By Crystal Beastrom
Alain Gerbault, a French aviator and tennis champion, circumnavigated the world in 101 days as a singlehanded sailor. Gerbault, who sailed from Gibraltar and New York in 1923, said, “I wanted freedom, open air and adventure. I found it on the sea.” Over 87 million U.S. adults who participate in recreational boating activities feel that same tug on their souls. If you find yourself dreaming about sailing the Caribbean, retiring on a yacht and just remembering the joys of your first fishing trip as a kid, you are not alone.
Choosing Your Vessel
A recreational vessel is operated primarily for pleasure. Finding the right vessel to fit you and your family’s needs depends on the purpose – fishing, sailing, cruising, etc. Some types of vessels include center console, bow rider, sailboat, catamaran, sportfish, houseboat, super yacht (generally over 79 feet), and mega yacht (generally over 164 feet).
Yacht lengths range from 33 feet to hundreds of feet. The largest yacht built in the U.S. exceeds 70 meters (approximately 229 feet)!
Not sure which is best for you? Start by visiting boat shows in your area where you will have the opportunity to view and compare numerous makes and models, ask questions, and discuss your needs with the experts. Often you will also have the opportunity to order a new model customized to fit your needs. Be sure to ask about the new build timeline. You may fall in love with a model at the boat show and not want to wait for a new one to be built!
Important Aspects of Ownership
Not only is there a wide variety of types of vessels with a wide range of size and purchase price, but expenses associated with ownership can also vary significantly. Be sure to take into consideration expenses for maintenance, fuel, insurance, captain and crew (if needed), and dockage/marina. You can estimate these expenses annually in the range of 7-10% of the purchase price.
Now that you’ve found the perfect vessel and are ready to move forward with the purchase, some key next steps to consider are:
- Ownership structure – consult an attorney to discuss advantages of owning the vessel in the name of a single asset holding company (LLC for example).
- Insurance – includes liability for bodily injury or damage to the property of others and damage to personal property on the boat. Marinas and lenders generally require proof of insurance.
- Registration – options of how/where to register the vessel will depend primarily on size:
- State registration (similar to auto registration)
- U.S. Coast Guard documentation – any vessel of 5 net tons or more can be documented (in general a vessel >25 feet in length), owner must be a U.S. citizen.
- Foreign flag/registry – each registry has certain requirements. A starting point may be to choose a flag on the “white list,” which refers to those that have demonstrated strong performance in safety, security and environmental standards.
You also need to know about using leverage to assist with the purchase of a vessel. Marine loans are secured by a lien on the vessel. If your vessel is registered with the state, the loan will be secured by a UCC lien on the vessel and motors. If your vessel is registered with the U.S. Coast Guard, the marine loan will be secured by a first preferred ship mortgage recorded against the vessel. This means the lender will have a lien on your vessel, similar to a mortgage on your home.
Lenders will typically require 20-30% down payment with terms of up to 15 or 20 years. Financing options include fixed and floating rate options (Libor or prime based). In addition to the traditional fixed and floating loans, a more customized solution may be right for you. An example includes an ARM (adjustable-rate mortgage) type of loan in which the rate is fixed for a defined period (typically three, five or seven years) and then converts to a floating rate. This option is attractive to buyers who plan to upgrade to a newer or larger vessel within a few years and want to take advantage of a lower, shorter term, fixed rate while still keeping payments amortized over a 20-year period.
Age, size, make, model, horsepower and registration are key factors in determining financing eligibility. In addition to the vessel specifics, your credit score, liquidity and debt-to-income ratio are key underwriting factors. Alternative credit structures may be appropriate depending on these factors.
One of the most satisfying accomplishments of many BB&T clients is being able to acquire something they and their families can enjoy. We are happy to offer competitive rates, flexible terms and a simple process to help you purchase the perfect vessel. Please contact your BB&T advisor to help navigate the way!
Traditional banking services are provided by Branch Banking and Trust Company, Member FDIC and Equal Housing Lender . Only deposit products are FDIC insured. Loans, lines of credit and credit cards are subject to credit approval.
Insurance services are provided by McGriff Insurance Services, Inc., a subsidiary of BB&T Insurance Holdings, Inc.
About the Author
Senior Vice President, Wealth Lending Team
Crystal joined BB&T Wealth in 2013 and serves as the Wealth Lending Team director for Florida, Texas, Georgia and Alabama. Crystal brings 19 years of banking and wealth lending experience to her role. Crystal received her bachelor’s degree in accounting from the University of Mary