Yacht Purchase as an Investment into Charter Business

This time we are going to delve into the world of charter business investment with the goal of figuring out the most optimal approaches to actually making money on yachts. This article is based on an informative broadcast by Sergei Mazur, founder and CEO of both SimpleSail and topRik.com, with rare pieces of knowledge shared publicly for the first time ever. Hopefully, by the end of it, you’ll understand that there’s much more to it than just buying a boat, giving it to a charter business and enjoying the profit – there are many extra steps involved and many pitfalls ahead. Let’s start.

SimpleSail was established in 2014 and since then amassed a large charter fleet of 15 vessels that you can see on the picture above: mostly sailing catamarans from Beneteau, Lagoon and Fountain Pajot. In 2017, in addition to Montenegro, SimpleSail also successfully expanded to Croatian charter business. You might say – well, that was quite some time ago, what about now? How interesting the market is after the pandemic and why is it worth looking into at all?

 

Three-Step Cycle of Yachting Investment

Well, as of March of 2024, we can definitely see the tendency to spend less: Fountaine Pajot and Lagoon, for example, didn’t even attend the largest boat show at Dusseldorf and neither did we. The prices for the boats and services are rising and there’s not much hope for another market rally, like in 2023. It seems like the buyers and investors want to stop for a moment and look what’s happening, considering new yacht designs and new opportunities.

Many people imagine a situation where they purchase a yacht directly from the manufacturer, after which the charter business that you gave it to, rents it to clients and shares the profits with you. And yet because of depreciation, inflation and possible force majeure accidents it is actually quite a risky endeavor, which will not make much money for you in current market situation.

In most simple terms, one thing that decreases the risk of this investment is the right boat purchased for the right price. It is one of the most difficult problems that you will face – in order to eventually get a return on investment on your boat, a lot of research must be done. Next step is taking good care of it on minimal budget while you are looking to sell it or strike a deal with a charter business, since you don’t want to burn through your profits by paying too much for the services. Then, of course, you need to make another research to strike a good deal on that yacht and get significantly more than you invested initially. You’ll be able to make profit only if you combine all three steps – if you miss just one of the three, you are already in trouble.

 

Going Through the Cycle with Examples

Now, to give you an example, we’ll take a certain boat and go through all this journey focusing on a particular model. Let's say that we want to purchase Lagoon 51 (shown below), haul it to Montenegro, use it for charter and then sell it.

First, you want to get a charter version of this yacht – this one, with 6 cabins and 4 toilets, will cost around 1.1 million euros. The reason why we chose particularly Lagoon 51 is because of the Lagoon brand – you really want to get something like Beneteau, Lagoon, Fountaine Pajot, Bali. If you’ll look into current ads for boat rentals, you’ll notice that famous brands are always doing better, and it’s the same situation at the pre-owned boating market. Another reason why buying Lagoon now would work is the fact that in 2023 many boats were purchased as an investment so the prices for them just kept rising. Because of that certain overabundance of yachts, you can purchase a Lagoon 51 with all the options (which would be around 1.45 million) with a discount of 300 thousand euros.

It's important that you don’t approach the yachting market the same way as you would approach an automobile market – it’s all about discounts, networking and unique deals when making a new purchase. If you can’t bargain for any reason at this stage, then you are likely to be disappointed later. Actually, most successful charter companies purchase the boats at much lower price that normal, even if you consider a personal discount that you can get through bargaining with a dealer. If they would purchase at normal prices, they would be out of the game very quickly. The same thing happens when it comes to options: a generator that costs 25k € can be purchased directly from the generator’s manufacturer for 8k € and installed by the charter company itself. By the way, the options don’t really affect the amount of income that the yacht generates from charter, since the client doesn’t pay more for options.

In general, Sergei himself doesn’t recommend official dealers when it comes to purchasing for charter unless the dealer’s offers are already tailored towards charter specifically. If you go the usual owner’s purchase route, the math will not be on your side. Pre-owned boats are usually not optimal for investment either, since you will definitely be overpaying for it, and also because the charter agencies want the new boats the most – that’s what the clients are going for.

Going back to Lagoon 51, this is one of those boats which you can immediately try and sell for 10-20% higher. They are rare, so it’s not easy to get one of these in general and if somebody needs it right now, they might give you a call. It’s not just about charter after all – it’s about profits, no matter where they come from. And all this time, after the sale ad is posted, you can still get some money back by sending it to charter. If you would buy an already pre-owned boat, by the way, you wouldn’t be able to sell it for a higher price.

