A fare share: a different approach to boat buying

Are you considering buying a boat, or moving up to a bigger one? Before you pull out your checkbook, you may want to consider whether you want to share the purchase cost with others rather than going it alone. Many companies are now offering an alternative to owning your own boat--allowing more people to have a chance at the boating experience by lowering the cost of ownership.

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If you're the type of person who needs to be able to go an impromptu cruise after looking out the window at a beautiful sunny morning, sole ownership is definitely for you. Sole owners can personalize their boats to their heart's content--taking pride in its uniqueness right down to that special name on the transom. But, if this isn't all that important to you, there are other alternatives.

The Fractional Alternative

One alternative is fractional ownership. It is not a boat timeshare program where a corporation owns many yachts at multiple locations, and each shareholder has the rights to use any of them. Nor is it a boat club, where boaters pay a fee for unlimited access to a fleet of boats at one location. Fractional owners actually own a share of one boat--possessing equity in that purchase.

Fractional ownership plans offer a more affordable way for a person to get out on the water. "It's a great alternative for people who love to boat but can't use the boat often enough to justify the cost, time or commitment, and is ideal for people who don't like the hassles of maintenance," says Great Lakes BoatShare president John Pas. "Also it's a more affordable alternative for boaters who want to move up into a larger vessel, but might not qualify for a higher loan."

A number of companies are filing flight plans laid out by highly successful aircraft joint-ownership programs and are floating joint-ownership boat plans this year. These companies provide cleaning, maintenance, insurance, and dockage. All the partial owner needs to do is climb on board, cruise to his desired location, return when his time is up, and walk away when the day is done. The boat owner pays for a share of the boat up front, a monthly fee, and the cost of fuel--for that, he gets his share of cruising time equally split with other equity owners of the vessel.

Fractional sharing providers set up their boat plans as limited liability companies (LLC) that can be treated as a partnership for tax purposes. However, the biggest benefit of an LLC is that is limits the individual boater's liability from the other owners and from the company. The LLC even continues if the fractional boat ownership company goes out of business.

Experiment on the Great Lakes

A few Florida companies have been at the vanguard of fractional ownership because the year-round boating season allows for more shareholders, while still maintaining substantial cruising time for each member.

Fractional Yacht Management, Inc. of Melbourne, FL., and Dream Mobility, with bases in Miami and Ft. Lauderdale, are just a couple of the many companies offering a selection of boats in the Sunshine State. But, it came as somewhat of a surprise when this plan migrated to the Great Lakes--considering the short boating season.

Buying a boat outright in Michigan means that a person bears the full cost of the six months that the boat is laid up for the winter instead of a fraction of the cost under boat sharing. This year, Great Lakes Boatshare LLC, in St. Clair Shores, MI, became the first company offering fractional ownership programs in this region of the country.

BoatShare is currently offering Regal and Silverton boats that sell in the $250,000 to $650,000 price range. "We may also start offering trawlers (Nordic and/or American) in Northern Michigan and Wisconsin. These boats are great for cruising and can extend the boating season considerably," says BoatShare president John Pas.

Because of the relatively short northern boating season--May to October--the company is restricting the ownership of each boat to four to six persons to maximize each person's usage.

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How do the financial costs between sole and fractional ownership compare? Pas has worked up some figures using a new Regal 4260 Express Cruiser with a price tag of slightly over $500,000. The total down payment for a sole owner would be in the neighborhood of $110,000 when purchased from a dealer. However, BoatShare is able to lower that price to $85,000 by dealing directly with the manufacturer. As a result, sharing one's cost with three other owners lowers a member's purchase price to $21,250.

Great Lakes BoatShare makes its money on the acquisition of the vessel, as well as a management fee on the owners' monthly fee. The boat does not carry a loan, but each owner of the Regal pays an annual fee of around $7,000 which includes maintenance, insurance, weekly cleaning, pumpouts, towing insurance, summer dockage and winter storage. The company also makes a profit on charges for special services such as catering and a handling fee at the time the vessel is sold.

Going Strong In Florida

Pas says he reviewed the successful operation of Fractional Yacht Management, Inc. of Melbourne, FL, before setting up his program--including the information on their Web site. Fractional Yachts offers more affordable models than Great Lakes BoatShare, such as a share in a 2003 Wellcraft Martinique 3300 for $18,575 down and $276 a month, compared to BoatShare's $603 monthly charge for its 42-footer.

"Money is not the issue with fractional ownership, time is," said Fractional Yacht Management owner Mark Casburn. "All of our customers can easily buy their own boat outright, but don't have the time to provide upkeep or the desire to worry about security."

Programs For the Rich and Famous

Having a 42-foot boat on the Great Lakes is neat but at the other end of the spectrum are the megayachts offered by YachtSmart of North America head-quartered in Arlington, VA, or Monocle Management LTD of Fort Lauderdale, FL.

YachtSmart's shares in a 2004 Azimut 85 are already sold out. A single share of this $4.2 million vessel went for $425,000. "Shareholders put $125,000 down and finance the rest," said YachtSmart's president Jonathan Metcalfe. "We have 30% of these owners already committed to moving up to our new offering of a 35-meter Italian built Benetti yacht. Money is definitely not an issue with our buyers, quality time on the water and not at the dock is."

Monocle on the other hand, has a 237-foot Asante Wavepiercer with 20 staterooms for $1.75 million per share. You get the full run of the yacht for one week and the extra staterooms come in handy when you want to take along a dozen or so friends. The annual operating expenses are split among the fractional owners--this can be a tidy sum when all the operating costs are considered. All of these yachts come with a qualified crew, a chef, and plenty of water toys.

Tough Business to Start Out In

Fractional ownership has not been fully embraced by the maritime industry. It can be a very risky business. William Mirguet, who started Drake YachtShares in 2002, regrettably had to suspend his operation last February because of limited capital. "It's simply too expensive to educate the public through advertising, and I wasn't getting much help from the editorial media. Nevertheless, I firmly believe the drawbacks of fractional yacht ownership pale in comparison to its benefits and eventually will become a mainstream approach to boat ownership. The economic savings and ease of use are too compelling for it not to eventually succeed," he said.

RELATED ARTICLE: Before You Buy Into A Fractional Yacht Plan

* Make sure that the company is offering a variety of yachts to select from so that you are not forced to buy a share in a boat that is not completely right for you.

* Some companies move the yacht's location and cruising range to fit the seasons--Chesapeake in the summer and Florida in the winter. Check that cruising plans are convenient for your needs.

* Ensure that any deposit is held in escrow until all shares are purchased. Set a time limit for refund if shares are not purchased within a reasonable time--consider a six-week limit.

* Fractional companies assess each owner an upfront cost to establish a capital fund covering unanticipated repairs. This fund should be part of the Limited Liability Company, and a fully audited financial statement should be provided annually to include expenditures from this fund.

* Pick a plan that offers a convenient and flexible procedure for scheduling, such as on-line scheduling. Determine how holidays and weekends are to be allocated and determine how far in advance bookings can be made.

* Ensure that you will be able to sell your share if the need arises. Determine if there are any restrictions or penalties connected with selling your share.

* Find out what the brokerage fee is for selling the yacht at the end of the contract, and determine what the procedure is for purchasing another boat.

* Review the owner regulations to understand what restrictions and requirements are connected with yacht usage--many regulations restrict pets.

* Each plan should have an owner orientation and training program on the specific yacht. Make sure that the program qualifies you in all aspects of boat operation.

COPYRIGHT 2004 Boat Owners Assn.
COPYRIGHT 2004 Gale Group