If you are a yacht owner or planning to become one and same time want to reduce to zero the operational costs of your yacht and receive additional income, placing a yacht into charter management is a good way to reduce the cost of the boat and also offset the cost of ownership.
The benefits include:
To exclude operating costs for own yacht or catamaran, to receive income from leasing, to provide maintenance and repair of a yacht due to a professional team, to become the owner of a new yacht for half of its cost are just a few benefits of Charter management
Full compensation for ship insurance costs
The possibility of using the yacht at its own discretion in a certain period
Income from renting a yacht
Full compensation of all operating costs: mooring, routine maintenance, preparation for going to sea, conservation for the winter period
Full compensation of periodic and annual registration expenses
The process
The vessel is transferred by the owner to full management. The time is specified in advance, during which the owner can use the yacht for himself (usually, this is 2-4 weeks).
Then, the company takes the following responsibilities
Support for customers using the yacht
Organizational and financial support of clients
How income is distributed
Complete management of the operation of the boat and its repair
Registration and ship insurance
Inclusion of the vessel in the annual charter plan (usually 16-20 weeks)
Compensation of expenses
Income of the owner
Income part of the charter company
The are two major programs offered by most charter companies the “Performance or Income Sharing Program” and the “Guaranteed Income Program”
PERFORMANCE OR INCOME SHARING CHARTER PROGRAM
The Performance Program is designed to be an income sharing relationship. The owner is credited for the full net charter income after booking commissions and the charter company bills the owner for services. While this program definitely yields the owner more income, it requires a lot more personal involvement. Smaller companies tend to offer this program as opposed to the guaranteed program because it represents less risk or liability to them. As with the guaranteed program, the purchase requirements and qualifications with respect to financing, down payment, yacht specification, equipment and delivery to the base are the same as stated previously.
Charter Income Split
With the Performance Program, there is typically a split of the net charter income.
The reality, often misunderstood by the boat buyer, is that the split is almost completely irrelevant and used as a marketing tool when it looks very favorable to the owner.
Truth is, only the bottom line is relevant. It is what the owner is charged for after the split (costs of the price of services, booking commission paid to charter brokers, etc.) that truly determines the bottom line and not the split formula.
Charter Booking Revenues
Some companies rely entirely on outside booking agents, in which case the commission component is high, while others have a booking office in-house with only occasional use of outside booking agents.
The issue here is that the outside booking agents charge 15% to 20% commission, which means that the owner starts with 15-20% less income per charter.
Conversely, the charter company’s in-house booking office might charge less or no commission at all.
Therefore, as an example, if there is an outside booking agent 100% of the time and the split is 80/20, then the owner will earn $64 on every $100 received.
If there is no outside booking agent, and if the charter company does not charge a booking commission, with a split of 65/35 the owner will earn $65 on every $100. In that example, an 80/20 split that seemed very attractive at first becomes less favorable than a 65/35 split.
This is why it is very important to know and understand how the booking commissions work because they have a big impact on the final outcome.
Generally speaking, the maintenance of a boat in a performance program should be better because the charter company bills for services and the owner is involved in the management and operation of the yacht.
Income
Depending on the type of boat, configuration and location, the performance program will yield about 30% higher income than the guaranteed program to the owner, which is a substantial difference.
Yacht Expenses & Billing
Being that this is an “income-sharing program”, the owner needs to know what the costs are, and how they will be billed to him.
For instance: hourly labor rate (is it $50 per hour, 75 per hour or higher), dockage and electricity costs, turn around costs, insurance or any other fixed or variable expenses the owner will be responsible to pay for.
It is very crucial to weigh these costs to see what the actual bottom line income is projected to be.
As you have seen, the split does not determine the bottom line and will be affected by many factors. Hence you may not really let this get to you.
Yacht phase-out
Here, if there were any issues that needed to be addressed, the owner would be responsible for the expense, which means that the phase out provision is not applicable. No phase-out for yachts in this program. The reason for this is because if the maintenance is being done regularly and diligently, the yacht should be in good condition at all times, including the end of program.
Four Options At The End Of The Performance Program
Sell the boat.
In some occasions the charter company will trade the boat in or alternatively assist the buyer to sell the boat and upgrade to a new boat back into the program.
