Once you’ve decided to live on a boat, the next step is to legally acquire one. If you don’t have a mattress stuffed full of cash, then you’ll need to get the boat financed. The current owner might be willing to finance it for you, but this isn’t very likely. You can ask friends and family to loan you cash, but this can cause strains on even the closest of relationships. If you’re like most people, you’ll need to get a bank loan to finance the boat. This was a challenging process even when banks were throwing money out the window at borrowers a few years ago. After the recent banking crisis, I’m sure the process is even more of a challenge.
I didn’t have a choice when I purchased Prairie Dream in 1998 (I later changed her name to Candide). I certainly didn’t have that kind of cash laying around, and my friends and family are really tight with a buck. I had to go the route of selling my soul to a faceless financial institution and got a mortgage complete with a significant down payment and a monthly bill.
On this page, I present my 9-step process for boat ownership (narrowed from an earlier version that contained 87-steps and seemed a bit excessive in retrospect).
Step 1: Figure Out What You Can Afford
As you start looking at boats suitable for living aboard, you’ll find that they range in price from a few thousand to millions of dollars. When I first got the idea for buying a boat, I had absolutely no idea how much boat I would be able to afford. I knew that my credit was good, but I had never asked to borrow more than the cost of a second-hand car. I assumed that a multi-million dollar yacht was out of the question, but felt that I should be able to afford more than a row boat.
I did a quick search on the internet for “boat financing,” and sent e-mails to a few lenders. I explained that I was in the initial phases of my quest, and that I needed some guidelines for how boat financing works. Here is the response from one helpful lender:
Yacht financing is available in the 80 to 90% range (10-20% down). Banks look for a +/- 40% “debt-income” ratio. No more than 40% of your income should be encumbered. Does all of your regular debt, payments for car, rent, credit, etc., equal less than 40% of your gross income?
Minimum down payment is 20% for a term of 15 years. The collateral for the loan is the sailboat, so we can finance 80% of the value of the boat.
If your credit is good to excellent, and your debt-to-income ratio is 38% or less, you have only to complete an application and provide two years of the first two pages of your 1040’s (and supporting schedules) as income verification and we can get you pre-approved. Our interest rate ranges from 9.50% to 9.75%.
Here’s a look at a monthly payment based upon buying a boat for $80,000. Financing $64,000 for 15 years at 9.75% leaves a monthly payment of $677.99. Our loans offer no prepayment penalty, and no loan fees. Sales tax and coast guard documentation are your only closing costs.
Many banks will not finance liveaboards. Do not mention it in your initial applications.
I’ll be glad to fax or mail an application to you…no strings attached. No application fees either. Looking forward to serving you!
That seemed straight-forward enough, and I started getting my financial data together. I figured out my debt/income ratio, located my last few tax returns, got a copy of my credit report, and looked under every seat cushion in my apartment to find loose change to add to a down payment. Based on my findings, I calculated that a boat somewhere in the range of $80,000 – $100,000 was not out of the question.
I’m not suggesting that this $80-100K figure in any way reflects the cost of a “liveable” boat. Many of my friends live on boats that cost far less. Some live on boats that cost a lot more. Like cars and houses, boats come in all sorts of price ranges. But whether you finance a $10,000 boat, or one that costs $1,000,000, you’re still going to follow the steps outlined on this page.
With a target dollar amount in mind, the next step is to contact a few financial institutions and start filling out loan applications. Every potential lender will ask for details on the boat for which they’re loaning money. At this stage, I simply didn’t know what type of boat I might eventually choose. When I explained this to the banks, some of them were more than happy to “make up” a boat that perfectly matched my target spending cap. Not all finance companies will do this, so it pays to shop around.
Much to my surprise, I soon started receiving rejection letters from banks that had been so eager to talk to me. I was flabbergasted! My credit score was good, my debt/income ratio was well within guidelines, and I had a solid 20% down payment! What the hell was wrong with these banks?!?!
