Yachts as an investment?

One of the lesser known aspects of the yachting industry is yacht investment or purchase charter. The financing model, where owners buy a yacht from a charter company and finance it with the income from the charter, has been on the rise since the pandemic. More and more people are choosing to finance a yacht through a buy charter, not least because boat prices have risen by around 30 per cent. But what exactly is the buy charter model? How does it work and what should prospective owners be aware of?

Yacht charter investment schemes involve individuals buying a yacht and then chartering it out through a charter company. The idea is that the charter will help to finance the purchase or, in the best case, even make a profit. There are basically three possible objectives for owners wishing to invest in a buy-charter model: They can finance the boat so that they can use it themselves at a later date, they can use the charter income to sail the boat themselves and save on charter costs, or they can use the investment as a pure income property.

In the vast majority of cases, however, purchase charter offers are used to finance your own yacht. After all, owning a yacht usually involves a lot of time and money: Equipment needs to be bought, a berth and winter storage organised, insurance taken out. Meanwhile, maintaining your yacht requires a certain level of technical knowledge and therefore a lot of time - or money if you don't want to do it yourself. With a yacht charter investment programme, however, individuals can become owners without having to invest too much time and money - because the charter company takes care of all these things.

There are basically three different purchase charter models - parallel to the owner's objectives - which are more or less the same for almost all providers.

The owner model

On the one hand, there is the standard model, also known as the owner model. Here the investor buys a yacht and is registered as the owner on the paperwork, while entering into a management agreement of sorts with the charter company: The charter company takes care of all matters relating to charter operations, running costs, income and maintenance. The owner bears the cost of this in return for a share of the charter income generated by the yacht. The management contract can be terminated by the owner at any time, for example, to use the yacht himself. This model offers some opportunities, but also some clear disadvantages: If the charter season is good, the owner receives a good income, and he has the security of being the registered owner of the vessel, so that if the charter company becomes insolvent, the yacht will not be part of the bankruptcy estate, but will remain in his possession. However, if no income is generated, as was the case during the COVID-19 pandemic, the costs will still be incurred. Whether or not this model is lucrative therefore depends heavily on market and consumer behaviour. Another advantage is that the investor can decide how long and how often he wants to use the ship. This also has an impact on income: If he uses his boat only in the low season, or for a short period when there is a gap in charter bookings, he can significantly increase his income potential.

The guarantee model

A less risky option is the guarantee model. Here, too, the investor buys a yacht, becomes the owner and is protected against the charter company's insolvency. A contract under the guarantee model usually has a fixed term of six to seven years, depending on the area and the operator. During this period a guaranteed annual income is paid to the owner in the form of a percentage of the net purchase price. Unlike the standard model, the charter company is responsible for all operating costs of the yacht, including maintenance, repairs, mooring and insurance. In addition, the owner has guaranteed rights of use to the yacht, which are free of charge. It is also often possible to use the free charter weeks on a similar boat, for example if you want to travel to another area. This is generally the most popular option as it offers all the convenience with very little risk.

The partnership model

Finally, there is the so-called partnership model, where the investor only finances a certain part of the yacht. The rest is provided by the charter company. Here, too, a contract period (usually six to seven years) is agreed and the owner also has exclusive rights of use, including on similar vessels in other areas.
While the charter company covers the operating costs, the investor receives no income from the partnership model. At the end of the contract, the ship becomes the property of the investor.

There are many possible providers in the yacht investment sector, so the decision as to which company to enter into a purchase charter agreement with needs to be carefully considered. Questions to ask include: How long has the company been in the charter business? What is their reputation in the market? Does the company offer the right purchase charter models? Can the purchased yacht be based in the desired area? Does the company offer the preferred yacht manufacturer?

Of course, there are some "big players" in the buy charter market who can answer most of these questions satisfactorily.

However, smaller charter companies also often have good buy-charter offers. Many buy-charter owners have already had contact with the company as a charter customer and therefore know what service and maintenance quality is like on site. Many questions can also be answered in advance by talking to other owners. A list of brokers and charter providers at boot 2024 is attached to this article.

In addition to the large charter fleets of yachts up to 50 metres in length, there is another very interesting charter market. Thousands of mega yachts, those over 24 metres in length, are also chartered worldwide. They are always owned by private individuals or operating companies registered in tax havens, and are marketed through large brokerage houses such as Fraser, Camper & Nicholsons, Burgess or Ocean Independence.

Almost every yacht available for charter has a Central Agent. They are the first point of contact for all clients and brokers (with clients) when it comes to chartering that yacht. The Central Agent markets the yacht to B2C clients (charterers) and B2B clients (brokers), manages the booking calendar and handles the administrative tasks for the owner. Of course, the central agent can also book clients for the yachts it manages - as an in-house deal, so to speak - but these cases are rather rare; the enquiries usually come from external brokers, the so-called retail brokers. If a contract is concluded, the commission is split between the two brokers - the one who manages the yacht and the one who brings the client. The retail business is more lucrative in terms of commission, but also much more unpredictable.

In addition to the weekly price, which roughly covers the yacht and crew, the charterer pays an Advanced Provisioning Allowance (APA), an advance on the additional costs incurred during the stay. These include fuel for the yacht, dinghies and water toys, mooring fees, customs formalities and communication and brokerage fees. Catering and any drinks are also paid for by the APA. The industry standard is 30% of the charter price, and the yacht captain is responsible for the accuracy of the invoice. A delivery fee may also be charged if guests wish to embark at a port other than the yacht's home port or the port where the previous charter ended. In all cases, the charterer will be liable to pay VAT in EU member states.

All these yachts can be compared to small businesses. Almost all of them have a permanent crew - between two and three on 25-metre yachts, 10 to 14 on 50-metre yachts and as many as 70 to 100 on 100-metre yachts. There are also costs for berths, repairs and maintenance. The annual cost of maintaining a yacht is between five and ten per cent of the purchase price, depending on the condition of the yacht and the owner's requirements. A 25-metre yacht, including professional management, costs around €450,000 per year.

The question often asked by owners or prospective buyers as to whether the cost of chartering can fully offset these expenses must be answered in the negative. With an estimated six weeks booked per year, a 25 metre yacht can generate perhaps €200,000 per year, of which approximately €150-160,000 will reach the owner. Anyone investing in a yacht needs to look at the purchase from a different perspective than the financial one. A well-known large yacht owner once said: "When you buy a yacht, you are investing in your own time. It is also an investment in your happiness and in your network - because when you own a yacht, you want to share it with your friends. Yacht owners consciously enjoy their time on board with their family. And, of course, the yacht can be used to travel to many different regions - many of the larger formats now have a global reach, so the opportunities are many. A yacht is therefore an investment in your own wellbeing and a healthy life balance. If you value life on board, cultural benefits and time with friends - even if you can't quantify it - then a yacht is an excellent investment.

by Marcus Krall