This cycle of buying the boat, keeping it and selling it can last for a month or many years – it all depends on specifics. One of the ideas that you might get is to take a loan from the bank to finance the purchase, but it’s very unlikely that you will get a good deal with current rate hikes.

 

Benefits Of Buying a Boat from Charter Companies

It does look like a good idea to get boats only from the official dealer, but as a result of that instead of paying 20k € for an option (if you would get a boat from SimpleSail) you’ll get it for 30k €. These options add up, so on a cat like Bali 4.8 you can easily save up at least 80k easily just from options and that’s the minimum – you can go further than that if you try. As Sergei explains, at SimpleSail, around 80 thousand euros were saved for the client on his Lucia 40 – much smaller boat than Bali 4.8 – and the company was still able to make a profit. If the client went the official route, it would cost him 80 thousand. So, the boat that costs 450k € now, was sold for 397k back then, but was actually purchased for 310k euros.

Another benefit of getting a boat from a charter company is receiving free and fast servicing of the yacht, compared to expensive and slow maintenance provided officially. That’s why there are no proven stories of profitable boat flips that start from official purchase – ideally, you need professionals with a lot of experience to find the right deal.

Of course, even if you plan to flip the boat later, you will still be able to use the boat for your own needs while it belongs to you, just make sure that you use it off-season and charter it during summer. And don’t forget to take into account the time that it will take for the charter company to clean and prepare the boat after the charter use.

It makes sense to try and sell your boat while it’s still in demand - the most popular boats on the market are those that are no older than 3 years, while a 5-year-old boat is already considered less desirable.

 

Income and Expenses in Charter Business for Boat Owners

The reason why many investors stay away from investing into charter, is the fact that neither charter company or the marina in which your yacht stays take any responsibility for the boat you gave to charter. This means that you will need to pay for docking (25k € for Lagoon 51), insurance (10k €), services like antifouling and polishing (3k €) and much more, adding up to around 50k € a year needed just to keep it in shape.

Keep in mind that the size of the boat and the marina in which it will be docked influences the final docking payment amount. You shouldn’t always go for the lowest price though, because cheap docking might mean no charter clients and no profits. Try to take into account the popularity of the spot among the renters before you make the final decision. Usually, expensive marinas have a reason for being expensive.

Surely, you don’t want to just throw 50k € away each year for nothing – and that’s where the charter comes in. For example, for Lagoon 51 the company SimpleSail would be able to provide, in the most pessimistic scenario, around 169k € a year with 109k € going to the boat owner if the boat would be chartered for 17 weeks that year. That’s without counting the upkeep, so minus 50k € that would be around 60k € for the yacht owner. Make sure to find out as much as possible about the future fate of your boat after signing the contract. And all this time you should still constantly look after your asset instead of just calling and asking if something happened – all kinds of accidents could be covered up and ignored unless you take part in the boat’s life even while it’s in charter. Boat owner takes all the risks in this situation, don’t forget about it.

You might say – wait, where the profit in that, considering the depreciation of the boat every year? Exactly, that’s what we were talking about – don’t think only charter and constantly try to sell it, treating it like an unfinished building that you are looking to flip eventually.

Moving on, if you look at specifics, that 109k € income comes from per-week rentals (15k € from that Lagoon 51 per week, for one client). The expenses from that income are managed by the charter company, and again, you shouldn’t treat it as a fully passive income. If you allow your boat to be taken into charter without your own skipper, you risk more, since random crew always means more risks. Take some time to call and find out where the money goes and if it is necessary – remember that it is still your yacht.

Some companies guarantee the amount that you get per year, but in that case, you might miss out on potential profits if the company manages to get much more out of your yacht per year than the sum the guaranteed to pay. Also, the charter company makes profits from managing your yacht and upkeeping it in the marina, as the prices that they get will be cheaper than if you tried to pull off the same stunts with services yourself. And still the money made from your boat here are not even close to official dealerships, who will sell you an option or a service for 3-4 times of its actual price.

Before we talked about 17 weeks a year, but ideally you want your boat to work for 22 weeks, which with the Lagoon 51 would mean around 100k € of final income after the upkeep for the boat owner, but also meaning there’s less time for personal use. Overall, if you are still having that sale ad posted and, let’s say, someone buys it in a couple of years, you make some profit just from selling and the charter money would be a pleasant bonus. If you purchased the boat from a charter company, the company itself is very interesting in selling your boat too, so it can find some offers for you or help you with an offer that you found on your own. You can actually act as an agent during this sale and get additional 20% commission reward.