After the second or third rejection, I contacted a loan officer at one of the banks and politely asked for an explanation. He confirmed that my credit was good, income was solid, etc. In fact, he told me that if I was already $100,000 in debt with a house, his bank would be happy to loan me another $100,000 to buy a boat! But as it stood, I was a 27 year-old punk who had never borrowed anywhere near this kind of money. I had no assets that could be used as collateral. I was asking for them to finance a loan on an extremely mobile home. I could decide to avoid my financial obligations and simply sail off into the sunset. The bank would then have to hire a boat repossession company (yes, they exist…click here), and things could get nasty. I was simply too great a risk what with my pirate ways and all…
This particular loan officer did give me a bit of good advice. He explained that every time I applied for a loan, especially if that loan was eventually rejected, my credit score would be adversely affected. So just by the act of applying for a loan, my credit score was going down. Not good!
He suggested that I explain my situation up front (including the previous loan rejections), and find a loan officer who would be honest about my chances before submitting a formal application.
So, that’s exactly what I did. I was surprised that nearly every loan officer I spoke to was helpful. Even if they felt their bank wouldn’t make the loan, they provided names of other banks that might be willing to do so. Eventually, I found one that did! It just took a bit of perseverance and a lot of sweet-talking on the phone. Fortunately, I work in sales for a living and I know how to kiss some ass on the phone!
Anyway, The CIT Group (Peace Be Upon Them), agreed to finance my loan! I still didn’t know the exact type of boat I wanted, but at least I had a target price range and could begin some serious boat-hunting. I was now a “pre-approved buyer,” and this distinction opens a lot of doors at marinas and boat brokers.
Step 2: Start Shopping
Now with a spending target, it’s time to start look at boats in a serious way. The internet, of course, is a great place to get started. Take a look at this site:
This is probably the world’s premier website for selling and buying new and used boats. They’ve been around for quite a while, and they’ve got thousands and thousands of listings. You can define search parameters like price, type of boat, location, manufacturer, etc. It’s the perfect place to get started!
Another thing to consider is contacting a professional boat broker and describing what you’re looking for in a liveaboard boat. When I was looking for my boat, I contacted a dozen or so brokers in Florida, my home state (they’re easy to find; just Google “Florida Boat Broker”). I sent them an e-mail explaining my situation and asking for assistance in finding a boat that would meet my needs and price range. Some responded favorably; others didn’t. I wanted to find a broker who would answer my questions and was willing to take time with me. If the broker didn’t show some enthusiasm towards my endeavor, he or she was quickly crossed off my list.
My goal was to arrange for brokers to take me aboard several boats so that I could experience them in person. No matter how many pictures or videos you view on YachtWorld, nothing can substitute for visiting boats in person. Its the job of the yacht broker to arrange this for you.
Step 3: Visit a Lot of Boats
The broker’s job is to show you several boats and hopefully get you “hooked” on a particular vessel. The process is fairly simple. First, you’ll meet with the broker in his or her office. You’ll be offered coffee and exchange pleasantries. He’ll ask questions about the type of boat you’re interested in buying, how much you want to spend, etc.
Chances are he’ll then load you into his car and drive you to various marinas to see four or five boats.
When you go aboard these vessels, don’t hesitate to look in every nook and cranny. Lift the floorboards to see if there’s a lot of water in the bilge (if there is, ask why). Check the hoses. If they’re cracked or hard as rocks, they’ll need to be replaced soon. Flush the head (the marine toilet). Turn on every light to make sure they work (don’t forget the exterior spreader lights on the mast, the anchor light, and navigation lights). There should be an electric bilge pump – turn it on to make sure it operates. If there are electrical outlets, plug something in and turn it on. Turn on the refrigerator to make sure it’s operating properly (nothing worse than living on a boat and having to drink warm beer). Open and close every hatch – make sure that the seals are tight and the hinges work properly. Turn on the shower. Ask the broker to run the engine for a few minutes. Turn on every faucet to make sure they’re doing their job. Lay down in the berths to make sure they have enough room for you to get a good night’s sleep. If you have a significant other, make sure there’s enough room for him / her, too! Make sure there’s enough room for both of you…together… without bumping your heads…if you know what I mean (nudge, nudge, wink, wink)! Test the depth sounder, radar, GPS, and wind indicator.
