekly, and monthly charters of a variety of boats and yachts – so you can enjoy all the upsides of a marine lifestyle without making any serious financial commitments.
Charters can also be a great way to test out several different models, so if you do decide to buy, you’ll be doing it with a healthy amount of first-hand experience. For those who want to enjoy a boat for a bit longer without buying, several companies are now offering multi-month and yearly boat-lease options, though this is still a relative rarity in the industry.
If you simply can’t resist owning your own vessel, you should at least do a significant amount of online and in-person research about different models, depreciation rates, and other essential information that can help you make a smart choice. It also pays (big-time) to consider a lightly-used model, especially showroom models or those which have been in storage for much of their existence. The seller will have weathered the boat’s 20% first-year depreciation, so you don’t have to. Just be sure to have the boat inspected by a professional mechanic to ensure it’s still in tip-top condition.
In addition, calculate maintenance costs before you buy. Don’t simply ask the seller (as they have an incentive to underestimate); look online or seek out others who own similar boats to get an idea of what gas and repairs might cost. Also, make sure to check with local docks or marinas to determine the dock size you’ll need and how much it might cost per month.
Add these numbers up and compare them to your weekly, monthly, and annual budget to assess their impact on your financial stability, investment goals, retirement plans, and other personal and financial commitments. And remember, don’t just buy a boat on a whim – make sure it’s something you’re actually going to use; the last thing you want is to pay thousands of dollars a month to simply keep something in storage.
To learn more smart financial tips for lottery winners and others who have experienced a financial windfall, contact NuPoint Funding at 1.877.635.3149 or complete our online form to set up a free, confidential consultation.