Your Guide to Yacht Ownership
Purchase, Charter or Fractional Ownership: Which makes sense for you?
Often seen as the pinnacle of success and freedom, nothing compares to the pride of owning your own yacht. But before you begin your search, it is important to understand all available options related to private yacht ownership.
This article will compare chartering, purchasing and fractional ownership to help you decide which option is best for you. We will examine the pros and cons along with a case study showcasing how much you should expect to spend for each of these three options.
Please note that whichever option makes the most sense for you, engaging with a broker early in the process is essential. A good broker will become your advocate helping you determine which yacht is most suitable to your needs and thus making the process both efficient and enjoyable.
Chartering: the pros
More often than not, the journey of purchasing a yacht begins by chartering a yacht. The cost of chartering and the flexibility it offers makes this a natural first step for many yacht owners. Spending a week living aboard a yacht will help you determine what is truly important to you in a way that is impossible to achieve with a simple yacht viewing.
Chartering allows you to:
- Sample yachts of different sizes from different builders with a low upfront cash commitment;
- Explore different charter regions throughout the year;
- Save on relocation fees (assuming you are chartering from the yacht’s home port). A common example would be if you wanted to engage in a summer charter in the Mediterannean and later escape winter in the Caribbean;
- Chartering implies you are only responsible for the running costs of the boat (fuel, crew, docking fees) while you are on charter.
All of the advantages listed above make chartering an ideal option for someone that is either new to yachting or only looking to be on the water a handful of days throughout the year.
Chartering: case study
Let’s look at a simple example to help understand the cost of chartering a yacht. Let’s say you are looking to spend a week in The Bahamas over the New Year holiday. You’ll be 8 guests in total: two couples, each with two children.
Working with your charter broker, your and your guests decide on this 84′ Azimut Fly with four well-appointed guest staterooms and a clean, modern design with several owner upgrades throughout. A sample charter would entail:
- a $48,000 charter fee for the week,
- $1,920 in Bahamas taxes,
- $7,200 in crew gratuity,
- and an estimated $14,400 in operating costs**
For a total of: $71,520.
**The running costs of the charter can vary widely depending on your itinerary and your provisioning preferences. The standard 30% APA is included here as an illustrative example.
Chartering: the cons
As with everything, chartering also presents some drawbacks. Some things to consider before booking your charter:
- Most major yachting destinations have strict coast guard laws that limit the maximum number of guests allowed on a charter to 12 regardless of the size of the vessel. If you are looking to entertain large groups during the day or the evening, chartering is restrictive, so you’ll need to be mindful of this.
- The yacht you want may not be available when you want it. Often times the most popular yachts are booked several months in advance of busy holidays like Christmas and New Years and throughout the months of July and August.
In the case study above, you won’t be able to have more than 12 guests aboard the yacht during your charter, and you might not even be able to book the yacht if the owner chooses to use it to ring in the New Year with their family and friends or if it has already been booked by another charterer.
Fractional ownership: what is it?
Fractional ownership is when a manager arranges to purchase a boat among several owners. Each owner has an equity stake in the vessel depending on what percentage of the purchase they fund. Similarly, each owner is allotted a set number of days they are able to use the boat each year. The owners pay an annual maintenance fee to the manager who is then responsible for managing the calendar, crew and maintenance of the boat throughout the year.
Fractional ownership: the pros
Fractional ownership allows you to:
- Split the cost of owning a boat among several owners. Thus, the capital required upfront and each year is a “fraction” of what it would cost if you were to purchase a yacht on your own.
- Have a professional manager run all aspects of the boat – from hiring the crew, to coordinating maintenance, to managing the calendar among all owners.
- Unlike chartering, fractional ownership means you are able to invite as many guests as deemed safe and as long as you have proper safety equipment onboard.
- Furthermore, if you no longer wish to own a fraction of the yacht, most fractional ownership agreements allow you to easily sell your fractional shares to another owner.
Fractional ownership could make sense if you already know which yacht you want and are likely to use it several times throughout the year in one particular region. In exchange for the lower cash required and the convenience of having a professional manager, you will be restricted to using the boat a limited number of days per year and will need to coordinate your usage with the other fractional owners.
Fractional Ownership: Case study
You’ve just returned from your New Year’s charter in The Bahamas aboard that 84’ Azimut Fly. You and your friends fell in love with the boat and had the most incredible week ever. You call your broker and ask them how much it would cost to buy that boat new. Your broker informs you that the latest model with all the custom upgrades and finishes similar to the boat you chartered would cost around $4 million.
But your broker also informs you that you could split the boat among seven other owners in a fractional ownership program. Your fractional ownership would be as follows:
- In this example, you would pay the manager $500k for your fractional shares in the boat along with a $60k annual maintenance fee.
- You would get roughly 45 days of usage each year, and if you choose not to use the boat, the manger would try to charter the boat for you and you would earn proceeds from any charter the manager successfully confirms.