Ask lots of questions about the boat. The most important things to know are the length over all (LOA), displacement (weight), draft (how deep the boat sits in the water), age of the vessel, number and types of sails on board, and price. Also be sure to ask if there’s any equipment that is presently on the boat that will be removed by the owner prior to the sale. For example, some owners will remove electronics like televisions, GPS systems, and even radios.
I spent approximately 90 minutes aboard the boats that interested me. Do NOT be afraid to spend as much time as you feel necessary aboard any boat you’re visiting. You are NOT wasting the broker’s time…this is part of his job! If you feel rushed by the broker, let this be a red flag!
You may find that the boats you visit will start to blend together in your mind. The more boats you see, the harder it will be to remember the particulars of each. The solution to this problem is quite simple – bring a video camera with you to record your visits! It is important to record the broker’s “sales pitch” while he is explaining the various features of the boat. The camera will help to keep him honest, and it will help you to remember all the various features that you’ll see.
By the way, if you happen to find the boat of your dreams that happens to be far from where you’d like to live on board, don’t panic. After all, boats are designed to be mobile. Once the boat has been purchased, you can always sail her to a different location. If you lack boating experience, you can hire a delivery captain to move her for you (click here). It’s also possible to hire professional boat moving companies that operate specially built 18-wheel trailer rigs. They’ll put your boat on a flatbed and drive her over the highways to wherever you’d like her delivered. Be sure to include the cost of relocating the boat in your financial planning.
When I purchased my boat, she was located in Ft. Lauderdale, Florida. But I wanted to live on board in Jacksonville…which is about 330 miles away. Since I didn’t know how to sail at the time, I hired a delivery captain who was recommended by the broker. I explained that I wanted to be on the vessel for the entire journey (some delivery captains don’t want the owners on board). I also asked if he would be willing to teach me a bit about sailing as we moved up the coast of Florida. Not only did he agree to this, but he was a great teacher! I learned an awful lot about sailing, and my boat in particular, as we were relocating her. Not every delivery captain will be willing to do this, so it pays to check around.
Step 4: Make an Offer
Once you’ve seen a lot of boats, you’ll know which one is right for you. It is precisely like falling in love…you’ll simply “know,” through some primordial sense, which boat is the perfect match for you. For me, this happened as soon as I set foot on Prairie Dream, a 38′ Hans Christian Traditional. What sexy lines she has! A hull so sleek and firm that she made my knees weak. When I saw her interior-and gazed into all that polished brass-I knew I was hopelessly lost. Trust me, you’ll know when it happens to you. If it doesn’t happen, my advice is to keep looking. DON’T JUST “SETTLE.”
The next step is to make an offer on the boat. In my situation, the asking price was about 30% more than had been approved by the bank in Step 1. So, I made a call to the finance company and asked for a larger loan. In a half hour (which seemed like three weeks), I was approved for the extra amount.
Now comes the bargaining stage. Fortunately, I work in sales for a living and understand how this game works. Call the broker and tell him that you’ve narrowed your decision down to three boats (So this is a white lie! Welcome to the bargaining table!). Give him some made-up details about the other two boats, and what a great deal the other brokers have already made. Explain that you really like the particular boat he’s offering, but that you’re concerned about her price. At this point, he’ll most likely ask you to make a formal offer. Remember that the price of the boat is simply “made up” by the seller (usually with some help from the broker). EVERYTHING is negotiable!!! Offer 80% of the original asking price.
Interestingly enough, there probably will not be a reaction from the broker. It is not his place to accept or reject your offer. It is his job to tell the seller that an offer has been made and the amount of that offer. The broker will instruct you to send a check for 10% of this amount, which will be kept in an escrow account.
Now it’s time for you to “put up or shut up.” You should have at least 10% of the asking price in your bank account. You’re about to launch a huge process, and the people involved (including the seller, broker, and financial institution) want to make sure that you’re not pulling their legs. Write the check or have the amount wired to the broker’s account. Don’t worry…the money still belongs to YOU, and it is fairly easy to get it back.