Private use
Yacht placement in a second tier charter operation for another 2 to 5 years
GUARANTEED INCOME CHARTER PROGRAM
The owner must qualify for :
-Yacht Finance
-Deposit
Once the financing approval has been received, the buyer will then typically pay a 10- 20% deposit depending on the company while the balance of 80% is due upon completion of the yacht at the factory
Responsibilities of the charter company
-Yacht expenses
All expenses except mortgage are paid by the chartered company
-Guaranteed Income
About 9 percent of the yacht purchase is paid to the owner monthly, which will definitely covers mortgage settlement
-Yacht Charter Term / Duration
The term varies from 54 to 66 months; in general, the longer the term, the more guaranteed income you will receive. This is a key point to consider when shopping companies or comparing programs.
-Yacht Owner Exchange
While the boat is in service, the owner will have exchange privileges enabling sail on a similar boat at any of the company’s charter bases worldwide. While there is no charge for the actual charter, be aware that there are fees such as cleaning or “turnaround” costs, diesel, ice, etc. Familiarize yourself with the exact fee structure for the various yacht charter companies.
-Yacht Phase-Out
It is critical for the buyer to fully understand the obligations of the charter company with regard to the phase out: this component will determine the condition and resale value of the boat after the owner takes possession. The phase out should be managed by the owner to ensure that the boat is in the best possible condition and involves a pre-phase out survey by an independent surveyor appointed by the owner and final acceptance after phase out.
When the contract expires, the boat is “phased out” and the owner must take possession of the boat. Most charter companies will have a phase out program written into the management agreement that stipulates that the boat must be handed back in good working order except for fair wear and tear.
Four Options At The End Of The Program
Sell the boat
In some occasions the charter company will trade the boat in, or alternatively assist the buyer to sell the boat and upgrade to a new boat to be placed back into the program.
Private use
Second-tier charter operation for another 5 years
FINANCIAL CONSIDERATIONS FOR SUCCESSFUL YACHT CHARTER MANAGEMENT
There is a very important element to be considered which is not often highlighted when you are speaking with the salesperson that presents the programs and options: Exit Strategy
For instance: any loan with 80% financing (the usual configuration) paired with a maturity higher than 12 years normally results in the buyer being significantly upside down at the end of the charter program. The reason for this is that the typical charter boat depreciation and value on the second-hand market ends up being less than the loan payoff amount.
With a longer term (15 to 20 years) the interest component is higher which impacts the principle reduction, this means that at the end of 5 years the principle has not been reduced to a level where the boat can be sold without the owner having to pay in.
The reason that you should pay attention is because a 5-year financial proforma on any boat, paired with a 15 or 20 year-mortgage looks significantly better than one with a 10-year mortgage with regard to the monthly and annual cash flow.
The resale value of a charter yacht is determined by the market as well as supply and demand so you need to be aware of what you will face when you want to sell.
Depending on the company that is chosen some insist that the boat is built to a very exact specification, which would identify it as a charter boat, to the other end of the spectrum where the owner can spec the boat to their personal taste.
As an example quoting the two extremes – A 45 foot, four-cabin purpose-built charter catamaran would have a significantly lower resale value than a 45 ft, three cabin (owners version) catamaran that was spec’d out personally. Firstly the one would be branded a charter boat and there would probably be up to 15 identical boats competing on the market at the same time versus a one-off owner’s version that is not readily identifiable as a charter yacht. In the one case the price would be driven down by supply and demand as well as the charter spec versus the alternative as stated above.
There are some variations on these programs but generally, most charter companies are set up for the two basic programs.
Credit : catamaranguru
For Yacht vacation and Yacht charter management programs, visit: www.yachthood.com
For top hotel bookings, recreational centers and beach resorts around the world, visit: www.spabex.com
For personal loan and how to promote your business, visit: www.dteks.org
For businesses and investment ideas plus different fashion items, visit : www.centaby.com
Related : How to build a sauna
Read the difference between a boat and a yacht
Why you may need a waterproof audio transducer
One of the top businesses you could invest in
Google showing incorrect location? This is the easiest way to fix it
Comments
Post a Comment