- After 3 years, the manager sells the boat for $2.8mm and the owners split the proceeds amongst each other with each owner netting $350k.
In the above example, instead of paying $4mm to purchase the yacht along with roughly $400k in annual operating costs, you would instead pay $500k upfront and $60k annually in exchange for 45 days of use on the boat each year.
Fractional ownership: The cons
Similar to chartering, fractional ownership comes with some drawbacks. Some key points to review:
- The vessel might not be available for the particular dates you are looking to use it. Afterall, you are splitting the boat among several owners, so there’s a good chance that more than one owner will want to use the boat at the same time over the course of the fractional ownership program.
- If you want to relocate the vessel from one area to another for an extended period of time, you’ll need to get most or all of the owners to agree (depending on how your ownership agreement is drawn up). For example, if you want to move the boat from its home berth in Cap d’Atibes to Sardinia for a month, you would need to get approval from the other owners before the boat is relocated. If you were chartering the boat, you would simply pay a relocation fee, and if you owned the boat, you would simply advise the captain to arrange for dockage in Sardinia.
Purchasing: the pros
While chartering and fractional ownership have their advantages, those that choose to purchase a yacht have full access to their own private vessel with their crew on their terms. Having your own dedicated crew means that your staff will learn your tastes and preferences so that when you step foot on your boat, everything is exactly as you would expect – from the wine that is being served, to the music that is playing, to the food that is prepared.
Every detail of the boat – from the color of the hull, to the cushions on the sunbed, to the towels in the heads, and the artwork on the walls – is personalized for you by you. The ability to store your clothes, toiletries, books and wines on board leads to a level of convenience simply not possible with chartering or fractional ownership, in most cases.
And let’s not forget the pride of ownership in itself. For many people, purchasing their first yacht commemorates a special moment in their lives – perhaps the sale of a business or the beginning of retirement. Having your chosen name on your vessel and the freedom to travel somewhere only accessible by boat and having the ability to drop anchor and stay there as you wish for a few days to explore is at the core of yachting.
Purchasing: the cons
Of course with ownership comes responsibility. And the biggest downside to purchasing a yacht versus the two previous options, is the financial responsibility that comes with buying and then operating your vessel. Aside from the purchase price of the yacht, you’ll need to hire staff to run your vessel, pay for insurance, dockage, along with any maintenance and repairs.
Similar to buying a private aircraft or an automobile, in almost all cases, a yacht owner should expect depreciation from the time of purchase to when the yacht is eventually sold. As with any major purchase, it’s always important to have a long term plan in mind and work with your broker on putting together a budget for your yacht. Chartering is a common way for owners to offset the yacht’s annual cost.
Purchasing: case study
Let’s return to our 84’ Azimut Fly that we chartered in The Bahamas. Instead of splitting the costs of the boat in a fractional ownership program, you decide, after careful consideration, that you would like to have the full freedom to use the boat as you wish, with your own crew, and outfitted down to the finest detail to your exact specifications, so you decide to purchase the yacht and enter the world of yacht ownership.
You and your broker work through an annual operating budget for a new 84’ Azimut Fly. Let’s take a look:
- You should expect to pay $4mm to have the boat delivered with the upgrades and finishes you choose.
- Your insurance should run you about $30k per year.
- Now that you have the boat delivered and insured, let’s make sure you have it crewed. Running the boat with a full-time captain, first mate and stewardess run you about $186k per year: $90k for the captain, $48k for the first mate and $48k for the stewardess.
- Your captain helps you secure a slip at a local marina with an annual berthing fee of $70k.
- Your broker advises you that if you run your boat locally a few times per month throughout the year, you should expect to pay about $100k in fuel.
- For a boat this size, you should expect to have a 12-month or 24-month warranty that comes standard. Your broker should be able to help negotiate a 12-month warranty extension so that most work for the first 3 years should be covered. But even with this warranty, you should budget about $20k each year for maintenance and repair work.
Overall, you would expect to have a $4 million outlay for the purchase of your yacht along with a $376k annual operating budget.
Oftentimes, owners will choose to enter their boat into a charter program to help offset the running costs of the boat. Chartering is an important factor you will want to consider even before purchasing your yacht as this will dictate what type of insurance you purchase and even which boat might make the most sense given the charter demand in a particular market.
As you can see, there are several options when it comes to yacht ownership, each with their advantages and drawbacks. The first things to consider before engaging with a broker is what you will be using the boat for, where will you be, and how often will you be using it. After weighing the pros and cons of each option, the next most important step in the process is appointing your broker – someone that is knowledgeable when it comes to the type of vessel you are interested in and understands your wants and needs.
A good broker is your advocate and whichever option you choose – charter, fractional ownership or purchase – will be sure to make the process smooth and enjoyable. We look forward to hearing from you and helping you along the way in your journey. Our brokers are dedicated professionals who have deep knowledge and understanding of the fast-changing yacht market. We are passionate about making our clients happy and developing new relationships that will last a lifetime.