Big Boat, Big Depreciation

I recently came across a 60-foot motor yacht that, after two years with its first owner, was now listed at a brokerage. The broker mentioned that its asking price of \$2.8m CAD was quite a deal, being a $1.5m savings versus the boat's original cost, while having only 200 hours on its twin Volvo IPS powertrains and being virtually pristine inside and out.

Now, a \$4.3m motor yacht is out of reach, for most of us, by an order of magnitude or two. (Or three.) But this one's appearance on the market, so soon after its birth at the factory, gives us an interesting look at the cost of ownership of such a beast. Let's pull out some government references, some rules of thumb, and some historical data, and see where it takes us.

In addition to the \$4.3m purchase price, the boat would have incurred HST of \$559,000 on day one. This example was purchased before the Select Luxury Items Tax took effect; today, it would incur an additional \$430,000 of luxury tax.

The vessel was brand-new, so let's assume that everything that might break was under a 100% P&L warranty. We still need to pay for cleaning, upkeep, insurance, winter covering, and general maintenance; let's be super favourable and call it \$40,000/year for now. (That'll go up, dramatically, once we're out of warranty; the new owner should budget at least \$100,000 a year.)

What about fuel? The old rule of thumb is that a good diesel makes 20 hp per litre per hour. If those 750 hp Volvos were at 10% throttle the whole time, that's 1500 L in 200 hours. If they were wide-open? 15,000 L. Let's assume normal cruising conditions and call it 8000 L in total. Waterfront diesel was \$2.60/L last summer, so that's \$21,000 of fuel.

Dock space, winter yard space, hauling, and launching would have added up to about $10,000/year.

Depreciation ate up \$1.5m over two years. And now the boat's for sale at \$2.8m, of which the broker will keep 10%.

The sum total? \$4,980,000 went out. \$2,520,000 is coming in. Net loss, \$2.46m. (Those figures are worse by \$430k when the luxury tax is added.)

This boat cost \$12,300 CAD per engine hour to own and operate.

(You know what else costs twelve grand an hour? Chartering a Gulfstream jet to anywhere in the world one is capable of landing.)

People who buy boats like this live in a totally different world from the rest of us. The fuel cost? Nothing. The marina fees? A rounding error. The tax bill that costs more than most houses? Annoying, but obviously not insurmountable.

And now the kicker. Did all this expenditure make the guy happy? I have to assume not, if he's willing to take a \$1.5m depreciation hit to get rid of the boat after just two seasons and 200 hours.

Lesson one. If you're designing and building luxury vessels for people who have more money than time or sense, maintenance and depreciation might not be a concern. However, if you're trying to target the larger and more rational market who don't have quite as much moolah to throw around, resale value is definitely a thing you need to think about. Good resale value, to minimize the first owner's depreciation losses, comes from starting with an attractive, timeless, well-thought-out, effective design, and executing it with good craftsmanship and smart quality control.

Lesson two. If you're buying a boat, don't be deceived into thinking that spending more will make you happier. I built, powered, cruised, repowered, refitted, and kept using my 15-foot outboard powerboat for 23 years on about \$10,000 in total. My 35-foot sloop's annual total cost of ownership, calculated the same way as above over the last four years, has been about 0.6% of this motoryacht's annual TCO. Did the guy in the 60-footer have 167 times as much fun as we did? Doubtful.



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