If you own a boat, it may be the most expensive transaction after your home purchase.
Quality boats cost upwards of $20,000 and often require regular and expensive maintenance and detailing to keep up their value.
So, should you lease or buy a boat?
If you buy a boat, it becomes your possession, and you dictate what happens to the craft. A boat lease only allows you to use the watercraft for a specific period, after which you have to renew the lease contract or return it to the leasing company.
Here’s a list of the things you need to consider before deciding whether you should lease or buy your boat.
To Buy or Lease A Boat?
Buying a boat or leasing one is not as easy as it sounds. Most people cannot cough out the large sums of money to buy a desirable deck boat or center console at once. They either have to save up over the years or get a loan to finance the purchase.
A lease is not without its difficulties. You must adhere strictly to the terms of the lease regarding the use of the boat, its maintenance, and other terms of the contract.
Before choosing to buy or lease a boat, it’s important to know the pros and cons of both methods of owning the watercraft of your dreams.
This will help you cut costs, have better grips on your finances, and improve your options.
Who Should Buy or Lease a Boat?
People who plan to use their boat extensively, such as professional anglers and families that have a lake close by, make more sense to buy a boat.
However, a lease or rent is far better if you are new to boating, will only use the craft sparingly, or cannot afford the huge capital outlay required to finance a boat purchase.
Popular Reasons To Purchase A Boat (Instead Of Leasing)
If you can afford it, a boat offers several benefits from the freedom to spend time on the water with family and friends, mortgage deductions, and more. Here are some reasons to buy a boat.
Despite many experts claiming that a boat is a liability, there is an exhilarating feeling you get from owning such a spectacular piece of engineering and art.
Like an automobile, you can do as you please with a boat, but the fun is way greater than anything you can get from a road trip.
And you don’t have to worry about lease agreements, rental clauses, and others.
2) Ease of Payment
Contrary to what many financial professionals tell people who want to own a boat, it’s easy to finance a purchase. If you approach an experienced marine lending specialist, you can get unbelievably favorable lending terms.
In fact, it is possible to get boat loans as low as $200 to $250 per month for small boats that can accommodate a family of five.
If you do the math, renting or leasing a boat of the same size might be the same price or even more than what you pay on your boat mortgage in the long run. With shared ownership, you can drive the cost of owning a boat even lower, allowing you to buy bigger and more sophisticated models.
3) Tax Deductions
Do you know that you can reduce your income tax by purchasing a boat? It might seem foolhardy to spend thousands of money on a boat, but you can deduct most of the cost of buying a boat if you can convince the authorities it is a second home.
So what qualifies a boat as a second home? According to the Internal Revenue Service (IRS), living space is a property (condo, boat, RV, etc.) with facilities that allow its occupants to sleep, cook, or use the restroom.
If you own a boat that meets a home’s criteria, you can qualify for mortgage interest deductions.
The best part is you need not live in the boat full time to be eligible for this tax break. Find out more about this from your accountant or tax adviser.
4) It could be a Money Earner
A boat can also be a source of income. If you have a big watercraft such as a yacht or fishing boat, you can turn your boating into a business by chartering it out when you are onshore.
According to sailo.com/calculator, you can offset the cost of a $50,000 sailboat by chartering it for 20 days per year. Even if you don’t use your boat every week, the prospect of chartering it out makes ownership the way to go.
However, a chunk of the money will go into the maintenance, insurance, and other ancillary fees required for operating the boat as a business.
5) Optimal Maintenance
While renting may be more affordable in the short-run, many rental boats don’t get proper management. If you own a boat, you will ensure your possession receives the best maintenance and care to derive maximum satisfaction and maintain its value.
Typical Disadvantages of Buying a Boat
A boat depreciates as soon as you buy it. But this does not deter people from owning their dream boat regardless of the capital outlay.
For many people, the better route is to rent when the need arises or lease for business, especially if you service the luxury sector. Here are the reasons not to buy a boat.
6) Huge Upfront Payment
Boats are expensive! If you plan on buying one outright, a boat can cost you five figures or more, depending on the type.
Most deck boats with the standard configuration cost over $20,000, and yachts can easily set you back by over half a million dollars.