 

Optimization of Yacht’s Usage in Charter

As Sergei Mazur points out, while answering a question from a viewer, it doesn’t make sense for charter companies to try and haul a boat to another region for winter season once the summer is over or vice versa, since hauling is too expensive. And when it comes to exotic regions with never-ending season, the more exotic - the more risks are involved. That’s why Turkey and Croatia are that popular – they are understandable and safe, with developed infrastructure, unlike the Caribbeans and Seychelles, where even the basics are very expensive, lacking spare parts for maintenance and with occasional hurricanes wrecking the region.

If you still want to take higher risks in exotic regions, remember that in that case your boat can not be used for personal needs anymore and becomes purely a tool. It will be mercilessly exploited every single month and might end up being way too damaged to sell it at an attractive price later. In general, it is very difficult to sell the boat at a secondary market somewhere in the Caribbeans, so you would need to haul it to the primary market location first. Any ocean crossings destroy the sails, lines, engine since you will need 20-30 days for this journey. Modern boats like Lagoon, Beneteau, Fountaine Pajot, Bali etc. are not made to be exploited in harsh conditions like that. By the way, Lagoon just happens to be the most reliable brand specifically for charters just because of its popularity, reliability and personnel of the brand. Fountaine Pajot is little bit less reliable, but still can be sold easily after the charter part of the cycle and has great dealership.

 

Keep Realistic Expectations

When considering a particular boat, try to separate the opinions of boat owners that rely on their emotions instead of existing data. Some clients are easy to impress with any boating experience and they will be fine with an unreliable boat, leaving a 5-star review on a particular model. Then you might trust this review, purchase it for charter and realize that insurance companies are not interested in covering a less known brand with historically unreliable parts and reselling that boat might also become a nightmare. So even if you fell in love with a more obscure yacht brand, it doesn’t mean that other parties of the yachting market will share your enthusiasm.

As we said in the beginning, many investors get disappointed with such large amount of hurdles to try and get, let’s say 10% on your investment each year and still not even making that much. That’s why, in Sergei Mazur’s opinion, it makes much more sense to get into this business if you already see yourself in yachting and are looking to get involved into a more aesthetically pleasing business while having a vessel that you can call your own. This way you will avoid paying the full upkeep price that we talked about before and get some pleasant bonus income instead. As a boat owner you can’t get as much as a charter company, so if you want to really start making money, you want to get at least 10 of them and created your own charter business. Just remember that the yearly profit will be under 10% to avoid disappointment later.

The charter company usually take 10-15% from all the incoming payments from the clients during the charter. Since the rent is done through agents, 18-20% goes to them (lately the agents’ commissions tend to decrease. But if the charter company sells the boat itself, then you should figure out beforehand whether that money goes to charter or to the buyer, since no agents are involved whatsoever. At SimpleSail, for example, if the client is direct, the company doesn’t take these funds unless in very rare case when the charter is cheap and additional expenses are required.

So, after all that, these final 109k € (65% of overall 17 weeks income, without the upkeep costs) are negotiable, unless you are dealing with very large companies. Make sure to specify the conditions beforehand.

 

Other Ways of Making Money with Your Boat

When it comes to ocean crossings, things are very different. You actually don’t want a new boat for that, you want maybe an Oceanis trawler made in 2009 or something similar - proven, reliable, functional. You still want it be in good condition, but already tested in harsh conditions. If the boat is 5-10 years old and it is still in good condition, that’s a pretty good test - you will know what it went through already, since sailing lines are easily replaceable, but the hull is never easy to fix.

Ocean crossings charters are a niche market, usually organized with a fully prepared crew, tailored for lovers of long expeditions, lasting for many weeks and looking for extreme sensations, not excluding trips to Antarctica even.

If you want to see the penguins with your own eyes on a trip like this you will have to pay around 30k € though. There are companies completely focused on this specific segment on the market – either far north or far east. In this case it makes sense to buy a very simple boat at first, completely renovate it, replacing most wooden parts with metal ones, preparing it for the most challenging environment. It’s a difficult business that requires long-term investment and a lot of patience.

You can also contact SimpleSail and, let’s say, invest 300k € into charter with 8% yearly interest mortgaging your boat to the company. You could come up with some other interesting deals too – think it through and make an offer. There are many ways of making money in here and nobody should limit themselves to some strict rules.

