Leasing or Balloon Payment
cgae...@my-dejanews.com
do you recommend for financing? Thanks.
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Jerry Bransford
Jerry
--
Jerry Bransford
PP-ASEL KC6TAY C.A.P.
The Zen Hotdog... make me one with everything!
hkrause
You see ads for the leasing of pleasure boats from time to time in
Florida. And I think that BOATING ran a feature article on the idea in
an issue last year. I suppose it could be financially attractive to some
folks under some circumstances.
--
Harry Krause
- - - - - - - - - - - -
Where is the 'ANY' key?
Russ Glindmeier, CFP
cgae...@my-dejanews.com wrote in message
<7evj43$vih$1...@nnrp1.dejanews.com>...
If the boat is large enough to include a galley, head, and sleeping
accommodations, you would be much better off with traditional financing and
taking the second home deduction for the interest. It would be helpful to
know more about the boat you are looking at and you intended usage of it.
Don't believe I'd have much interest in a marine lease at this time. I just
re-fi'd mine through Essex Credit Corp. www.essexcredit.com. Painless
process.
Russ
Curtis CCR
I think it would really depend on the circumstances.
It might be an preferable way for someone to have a boat for a "short term".
I can think of situations where someone might only want a boat for a year or
so. If I was in that situation I think I would prefer a lease that I just
walked away from when I was done with it.
A lease is nothing more than a type of rental contract. People rents boats
all the time.
John Weiss
the boat.
A balloon mortgage will trap you into having a loan that is MUCH larger than
the value of the boat after a year or 2. I wouldn't recommend it for a
pleasure boat under ANY circumstances!
--
John R. Weiss
Seattle, WA
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<cgae...@my-dejanews.com> wrote in message
news:7evj43$vih$1...@nnrp1.dejanews.com...
Russ Glindmeier, CFP
Curtis CCR wrote in message <7f007l$bpt$1...@nnrp1.dejanews.com>...
>
>A lease is nothing more than a type of rental contract. People rents boats
>all the time.
>
>
talking about a long term lease (over 12 months), a lease is actually just
an alternative method of financing a purchase. It is difficult to speak
authoritatively about boat leases, since there are so few of them around,
and there is no real standardization. But if I can speak in terms of
automotive leases, and if I can assume that most marine leases are modeled
after automotive leases, I will elaborate:
When you lease a car (boat), there are two or three components to your
monthly payment. The first component is the cost of the money. Just like
in a financed purchase, this is initially based on the entire amount of the
capitalized cost of the lease (amount financed). There is an imputed
interest rate in any lease that can easily be solved for if you know the cap
cost, residual value, and monthly before-tax payment, using a financial
calculator or computer. In other words, unlike a rental contract, where the
lessor owns the asset and pays for the cost of financing it, in a lease, the
lessee pays all money costs, just like in a purchase.
The second component of the payment is the part that goes toward principal
reduction or reduces the outstanding lease balance. This is the main
difference between a lease and a conventional installment loan. In an
installment loan, the monthly payments are structured to amortize the entire
principal balance of the loan over its term. In a lease, the monthly
payments amortize a limited amount of the lease balance over its term. The
amount amortized is the difference between the capitalized cost and the
residual value of the asset at the end of the term (depreciation). This is
where the concept of paying only for what you use comes from. This is also
why it is said that you can buy more asset with a lease payment than with a
purchase payment. It is because there is less payment being applied to
outstanding principal. A loan amortizes from amount financed to zero over
its term (unless it is structured with a balloon at the end). A lease
amortizes from amount financed (cap cost) to residual value over its term.
The third component of the monthly payment is sales tax, if you live in a
state that has one. Instead of paying the tax all at once, it is divided
evenly amongst the monthly payments. Luxury tax on autos is handled the
same way.
In this type of lease, you are as much of an owner as the person who
financed the boat. You are responsible for normal maintenance and upkeep.
The lessor has pegged a residual value for the boat in a closed end lease,
based on normal wear and tear. You are responsible for damage beyond normal
wear and tear. This could allow for some downside market protection, IF and
only if you hold the boat for the entire term. My thoughts are that it is
very difficult to entirely escape market forces. If your boat is worth
considerably less than residual at end of term, I think the lessor will be
looking very hard to find things to nickel and dime you to death over that
he will determine to be beyond normal wear and tear. He will need to do
this because he knows he is buried in the boat and needs all the help he can
get. The used boat market is not nearly as homogenous or liquid as the used
car market, and I would suspect most marine lenders are going to be very
conservative when estimating residual values for boats. This means that
residual values will be estimated low and that will increase monthly
payments This also means that if you hand the boat back to them at the end
of the lease, they get to keep any value of the boat over residual. Of
course, you always have the right to sell the boat for market value on your
own prior to end of lease (or use it as a trade), and pay the lease off with
cash, if you want to go through the trouble.