Even with the best lending terms, the opportunity cost of owning a boat can place a huge strain on your finances. If you are keen to spend time on the water but lack the financial wherewithal, maybe you should consider the lease or rent option for a while.
If you try renting a boat and really enjoy the experience, you can decide to buy one. This will help you avoid the pressure a boat places on your finances.
While boats also lose value like cars, they require far more maintenance. Unlike automobiles, the harsh marine environment wreaks serious havoc on the hull and the engine.
You need to polish (or paint) the hull, service and replace engine parts, replace trailer tires if you store the boat at home, or pay marina fees, among others.
If you don’t use your boat enough, you are losing money every time it sits on your driveway or the marina.
But you can avoid depreciation, maintenance costs, and other expenses attached to boat ownership if you rent or lease it. However, the rent option is only ideal for people who use boats sparingly.
If you live on your boat or go for weekend cruises and season-long fishing trips, your best bet is to buy your own boat.
Regardless of your accountant’s advice, most people will rationalize the cost of buying a boat. But make sure it’s worth it.
8) Storage Costs
Besides the many costs of owning a boat, you also have to store it during the winter.
While it may be expedient to park your boat on your driveway, the size or neighborhood restrictions may not permit you. If you store in the marina, you also have to pay.
Either way, there’s no escaping the cost of storage, as proper storage can reduce the chance of theft and vandalism, especially if you leave the boat on the trailer in your driveway.
9) Subject to Tax
While you can deduct interest on a watercraft that qualifies as a home, you still have to pay sales tax and personal property tax when you buy a new boat. Depending on the value of the boat you are buying, the additional strain on your purse may not be favorable.
4 Boat Buying Options To Consider
If you are convinced that buying a boat is the best choice for you, there are many ways to finance the purchase. These include:
If your bank account is exceptionally buoyant, a cash transaction is the easiest way to own a watercraft. With this method, you don’t have to worry about credit scores and other bureaucratic bottlenecks of the lending industry.
Search for the ideal boat, meet the dealer or manufacturer, pay, and start enjoying your money.
Consumer Boat Loan
Also known as hire purchase, a consumer boat loan is the most common financial instrument available to people who can’t buy a boat outright.
Like a mortgage, this transaction involves a credit assessment, interest rates, the loan’s value, prevailing market conditions, and the repayment period.
In most hire purchase contracts, the down payment is usually 10-20 percent of the loan value, so you will likely pay $10,000-$20,000 if you intend to buy a $100,000 boat. Also, the repayment period ranges from one to five years.
To make things easier, look for marine loan companies rather than the mainstream lending institutions, as the former usually offer better loan terms and longer repayment periods.
This is a variation of the hire purchase method. It helps you reduce your monthly payments by setting a larger payment at the end of the loan term. The balloon payment is fixed based on your financial wherewithal, allowing you more flexibility in repaying the loan.
You can pay the full payment at the end of the term or refinance the balloon value and continue your monthly payments.
This involves a group of people, usually relatives or friends, who finance a boat purchase. The method allows you to reduce the purchase’s financial burden and go for bigger and better boat trims than would have been possible if you are the only buyer.
However, friendships can break down, and families can dissolve.
So always safeguard your funds by ensuring every party to the purchase signs an agreement regarding the sharing of use, boat-related expenses, dispute resolution, and how to continue paying if a party pulls out or loses the ability to pay.
When Is It Advisable to Lease a Boat?
If you are still new to marine life, acclimatize yourself to the environment by leasing a boat. Take the boat out for a spin a couple of times to see whether you are prepared for the lifestyle.
If you like the experience, you will better understand the watercraft you want to buy and the potential cost. That way, you don’t tie yourself to a financial commitment that ends up not adding value to your life.
Are There Boat Leases?
Yes, many boat leases are available nowadays, although an overwhelming number of boaters own their boats. The real question is whether to lease a boat or buy one.
This is important because a boat lease or rental might seem cost-effective in the short-term but, over time, be far more expensive than owning your own watercraft.
The Greatest Advantages of Boat Leases
Many companies now offer boat leases to enthusiastic marine lovers who want to avoid the huge costs of owning a watercraft. Here are some advantages to leasing a boat.