It is very important to establish trust between the charter company and the boat owner. That’s why the communication should be constant and the conditions should be as clear as possible. Usually, the charter company will make money anyways, so it is in boat owner’s interest to establish good dialogue.

Another example of the boats that, in Sergei’s opinion, performed well is Aventura 37 (he’s planning to sell it for 290k € after it spends a year in charter). Right now, after a buying frenzy of 2023, there are many good offers on the market, including Lagoon boats.

This business is a lot about waiting for the right opportunity. If you have some money laying around, wait until the right offer arrives and once you see it, do not hesitate, because good offers are not easy to find. The boat prices are inflated right now, so be careful. Also, it makes much more sense to get involved into this market if you also have something that is already related to yachts. For example, SimpleSail provides various maintenance services, has its own yachting school, is capable of hauling yachts, providing registration services, can act as an agent, organizes own regattas etc. It’s better to avoid being a one-trick pony by buying a boat and expecting it to become a lucrative source of passive income while others are doing the heavy lifting.

Since there are other more lucrative investments out there, you should have some internal motivation – just loving your boat, loving the fact that you are now a boat owner, enjoying the winter trips while the boat is out of charter, enjoying yachting in general. There are many, many people out there who just by a boat for bragging right and never use it themselves and don’t even give it to a charter, keeping it for personal reasons. With charter approach you can monetize your boat at least somewhat before you sell it or exchange for another boat with profit.

 

Advices for Charter Clients

As the CEO of a charter company with more than a decade of experience, Sergei Mazur gives some advices for any client who wants to avoid possible financial losses when renting a yacht:

• Almost nobody thinks of proper preparation of the yacht for the season, including planning the route and taking into account some “backup” marinas in case of emergency. Try to actually study the map before the boat trip. There should be two captains on board and at least of them not having a drinking problem and being paid for what he does accordingly.
• Always book plane tickets both ways, insuring them and skipper’s responsibilities if it’s not too expensive. This way you buy reliable date of arrival and return, even if it costs extra 200 euros.
• Use your phone. Sure, nobody planned anything, but call them and send them to a mall for beer and steaks. Then take half an hour to record videos and make some photos to document the current condition of the yacht in case there will be a dispute regarding already existing but not noticed before damages to the interior or exterior. Problems like this arise all the time and nobody wants to lose money, trying to blame it on a previous owner or charter clients, like using toothpaste to cover up scratches. Videos and photos always help in any such investigation. Checkout before and after is conducted by living, breathing human beings so mistakes are made sometimes. If you noticed some damages, immediately message the charter company to protect yourself from being falsely accused of causing them during your trip.
• Some clients might buy all the insurance plans, ground the boat immediately after unmooring, return and ground it again (true story). SimpleSail helped them out and sent them on charter anyway. That’s why, ideally, you want to ensure everything. You don’t know exactly what’s going to happen in the future, no matter how good you are. Maybe another yachtsman will drive his boat into yours or an anchoring buoy will let you down. Without insurance you’ll have to pay for having bad luck.
• Find a boat from the agent that you know, while also knowing where he lives, what his business is and how much kids he has. This way if something happens, you’ll know that he can’t run away from his problems. Getting to know the agent allows you to also get better deals on new boats in the future.
• When it comes to accidents during a charter trip, damaged hull takes the cake in terms of negative consequences. You can avoid financial losses if the mainsail was ripped due to harsh weather, but it probably will cost you if you ground the yacht near the shore, hit the pier, damage the outboard engine, manage to lose an anchor or a winch. It is important to be honest about what you did with the charter company and you might even get away with a slap on the wrist for being genuine. Don’t try to solve the problem yourself or sweep it under the rug – it will only cost you more in the end.
• Checking out the boat yourself to document its condition might get problematic when it comes to the underwater part – it’s not that easy to survey. Don’t be afraid to dive into the water and look at it yourself, not relying on charter company’s reassurances.
• Try to use a credit card when you send the deposit. This will protect you from malicious actions of shady charter companies since you can always use the bank system to argue the legitimacy of any card payment. Don’t use cash - once your money is gone from your hands, you can’t prove much. There even some companies that don’t accept credit card payments as deposits.

On that note, we would like to thank you for your time – hopefully, this article will help you make some optimal financial decisions in your life. Investing into yachts might not be for everyone, but if you know for sure that it is your cup of tea, then welcome aboard and enjoy the exciting journey, like we already do.