The largest check I’ve ever penned was for the 10% cost of my Hans Christian. Just to be on the safe side, I hired a lawyer to review the document that I was asked to sign when I made the offer and submitted my check. The lawyer charged a total of $150 to review the document and make suggestions. The most important thing he did was include a penalty clause in the offer contract. Basically, this clause stated that a penalty of $500 per day would be paid by the broker if for any reason the money in the escrow account was not returned to me if the deal was not completed by a certain date.
Once the broker has received your check and signed contract, he will relay your offer to the owner who will have a heart attack and screaming fit. Fortunately, you won’t have to listen to this. By this time, the broker will have figured out a few things for himself. He will tell the seller, “Gee, I think we can get 95% out of this guy.” The seller will say, “Make it so!”
The broker will call you back and relay the message. My suggestion is to counter-offer with 85% of the original asking price. The broker will call the seller, and this process will ping-pong back and forth until a mutually-agreed upon price is reached.
How did I do? Well, I managed to work the seller to 93% of the original asking price. Not necessarily a fantastic deal, but this is only the FIRST round of negotiations! Read on…
Step 5: Choose a Surveyor
Before any financial institution will write a check to the seller, they will demand that a certified marine surveyor inspect the boat from bow to stern. Do NOT let the broker choose the surveyor – it is in your best interest to find one on your own!
Finding a surveyor should not be too difficult. Simply call any marina in the area, be polite, and explain that you’re looking for a reputable marine surveyor. They’ll give you a list of names.
Call a few surveyors and explain your situation. Ask how much they charge (they’ll charge by the length of the boat; I paid $11.00 per foot). Also ask if they’ll climb the mast (an important part of the process that many surveyors won’t do). Ask if they’ll send you a sample survey report that they’ve prepared for another buyer – after all, it’s this report that you’re actually paying for. You probably shouldn’t hire an illiterate surveyor – his report will be extremely important to your finance company and insurer.
Step 6: Take the Boat for a Sail
The broker, surveyor, and you will agree to a certain date on which the boat will be taken out to sea. The seller will most likely not be present. You’ll meet early in the morning, and the boat will be hauled out of the water for inspection. This is a pretty neat process to witness. They use a special machine with huge straps that literally lift the boat clean out of the water!
The surveyor will use a rubber mallet to “tap” along the hull. He’s checking for weak spots under the water line (as he taps with the mallet, any such spots will make a different type of sound). He’ll hit the boat about a zillion times with the hammer. Eventually, the monotonous tapping will begin to annoy you…but it’s an important part of the process. He’ll also check for blistering (pockets of water under the paint) on the hull.
When the boat is hauled, the workers will pressure-wash the bottom to remove barnacles and other growths. They might also replace the sacrificial zinc anode around the propeller shaft. Through a process of pure magic, this zinc ring dissipates electricity into the water – and wears down over time (sacrifices itself, in fact!). You’ll be expected to pay for hauling out the boat, spraying the bottom, and replacing the zinc anode if necessary. This money goes directly to the marina and has nothing to do with the broker or seller. I paid $3.50 per foot to have Prairie Dream hauled out, plus $13.50 for the sacrificial zinc anode. I must admit that I was a bit miffed to be paying for parts on a boat that wasn’t even mine! Nonetheless, this is the way things work – and I soon learned that $13.50 is absolutely NOTHING to pay for boat parts! If you’re going to gripe about a $13.50 boat part, then you really shouldn’t waste your time with any of this process…
When the surveyor is finished banging on the hull, the boat will be lowered back into the water. Now the fun begins! The broker will sail the boat towards open water. YOU should be below decks with the surveyor, watching his every move and paying attention to every comment. The surveyor will typically start in the forward cabin. He’ll remove every cushion, open every drawer and floor plate, examine every wire and hose, check every seam between the bulkheads and hull, etc. He’ll also go above deck to examine the sails, rudder, GPS, radar, and every other part of the boat! A good surveyor will spend at least an hour with the engine-verifying the propeller shaft RPM’s, checking the temperature of different engine components, examining the wires to make sure they’re in good shape. He’ll check the water systems, holding tanks, and fuel tanks. Basically, the surveyor will go over every square inch of the boat…and you should be right there with him as he works! Offer to take notes for him! Help him move those floor plates and hold the flashlight so he can see! It’s in your best interest to make sure he does the most thorough job possible.