1) No Down Payment
For many people, a down payment may be a big deal considering the many other obligations competing for the same financial resources.
With a boat lease, you don’t have to worry about the initial payment.
Whether you get a boat lease from a dealer, manufacturer, or boat club, you don’t have to pay loan fees or huge initial capital to enjoy the watercraft. This makes a lease a budget-friendly way of spending time on the water without owning your own boat.
2) Fewer Obligations
The nature of boat leases makes them more affordable compared to car leases.
Most of the organizations that offer boat leases, including boat shares, boat clubs, and rentals, are responsible for the maintenance, cleaning, insurance, and other boat-related activities.
Your responsibility is to pay the monthly fee, which can be hefty sometimes, and ensure you have the proper skills and certification to operate the boat.
3) More Boat Options
One of the best benefits of leases is that you can try as many boats as you want. With a membership of a boat club or boat leasing company, you can always choose different boats at various times. However, you may have to reserve the boat early before others tie up the schedule.
Disadvantages of Boat Leases
Boat leases are not always the best for you. Here’s why:
4) May Be Costly
Imagine paying a hefty boat club membership every month and only getting on the water 10 times a year?
A boat lease might be attractive now, but it may only be advisable if you plan on using your money’s worth.
Sadly, most people don’t have the luxury of spending quality time on the water despite their monthly lease payments.
5) You Don’t Always Get the Best
Most boat leases are not like car leases, where you get to drive the same car for up to 36 months. In the boating world, people have to settle for any available watercraft regardless of the water activity.
This means you may have to settle for a less powerful speed boat for your watersport activities or manage a small craft for your weekend party. You can avoid this by reserving a boat early, but you won’t have to worry about owning the boat.
Many people also complain about the condition of the lease and rental boats.
The usually less-pleasant state of these boats is that most don’t get decent care from their users. If you own the boat, you will ensure it gets adequate maintenance and touch-ups to keep it in top shape.
6) Haul Your Stuff Every time
When you own the boat, you can always keep your gear loaded on it. But this is not possible if you are leasing or renting the craft.
You have to carry your things from your vehicle down to the boat every time you need to set sail.
Doing this every time can be tiring and quickly reduce the fun of spending time on the water.
6 Popular Types of Boat Leases
The main boat leases include:
Lease with Purchase Option Agreement
This works like auto leasing. You and the lender calculate the boat’s residual value to determine the watercraft’s estimated worth and the lease term.
However, these transactions are often more expensive compared to financing a purchase.
Boat clubs allow you unfettered access to their fleet for a monthly fee. You can use different boats, including sailboats, powerboats, and everything in between. The club takes care of maintenance, insurance, storage, licensing, and other costs.
But boat club memberships can be atrociously high, so you should make sure you can use their boats often.
Boat clubs also offer this. The club members reserve their boat of choice from the fleet while the club pays for fueling, storage, safety, licensing, and the rest.
However, sharers pay dock fees based on the boat size.
This works like a boat rental Airbnb. Private boat owners list their watercraft on bulletin boards and online forums where potential sharers can find them and pay to use their boat.
Here, you lease the boat for a specific voyage. The chartering company covers the operating expenses, crew fees, and port fees, among others.
This is also similar to an auto lease. During the lease term, you are responsible for the basic upkeep of the vessel, including the fueling, dockage, and port fees, among others. The charter company covers insurance and major maintenance.
You will also be responsible for piloting, navigation, safety, and everything necessary to operate the boat safely.
You must return the boat in top form at the end of the charter term to avoid your bonds’ deductions on the watercraft.
Buying or leasing a boat shouldn’t be a hard decision. Are you going to be a serious boater or five times per year mariner?
If you plan to hit the water every week or maybe twice or thrice per month, a purchase may be the right move if you can afford it.
However, it’s better to rent or lease a watercraft if you are not sure of your boating future.
If you only want to test the waters, lease a boat, and see where that leads you.
Morten is the founder of GoDownsize. He has filmed and interviewed people living in tiny houses and RVs since 2011. He grew up on the coast where his dad took him boating from a young age. He has completely rebuilt two RVs in which he travels with his family for months at the time. Read more about Morten here.