A Guide for Experienced Owners Ready to Move Up
Your first boat investment is merely the gateway. As you gain more experience, your expectations expand. You will want more space, need higher performance and plan longer excursions, as well as adding creature comforts.
If you’re considering a step up, securing a loan on your next boat is a whole new game from buying your first. As an experienced buyer, you can usually shape your purchase in a more effective manner but you also face a few different issues.
Here is the key info owners should have in order to upgrade and to handle yacht financing properly and successfully.
Why Owners Upgrade (and Why Timing Matters)
Most upgrades will happen through actual use of the boat. After a season or two on the water owners find they want:
More variety in longer trips
Additional sleeping capacity for guests
More speed or stable results
Premium features and new technology
More variety in longer trips
Additional sleeping capacity for guests
More speed or stable results
Premium features and new technology
The key from a financing standpoint is timing your new upgrade at the perfect point. You need to consider market conditions, boat values and the specs of your current loan.
Understanding Your Current Boat’s Equity
Before rushing into the next purchase, you should also take the time to evaluate the vessel that you already have.
Key questions include:
1. Is the loan paid off; or, do you still owe on it?
2. What is your boat worth?
3. Will you be selling privately or using a broker to trade?
1. Is the loan paid off; or, do you still owe on it?
2. What is your boat worth?
3. Will you be selling privately or using a broker to trade?
If you have equity in your boat, it can be rolled into the down payment on your next purchase. If you don‘t have any equity, it becomes especially crucial to plan the transition wisely.
Most of the boats for sale by owner are listed on sites such as BoatTrader or YachtWorld to give the boats the most exposure before an owner upgrades.
Financing Differences When You Upgrade
Buying a boat for the first time isn‘t the only challenge. As a seasoned owner, you may have more choices and more room to maneuver.
When structuring your next loan, lenders may consider:
The individual behind the entity, not the entity itself.
One of your experiences of owning boats.
Before loan performance
Higher sums borrowed and longer duration on loans
Higher-value vessel types
The individual behind the entity, not the entity itself.
One of your experiences of owning boats.
Before loan performance
Higher sums borrowed and longer duration on loans
Higher-value vessel types
As a result, financing boats for upgrades is often easier especially if you have a repeat lender.
Using Your Existing Loan Strategically
If you still have financing on your current boat, you have a few paths forward:
1. Pay Off the Loan Before Selling
This simplifies the transaction but involves an up-front payment of liquidity.
2. Sell the Boat and Pay Off the Loan at Closing
This is most frequently used. The sale proceeds are paid directly to the lender.
3. Carry a Short-Term Overlap
Buyers may also obtain intertemporal financing of the old and the new ships, accepting to sell the old vessel if enough funds are available.
1. Pay Off the Loan Before Selling
This simplifies the transaction but involves an up-front payment of liquidity.
2. Sell the Boat and Pay Off the Loan at Closing
This is most frequently used. The sale proceeds are paid directly to the lender.
3. Carry a Short-Term Overlap
Buyers may also obtain intertemporal financing of the old and the new ships, accepting to sell the old vessel if enough funds are available.
Every choice has its advantages and disadvantages, and positioning it appropriately will enable quick response when the right yacht is present.
Choosing the Right Upgrade
Not all enhancements are created equal, at least from a financing perspective.
Lenders evaluate:
Vessel age & condition
Reputation of the manufacturer
Market demand and resale value.
Survey results and valuation
Vessel age & condition
Reputation of the manufacturer
Market demand and resale value.
Survey results and valuation
Closing Differences with Entity Financing
Compared to personal loans, entity transactions may require:
Verification of signing authority
Additional lender compliance steps
Proper vessel documentation (U.S. Coast Guard or state titling)
Verification of signing authority
Additional lender compliance steps
Proper vessel documentation (U.S. Coast Guard or state titling)
Transitioning to a well supported, hard to replace vessel type could yield better financing terms and long run flexibility.
Documentation and Survey Expectations
The further you go into larger/high value yachts, the more involved the process but it also standardizes.
You should expect:
A complete marine survey
Engine inspection(s) (for larger vessels)
Comprehensive Purchase Orders.
Vessel size vs Insurance requirements
A complete marine survey
Engine inspection(s) (for larger vessels)
Comprehensive Purchase Orders.
Vessel size vs Insurance requirements
In the case of a federal documentation, the lien would be recorded via the National Vessel Documentation Center standard practice for the more significant transactions.
Avoiding Common Upgrade Mistakes
Even experienced owners can run into issues when moving up. A few common missteps include:
A lack of appreciation of the cost gap between the purchase price and the cost of use.
Failing to appropriately time the sale and the purchase
Waiting too long to plan financing
Taking too much time to find funding.
Choosing a vessel that does not fit your long term goals
A lack of appreciation of the cost gap between the purchase price and the cost of use.
Failing to appropriately time the sale and the purchase
Waiting too long to plan financing
Taking too much time to find funding.
Choosing a vessel that does not fit your long term goals
The task of up grading is a personal decision as much as it is financial.
Key Benefits of Working with a
Marine Financing Expert
Again, at the upgrade stage, there can be more transaction activity, with many more variables. Working with a marine savvy financer can make a significant difference.
We also work with repeat buyers and seasoned owners at Shelter Island Funding. No matter where you are in your purchasing cycle, we can help you construct financing that fits your situation, your next purchase, and your future.
That involves coordinating timing and considering alternatives, to make a successful change from one ship to another.
Final Thoughts
There is no reason upgrading your boat should be nothing less than as strategic and calculated an exercise as the first time around.
Having a proper plan can help you take advantage of where you are now, arrange the proper financing, and move on to the vessel that really does match your way of life.
If you‘re ready to proceed, consult with the team at Shelter Island Funding that has boat know how and financial expertise to make everything flow smoothly and correctly.