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Buying a Boat

January 21, 2015

I don’t know about you, but during the cold winter months I drum up all kinds of ideas relating to sun and fun.  One idea that comes up every so often is how much fun it would be to have a boat.  I think many people are like me and tend to romanticize the idea of a major purchase like buying a boat.  But, remember it is essential you don’t neglect the practicalities that go along with it.

 

 

There are important questions soon-to-be boat owners ask themselves when making a purchase decision.  What kind of boat and engine will suit your lifestyle?  How big of engine or what color is best?  How close do you live from a boating area? Will you tow it or store it nearby?

 

Perhaps, the most essential question is how much will you actually use the boat versus how much you spend on the boat and other indirect expenses related to it.  When it comes down to it, many people buy things (big and small) and assume they will utilize it often when that is not always the case.  Life happens:  people have jobs, kids have activities, there are other things you “have to do”, or the weather just does not cooperate.  Be honest with yourself about this because overestimating your availability can cost you money in the long run. 

In the world of finance, boats fall into a strange middle ground, somewhere between a car and a home. Like cars, boats depreciate quickly in value.  But like a vacation home, the interest on a boat loan can be tax-deductible if your boat meets the IRS rules to qualify as a vacation home.  Because of this, boat purchasing must be done strategically. Here are a few steps:

  1. Evaluate how the boat fits in with your other long-term financial goals?  Are you prepared to adjust them, if needed, for the boat?

  2. Figure out how much you can afford to spend on a boat.

  3. Determine whether or not you will make an outright purchase with cash or finance it with a loan.

  4. Check with your tax advisor to confirm if your interest on the loan will qualify for a tax deduction.

  5. Factor in other indirect costs of owning a boat such as registration, storage, gas, repairs and maintenance.

  6. Plan for an exit strategy.  For example, what price can you sell the boat for later?

It is important to have your budget set before you go boat hunting.  When you have no background information, it is easier to overspend.  Boat buying requires thoughtful analysis and time.  Do not be too eager and make sure you are 100% content with your purchase, both financially and otherwise.

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