Eventually, you’ll return to port. Walk the surveyor to his car…without the broker being around. Ask him for an honest opinion about the condition of the boat. Don’t hesitate to tell him how much you’ve offered to pay for the vessel. He’s on your side and will be honest in his appraisal.
Finally, be prepared to pay the surveyor for the work he’s done…right there on the spot. This is the custom!
Step 7: Re-negotiate the price
Within a few days, the surveyor will return a type-written report to you that describes all the things that need to be fixed. In my case, there were two significant repairs that were required. The boat had significant blisters under the waterline and will have to have a new barrier coat applied, and the chainplates which attach the shrouds to the hull have been pulled slightly out of position. Of course, there were a multitude of relatively minor repairs that were also recommended (e.g., loose wiring that needs to be secured, old hoses that need to be replaced, etc.). Click here to read Prairie Dream’s survey.
It is expected, after the survey, that the buyer will re-negotiate the price based on repairs that must be made. I chose to concentrate on the big-ticket items at the bargaining table. Some of my friends told me that I should have made sure that the boat was in perfect condition before I agreed to purchase it. This is bullshit. A second-hand boat will NEVER be in perfect condition…so my advice is to identify the things that will cost the most to repair, and make a counter-offer.
In my case, the boat had several thousand dollars’ worth of significant repairs. I called the broker and gave him a heart-felt speech about how much I liked the boat, but that these repairs…gosh darn it…just weren’t in my budget. Would the seller be willing to make the repairs himself, or reduce the sale price?
An hour later, the broker had contacted the seller who had agreed to meet me half-way. It was a done deal!
Step 8: Find Insurance
Even though you don’t own the boat, you will be required to purchase insurance for it immediately after final price negotiations. This is primarily for the benefit of your finance company. Most finance companies won’t write a check until the buyer (you) can show proof of insurance.
My broker was helpful in suggesting possible insurance agencies, but none of them paid off. I was hindered by two facts. First, I was a first-time boat owner. Many insurance companies wouldn’t even consider me because of this. The second thing that insurers don’t like is liveaboards – i.e., people who intend to live aboard their boats. They reason that it’s a higher risk because a liveaboard is likely to use the gas oven more often than someone who simply sails the boat on the weekends. They also know that a liveaboard will have more guests on board, which increases the insurer’s liability.
If you’re looking to insure a boat, I highly recommend contacting BoatUS. Boat Owner’s Association of the United States (BoatUS) has been around since 1966. They offer financial services including boat loans, a nation-wide towing service if you run aground (or run out of fuel, get hit by lightning, or otherwise become disabled on the water), and they underwrite marine insurance policies. They’re very knowledgeable, and everybody who works there seems to be active in the boating community. They certainly know their stuff!
Step 9: Get the Documents in Order
Finally, the boat is nearly yours! All you have to do now is sign your life away…in blood. I was truly amazed by the amount of paperwork involved in this process. As you’ll see, there are two sets of documents. The first is for the broker, and the second is for the bank. If you’re interested in the details of these documents, I’ve scanned them for your reading enjoyment. Simply click on the names of the documents below to read them:
- Purchase and Sale Agreement: Defines the name of the vessel, agreed upon amount, and terms of the agreement. I’ve apparently lost part of this document, as it abruptly ends in the middle of Paragraph 14. God! I hope they can’t repossess my boat because of this! Keep in mind that the vessel was still named Prairie Dream at the time; I didn’t change the name to Candide until later. 2 Pages.
- Conditional Acceptance of Vessel: States that I’m buying the boat “as is.” Note that it describes a $3,000 reduction in the price of the vessel to fix the “survey defects” that the marine surveyor described in his report. 1 Page.
