boat

Are Boats Depreciating Assets?

If you are looking into buying a boat, you should understand that while they are assets, boats are depreciating assets. Depreciating assets decline in value over time and are worth less and less the longer you own the asset.

While depreciation is probably the largest cost to owning a boat, it is not the only cost you should be concerned with. When deciding whether or not to buy a boat, you should calculate out the total cost of ownership of the boat. A large lump sum purchase of a boat could have a significant impact on your finances so make sure you take the opportunity cost of the purchase into account.

Total Cost to Own a Boat

Every boat will have a different total cost of ownership. This is generally the total cost of owning the boat for a period of time. It is NOT directly related to the purchase price of the boat. A more expensive boat will generally, but not always, have a higher total cost of ownership.

The total cost of ownership will include depreciation, taxes, insurance, fuel, maintenance, storage fees and repairs. These numbers can vary widely and lead to two similarly priced boats having very different total costs of ownership.

Time needed: 10 minutes.

How to find the total cost of boat ownership

  1. Calculate the Depreciation Rate

    This will be one of the largest costs of ownership and can be calculated by depreciation = purchase price – resale price. Over 5 years, a new boat can lose about 55% of it’s purchase value! Used boats do much better in depreciation but you will spend more in maintenance. Note that some boats depreciate faster than others, so you should take this into account before purchase.

  2. Calculate the cost of Boat Insurance

    You will need to grab a quote from your favorite provider to know for sure. Annual insurance premiums can var widely depending on the model, so get a quote before you buy.

  3. Estimate Fuel and Maintenance Costs

    Expect to spend upwards of 10% of the original purchase price of the boat every year in maintenance costs. Certain boats may be even more, so check with the marina mechanic before making a purchase.

  4. Estimate Storage Costs

    You will need somewhere to store that boat. If it isn’t being stored in your driveway you will need to call and get a storage price from the marina or off site storage facility.

  5. Add finance costs

    If you are financing the boat, make sure to include the cost of the interest.

  6. Add it all up

    Now that you know all of the costs, add them all up to get the total cost of ownership. Make sure that take all of the totals over the same period of time. A good recommendation would be to calculate the cost of ownership over 5 years.

Buy or Rent

After you find the total cost of ownership of a boat, you may want to look at renting boats as needed. The per day price can seem high on a boat rental, but remember that you are not paying for the boat on days when you aren’t using it.

A boat sitting in storage will be costing you almost as much as a boat on the water. Be honest with yourself on how frequently you will use the boat. If you are only going to really use it 5-10 days per year you are generally better renting a boat as needed or joining a boat club.

Conclusion

You often hear the phrase that the best day in a boat owners life is the day he buys the boat, and the second best day is the day he sells the boat. There can be a lot of truth to this.

Boats are a lot of a fun, but they are also depreciating assets that can have significant impact on your eventual net worth. Make sure that the boat is worth it before you buy it!

Leave a Reply

© All Right Reserved - Dollartrak