I have leased a number of cars over the years, but only when the
manufacturer has made it very lucrative to do so with subsidized money
costs. My last lease had an imputed interest rate of 0.75%. It was hard to
walk away from money that cheap. The real problem with leases is that most
people just don't understand them, despite their relative simplicity. This
statement applies to most auto salesmen and even some finance managers at
dealerships, amazingly enough. Leases can be deadly for the purchaser who
is buying a monthly payment, the worst way to shop for anything. Until very
recently, capitalization costs and money costs were not required to be
disclosed in the lease. Even today, the imputed APR on the lease is not
required to be disclosed. This allows for plenty of places for unscrupulous
dealers to bury costs. I don't wish to paint all dealerships with this
brush, as I have dealt with some that fully understood the language of
leases perfectly and were happy to fully disclose all components of the
contract, but I have to say they have been in the minority.
A lease can be a viable method of financing a purchase, assuming you meet
certain criteria and you go in with your eyes wide open. But it should
never be mistaken for a simple rental contract.
Russ
Rod McInnis
cgae...@my-dejanews.com wrote:
>
> Has anyone ever leased or done a balloon payment on a used boat? If so, who
> do you recommend for financing? Thanks.
A balloon payment is a trap, don't fall for it! If you can't afford a
conventional loan, then it is very unlikely that you will be able to
come up with the balloon payment at the end. You are likely to end up
owing more than the boat is worth, not being able to make the final
payment, and facing repossession and a bad credit rating for a long time
after.
Leasing is an option that makes a lot of sense for businesses and
individuals who can claim the car/boat/whatever as a business expense.
If you can't claim it on your taxes, however, it is just another form of
financing. Be careful, however, as you may end up with a commitment for
the term of the lease.
You can generally get conventional loans for a boat, used or new. If
you own your house, you could also get a second loan or refinance and
pay cash for the boat. Refinancing the house will usually get you the
lowest interest rate, plus all the interest is deductable on your taxes
(in the USA at any rate).
Rod McInnis
Russ Glindmeier, CFP
Gould 0738 wrote in message
<19990414011117...@ng-da1.aol.com>...
>Jerry Bransford observes:
>
>>Sorry, but that isn't right. That's like saying if you thoroughly trash
>>the item being leased, the leasing company will accept it back no
>>questions asked at the end of the lease no matter what. The lease risk
>
>etc
>
>Yes, but..........let us not confuse normal market depreciation (which is
>supposed to be defined by the difference between original retail and the
>hypothetical future value) with excess depreciation occasioned by reckless
use
>or
>user neglect.
>
>The lender must buy the asset back for the unpaid balance if the terms of
the
>lease have been met and the property has not been abused. This is the
condition
>that the residual is designed to reflect.
There is a certain amount of leeway that the lessor has in determining what
constitutes excess versus normal wear. Not an unlimited amount, to be sure,
but some does exist. If market forces have buried the lessor in the asset,
it seems reasonable that he would use every bit of that leeway and possibly
then some to help dig himself out of the hole. A closed end lease does
provide a certain amount of downside market risk to the lessee, but it is
not outright indemnification. As I stated in an earlier post, since the
used boat market is not very homogenous or liquid, and is very difficult to
predict, any marine lessor that intends to stay in business is going to be
very conservative in making his residual assumptions. This would tend to
negate any cash flow savings of a marine lease versus an installment loan.
Also, for almost anybody, any tax incentives are lost as well. Only someone
able to prove the boat was used in conducting business would be able to
deduct the lease payments. Very few people could pass that test under the
scrutiny of an IRS audit. However, there are two easily obtainable tax
deductions available to most boat owners who purchase the boat using an
installment loan. If the boat is large enough to be equipped with galley,
head, and a berth, the interest paid on the note qualifies as a second home
mortgage deduction. If not, there is always the option of financing the
boat through a home equity credit line that would also make the interest
deductible.
