Navigating Luxury Asset Ownership: Buying a Yacht

Whether vacationing, exploring the world or entertaining family and guests, owning and enjoying a yacht is a lifestyle asset that’s growing in popularity. This article focuses on seven primary factors to consider when deciding whether buying a yacht is right for you, your family and your business.

1. The size of the yacht. When it comes to yachts, there’s no one-size-fits-all. The right size for you will be a subjective decision. That said, consider key factors in how you plan to use the yacht. These factors include: the intended location of use (ocean versus lake), size of available storage and docking, and the number of guests the vessel will need to hold.

2. Berthing or docking. Decide where your yacht will be docked or stored. You should also decide if it will be docked in multiple locations or just one. If your intended use is to stay in one general area, one location may be sufficient. However, if you want to use the yacht as transportation between multiple residences, docking might be necessary at each destination.

3. Where the yacht is registered. Registration is commonly referred to as “flagging” in the yachting world and is done to establish both legal ownership and nationality of the yacht. A yacht owner will hang their flag on the back to signal the country where the boat is registered.

The registration decision can be complex and will depend on your circumstances. Where you flag your yacht impacts privacy, taxes, liability exposure, and lender and insurance options. If you have a foreign crew or captain, for example, the boat cannot be flagged in the United States. Foreign countries may have more favorable rules regarding chartering, boat class, tax treatment, etc. The top countries we see flagged are Marshall Islands, British Virgin Islands, Cayman Islands and the United States.

4. How the yacht is owned. A yacht is typically owned through an LLC for liability protection purposes. The LLC may be foreign or domestic depending on the requirements of the country where the yacht is flagged. This is an area where a maritime lawyer should be consulted. A maritime lawyer is a specialist in laws of yacht ownership and can help you determine the best way to legally protect your assets.

5. New or used purchase. New yachts can be subject to heavy deprecation in the first several years, but they allow the buyer to tailor the vessel to their specific tastes. A new yacht comes with warranties on the hull, engine and electrical systems, which can be a strong benefit for new owners.

Used boat depreciation in the first five years is less accelerated since the prior owner took the brunt. However, you could be buying someone else’s headache. All buyers should insist on a haul-out survey and sea trial. “Haul out” involves taking the boat out of the water and having the hull and prop inspected. The yacht also goes for a test-drive with a certified surveyor. An engine and generator survey/diagnostic are completed, as well. The survey should always be ordered by the buyer and not the seller. Surveyors should be certified and known in the industry. Insurance companies will require this step.

6. Carrying costs. In addition to the purchase price, the carrying costs associated with yacht ownership can be significant. The average annual costs of yacht ownership are 10% to 20% of a yacht’s value. Costs include insurance, maintenance, crew and mooring fees. Further, fuel costs can add up significantly and are based on usage and current fuel prices.

Fortunately, many yacht owners are able to leverage the value of their asset. Chartering a yacht can offset as much as 60% of the costs, and most owners can successfully charter between 5 and 8 weeks per year. If you plan to charter, consider adding these figures into your financial calculation.

7. Financing. Institutions like Comerica provide customized yacht financing to fit individual needs. There’s no one-size-fits-all approach, but you should generally expect to commit 20-30% of equity as a down payment depending on the age of the yacht. You should also be prepared to personally guarantee your loan.

Comerica Wealth Management offers tailored financing solutions for a wide range of luxury yachts, providing comprehensive support for your yacht financing needs. Click here to learn more.(PDF, 64 KB)

Be prepared to commit 20-30% of equity as a down payment for your yacht purchase.

Yacht ownership can be an enjoyable way to vacation, see the world and entertain guests. While the benefits are substantial, so too are the costs and complexities of the purchase. The process of acquiring and keeping a yacht is complicated. Thinking through the seven steps outlined here will help ensure you have an enjoyable yacht experience.