Napkin math: Owning a yacht

Update: Part 2

When I used to do the Daily UI challenge, I worked on a challenge where I designed a yacht chartering app:

Before making that design, I had to do research first:

  • How do you make a yacht?
  • How were they sold? (brokering, direct sales, etc.)
  • What brands are popular?
  • What market do they serve?
  • How much is the maintenance cost?

If I didn’t learn that, the end design would look so out of touch and unconvincing. As I dove deeper, I found my Youtube feed immersed with yacht related videos. I learned how:

  • Yacht maintenance, as a rule of thumb, usually costs ~10% of its boat value per year. So if you have a 5MUSD yacht, expect 500kUSD/year in costs.
  • It’s a fast depreciating asset (10% p.a.).
  • People buy yachts for fun.
  • If you rent out a yacht, that’s called “chartering”. Charter price isn’t determined alone on how good the yacht is. The food, service and crew also contributes to this. Crew should be top notch, polite, can communicate clearly and be good at service.
  • To fully book your yacht, you’ll need to market a specific niche. You can market your yacht for snorkeling, or water sports like jet skiing and kite surfing. Some yachts are marketed for scuba diving, and others are just meant for slow cruises and island hopping.
  • Italian and Turkish ship building brands are super popular.
  • Monaco is the super yacht capital of the world.
  • Online Yacht listings are usually outdated, so you’ll need a yacht broker to find a yacht, and a yacht surveyor (with an engineering background) to check it out if it’s good.

Youtube has an excellent channel called “YachtsforSale” that really gets you a sneak peek of the yacht world.. That same youtube channel, endorsed a website called Yatco.com, despite not being sponsored and being it’s competitor. So I checked it out, and I saw this 2.5MUSD yacht.

Then the useless-knowledge-hoarder in me just decided:

“Hmmm, since we’ve already binged 1 hour of yacht videos. We’re already here: let’s take another 30 minutes, and do napkin math.”

Personally, I like doing “back of a napkin” math. Maybe because it’s a strategic exercise, and I love strategy games like Starcraft and Dune. It’s also a role-playing exercise, and I love RPG’s:

The defining characteristic of back-of-the-envelope calculations is the use of simplified assumptions. A similar phrase in the U.S. is “back of a napkin”, also used in the business world to describe sketching out a quick, rough idea of a business or product.

This may sound defeatist, but I think I will never live long enough to have money for a 2.5M USD yacht. If I ever do get the money to buy one, by some stroke of luck or genius, my conservative personality will keep me at bay from purchasing one. By all means, I am not an authority on yachts, nor have I owned one, so don’t take this next image as:

  • Business advice
  • Some expert claim
  • Investment advice

This is just some random dude having fun with numbers. So here’s what the finances might look like, if you ever bought a 2.5M USD yacht:

Notes:

  • Charter means to rent out your yacht to a group of people for a chartered course (ex: Day trip to Bataan, 4 days in Coron). They’ll have a crew of 6, and they can go island/beach hopping, snorkeling, and paddleboarding, etc. Inclusive of food, drink, and accommodation. The yacht has rooms for 8 people, and 8 berths (sleeping areas).
  • We want to offer high wages for the crew/chef/waitress to get the best talent. We’re basically offering a private resort in the middle of the sea.
  • To earn more cash during a charter, you can do what hotels and cruise liners do: have a mini-bar that charges extra margin (150PHP for a can of pringles, 100PHP for a can of beer consumed out of the usual dinner service, etc.)
  • Based on the Philippine Port Authority website: to park a boat in the dock, it costs 0.020USD per GRT (internal volume, not ship weight) per day. So if our yacht has a volume of 80 tons, you can park it for 1.6USD/day.
  • At 120 days left for personal use, that’s 4 months worth of personal vacations.
  • You’ll get your 2.5MUSD back (break-even) in 29 years at 67% usage (33% for personal use).

Conclusion

  • If you put your CapEx into bonds, you’d retain your 120M and increase it at the same rate of the yacht’s annual profit. Whereas a yacht is a depreciating asset, around 10% p.a. (5M purchase price, 4.5M the next year, 4.05M the next, and so on). So you if you sold the yacht after 10 years, it might be less than 50% of its value.
  • You can even use your CapEx for real-estate, it will win out in the end instead of buying a yacht.
  • Yachts are not a good investment nor a store of value. Based on the napkin math, it’s a money sink. People really buy yachts for fun and love of the sea.
  • For people who can afford a yacht, it’s their way to do family/friends vacations, New Year’s Eve or Christmas Parties. They skip the traffic, having to pay for hotel rooms, beach/island hopping, dining-out or purchasing plane tickets. It might cost the same or a little bit more expensive than spending for a family vacation in Monaco or a cruise in the Carribean, but for the extra price, they get privacy and exclusivity. To put this into perspective for us average people; this is a rich person’s annual travel/vacation budget. It’s their equivalent of your budget for a trip to Bohol, road trip to La Union, etc.
  • Sample travel times: Batangas to Palawan in 7 hours. MNL to HK in 3 days.
  • A 2.5MUSD yacht is comparable to buying a 5 bedroom home in SF (2.75MUSD in Zillow). Except that a yacht costs a lot to maintain, ~10% of its value per year. There are some cases of non-billionaire yacht owners often living in a simpler home than their yachts. They own a yacht to travel, have fun and occasionally charter out to cover costs.
  • A 2.5MUSD yacht has more utility than a Bugatti Chiron sports car (2.75MUSD) or a Mercedes-AMG One (2.5MUSD).
  • If you’re really into it to for the business you could buy a Sail-type yacht. The capex and fuel costs will definitely be cheaper. Sail yachts usually costs half of a motor-based yacht or less. Catamaran Sail Yachts are comparable to the price of motor-based yachts.
  • There’s also an upcoming market of solar-diesel hybrid yachts for, what they call, eco-friendly millionaires.
  • In the PH, you can also have locally-made yachts that might be a fraction of what it costs to purchase an Azimut, Sunseeker or AB motor-based yacht.
  • Manny Pacquiao’s 2011 Yacht costed P25M. Willie Revillame has 2 yachts in Subic. Gretchen Barretto also has 2 yachts. Chavit Singson’s P600M super yacht was used to transport Miss World candidates for island-hopping.

Resources

  • yatco.com
  • https://news.abs-cbn.com/business/03/26/14/can-you-afford-yacht
  • https://nolisoli.ph/56149/yachts-philippines-jchua-20190125/
  • https://www.youtube.com/user/YachtsForSaleCNI - lots of good content about the yacht industry, finances, thought processes