- Closing Statement: A financial summary of the deal. Note that the broker’s commission is listed at $12,000, which was 10% of the purchase price. 1 Page.
Bank Mortgage Documents
- Preferred Ship Mortgage: Oooooh! I’m buying a “ship” now! This is the most important document and it describes my obligations to the bank in 42 numbered sections. In preparing this document for scanning just now, I happened to notice that I failed to comply with Paragraph 10 in that I never “post[ed] a notice in the cabin identifying the owner of the Boat and the Mortgagee as such.” Oops. 8 Pages.
- Truth-In-Lending Disclosure: Describes the number of payments I’ll have to make, the amount of each payment, and the combined total of these payments reflecting the interest charges (nearly a friggin’ quarter of a million bucks!). Holy shit. 2 Pages.
- Agreement to Furnish Insurance. States that I’ll keep the boat insured. 1 Page.
- Affidavit As To Good Faith: Proudly states that I’m an honest guy, and not trying to defraud the good people at the mortgage company. 1 Page.
- Limited Power of Attorney: Says that they can take my boat and sell it if I default on the loan. 1 Page.
- Compliance Agreement. States that if the mortgage company made a mistake anywhere in these dozens of pages of documents, that I’ll agree to any changes they make to correct their mistake(s). 1 Page.
- Borrower’s Acceptance Certificate: States that I’ve accepted the boat in good working order. Note that it also says the boat “[will not be] used as the principal dwelling of the undersigned or anyone else.” The whole idea for buying the boat was to use it for my “principal dwelling!” When I pointed this out to the loan officer, he told me to simply scratch out that part and initial it. Who knew? 1 Page.
- Consumer Note and Security Agreement: More or less a rehash of all the other documents in one location. 6 Pages.
As you review these documents, you may notice that the mortgage company required my boat to be a “Documented Vessel” with the U.S. Coast Guard. The reason for this is quite simple; it makes the boat a U.S.-registered vessel (flying a U.S. flag). This makes the boat a lot easier to repossess in foreign countries, should the owner default on the loan and try to hide the boat overseas. Prairie Dream was already a Documented Vessel, so I just needed for the Coast Guard to update their records to show my name. I hired a company that specializes in these procedures, and it was at this time that I changed the name of the boat to Candide.
By the way, changing the name of a vessel is no big deal from a legal standpoint. In fact, my boat has had three names by three owners; Silver Skates, Prairie Dream, and now Candide. Just be sure to get the title and documents updated correctly.
The difficult part of changing a boat’s name is finding a virgin to sacrifice across the bow. Virgins are hard to find these days. Fortunately for me, a couple of Mormon missionaries happened to ride their bikes past my marina at just the right time…
Lastly, you may have noticed that I paid 7% Florida sales tax on the purchase price of the boat. I tried everything to avoid this tax, but it simply can’t be done (at least, not legally). I heard about all kinds of schemes to avoid paying Uncle Mickey (Florida’s rodent version of Uncle Sam) – register the boat in Delaware, take delivery of the boat in the Bahamas, keep the boat constantly moving between two or more states for the first six months, declare the boat an independent country (seriously?) – but all of these are bogus. I verified this with the same attorney I’d hired to review the purchasing agreements. You’ll either pay taxes in the state where you purchased the boat, or you’ll pay them in your home state.
That’s it! Congratulations! You may now take delivery of your boat and move aboard!
Bonus Step: Burn the Mortgage
One of the happiest days of my life was when I finally paid off Candide’s mortgage. Even though I had taken out a 20-year loan on the boat, I managed to get her paid off early. It took exactly 12 years, 9 months, and 3 days. You may click here to view the final document I will ever get from the mortgage company (note that Vericrest Financial bought my mortgage from The CIT Group several years ago).
I decided to celebrate with friends and family with an old-style “mortgage burning” party. More than one person pointed out how ironic it would be if I accidentally set fire to my just-paid-for boat with my flaming mortgage…but it was worth the risk!
At long last, Candide is truly mine! Enjoy the video…