The Pitfalls of Fractional Ownership for Boat Buyers

jeudi, 19 janvier 2023 / Publié dans Investissement dans un bateau

If you love to charter regularly and want to explore the world on different boats, you may have considered buying a boat in a charter program to offset your cost of ownership.

There are many different ownership programs offered by charter operators to suit the needs of their clients. While you may be tempted by fractional ownership, be sure to understand what this proposition entails and what the associated risks are.

What is fractional ownership?

Fractional ownership is usually advertised as a way to get your feet wet with a smaller investment, but without the hassles of owning outright. But as you’ll understand below, the devil’s in the fine print.

Unlike a time-share arrangement (made popular through boat-sharing clubs), fractional ownership gives you a share of ownership of the yacht; a time-share arrangement only gives you the rights of usage of the boat for a certain amount of time. And when that period ends, so does your investment.

A share of a boat? What does that mean? Who owns the yacht: the members, or the corporation composed of the members, and what’s the difference?

These thorny questions may be the reason fractional ownership has fallen out of style, and is harder to find amongst yacht charter operators. As attractive as it may sound, fractional ownership is a complicated matter that involves a lot of risk and uncertainty. 

In other words, be prepared to carefully evaluate the option with your legal counsel.

Alternatives with Navigare Yachting

Consider this example of a yacht priced at $1,000,000 fully equipped, delivered and commissioned to your desired charter location.

“Fractional Ownership”

  • With 5 owners coming together, each party needs to bring $200,000 to the table (when you only purchase a share of a boat, you’ll be hard pressed to find a lender who will accept a “share of a boat” as collateral, so that takes financing out of the question.)
  • One of the biggest drawbacks of fractional ownership is the lack of control over the asset compared to sole ownership. If you own a 1/5 share, your voice will only weigh 20% in the decisions made about the boat. What if a disagreement emerges amongst the partners (relocation of the boat, early exit, who buys out the other shares at the end of the program, etc.)?
  • Co-owning an asset with other partners in a charter program also presents a major risk: how do you evaluate your potential co-owners to ensure a good match and the success of your venture? What happens if one or several co-owners stop making their payments? Or if the operator files for bankruptcy? 
  • You can’t add any extras to the boat you’ll buy a share in as the specifications are set for the program. This could be problematic if you wish to enjoy an option not offered on the yacht available in the fractional ownership program.
  • The revenue you’ll receive from the charter operations will be divided amongst the owners (so will the expenses if you’re in a variable program). What happens if one of the co-owners cannot not fulfill their obligations?
  • You’ll have to work out how to split owner usage year over year with the 4 other owners that share the boat with you. Additionally, handling exceptions can be a tricky exercise: if one of the partners cancels their owner usage due to a family emergency, do they forfeit their owner usage? 

 Navigare Ownership

  • You’re the sole owner and finance the entire boat (through a corporation if you so choose), and your down payment is 20%, or $200,000.
  • You’ll enjoy hassle-free boat maintenance from the leading premium yacht charter operator – and you’ll also save time since you will delegate operations to Navigare.
  • You have priority on booking your owner usage on your boat (or through reciprocity sailing in 50+ destinations worldwide) through our dedicated owner care representative. Navigare offers more brands and models, newer boats, and more exciting sailing destinations in 10 countries!
  • When you order your boat with Navigare, you decide on the location and the yacht configuration (though maximizing the numbers of cabins will yield the best revenue in our charter fleet)
  • You choose the program that suits you: receive guaranteed income through our Complete Program, or run an active charter business with our Ultimate Program.
  • The Navigare programs yield about twice more revenue than existing fractional ownership options in our industry, up to 8.5% guaranteed annually. In our example, that’s $425,000 over the course of 5 years!

For those looking to bring a higher down payment without financing, Navigare’s Smart Program offers a solution similar to a leasing program, as outlined below.

Do-it-yourself fractional ownership

For buyers who prefer a lower initial investment without financing, our best recommendation would be to identify the partners yourself and acquire the boat together, as many of our owners have already done. 

The trust, shared end goal, and common understanding of the co-owners are critical for a successful partnership. Navigare will handle the rest!

The Navigare Yachting alternative

Because of the risk and lack of control that exist with fractional ownership programs, Navigare has elected to offer the most attractive guaranteed and variable ownership programs instead. 

These programs offer the same benefits of the fractional ownership option as listed above, but without its drawbacks and uncertainties.

In the Complete Program offered by Navigare, owners enjoy guaranteed returns up to 8.5% per year for up to 6 seasons. There are up to 12 weeks of owner usage included, with reciprocity sailing in more than 50 destinations worldwide. The cost and handling of boat maintenance, dockage and insurance are on the operator, so there are zero hidden costs or surprises.

In Navigare’s Ultimate Program, owners enjoy variable returns up to 12% annually for up to 7 seasons, net of operating expenses. 

Financing is available for both programs with a downpayment of 20% of the total price of the boat. Fill in the form below, and the Navigare sales team can send you a proforma and put you in touch with third-party marine lenders.

Finally, Navigare Yachting also offers the Smart Program for buyers looking for a lower total investment. There are two variations of this program: Smart Low, with 40-50% upfront payment, with a balloon payment at the end of the charter term of 15%; and the Smart option which requires 50-60% upfront payment. In both cases, there are zero out of pocket costs for the owner. And while there is no income disbursement, the charter revenue pays for the balance of the vessel. Therefore your yacht is fully paid off at the end of the charter term.

All of the Navigare programs give you access to professional yacht and charter management, while you get the support of a dedicated owner care representative from Navigare.

The Pitfalls of Fractional Ownership for Boat Buyers

Do you have any questions? Ask away! We are here for you.

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