I just don't see pleasure boat leasing becoming mainstream. From the
lessor's point of view, predicting the market is just too difficult. From
the lessee's point of view, predicting his holding period is just too
difficult. The best candidate for an automotive lease is the customer who
knows he will be trading vehicles every 2-3 years anyway. It is a fairly
predictable behavior pattern. Not so predictable for a boat owner. The
first thing that gets a for sale sign on it when economic hardship arrives
is the boat. On the other end of the spectrum, many of us have been
infected with 2-foot-itis, 12-18 months after buying the boat of our dreams.
For a lease to be successful for both parties, a predictable market and
predictable consumer (both heavily related) is necessary. I have only been
involved in the marine marketplace from the consumer side, but it would be
interesting to hear from some of our resident dealers how they view the
predictability of the market and how they feel about the future of marine
leases. It would seem to me that if there is any chance for it to be
successful, it would have to have major involvement by the manufacturers. I
know it is being tested, but I don't know what the early indications are.
Russ
sad...@docexpress.com
so far, all dealers, and brokers that I have
spoken with have not been convinced that they
wouldn't wind up with a far too depreciated
asset at the end of ANY term. I have to agree.
In fact, I would expect marine leasing to only take
place in the small boat market, where the
actual dollar value of depreciation is more palatable
for both the seller, and the buyer. The only other
scenario I can imagine is the manufacturer getting into
the act, and cutting the dealer out completely.
I don't expect that to happen in my lifetime.
Even shared ownership plans, disguised as "boat clubs"
are taking a beating because of the high maintenance
costs of marine equipment. Consequently, most clubs
I've investigated wind up with very weak fleets that
look ok cosmetically, but barely run.
It seems that there would be a bigger market for "charter"
boats, since this would address the portion of the market
that doesn't want to own a boat, or at least have the
hassles of owning one past the warranty period.
I know that I would be a pretty good customer, but the
tax law changes, and astronomical insurance rates will
keep this business at bay (pardon the pun) except for
lucrative year round markets, where they can charge (and
get) a premium fee.
Gould 0738
value" via the residual.
Deal is, user makes payments on a capital asset with a guarantee that it will
be worth no less than $xxxxx.xx at some future point.
Should the asset be worth less than predicted,
the lender will accept it's return with no questions asked. Should the asset be
worth more than predicted, the user is free to sell the asset (retiring the
balance and pocketing the difference). If the asset is worth more than, orjust
exactly as much as predicted, the user can then elect to become a "buyer" by
cashing out the lender through a re-finance.
Why so few boat leases, as opposed to road vehicles? Probably because the first
year's depreciation on a lot of boats exceeds the entire purchase price of the
average family car. Lease payments, although grounded in reality and unlikely
to leave a boater "upside down" at trade in time, would be substantially higher
than marine mortgage payments for long term boat loans. One of the most
predictable buying signals in any industry is when the prospect asks "uh, how
much are the payments on that?" One whole heck of a lot of folks are still and
maybe always will be
"payment buyers".
Jerry Bransford
>
> One of the best aspects of leasing is the provision of a "guaranteed resale
> value" via the residual.
>
> Deal is, user makes payments on a capital asset with a guarantee that it will
> be worth no less than $xxxxx.xx at some future point.
>
> Should the asset be worth less than predicted,
> the lender will accept it's return with no questions asked.
Sorry, but that isn't right. That's like saying if you thoroughly trash
the item being leased, the leasing company will accept it back no
questions asked at the end of the lease no matter what. The lease risk
is assumed by the person/company leasing the item, not the leasing
company. The risk can be shifted 'more' to the leasing company with a
closed-end lease but those are much more expensive and merely make the
lease more expensive. You're still not protected against the item being
worth less than is expected at the end of the lease. They'll get you on
"excess wear" to make up the difference and that comes right out of your
pocket. The residual is what the leasing company figures the item will
be worth at the end of the lease. That is what you can buy the item
from them at the lease end too. If it's not worth what the residual
amount is on the contract according to their appriser, then the lessor
owes the difference. If you can sell the item for more than it's
residual value, then you can pocket the difference... but that is very
rare. I'm a financial advisor and do know a bit about leasing and
leasing's advantages and disadvantages.
Gould 0738
>Sorry, but that isn't right. That's like saying if you thoroughly trash
>the item being leased, the leasing company will accept it back no
>questions asked at the end of the lease no matter what. The lease risk
etc
Curtis CCR
"Russ Glindmeier, CFP" <ru...@att.net> wrote:
>
> Curtis CCR wrote in message <7f007l$bpt$1...@nnrp1.dejanews.com>...
> >
> >A lease is nothing more than a type of rental contract. People rents boats
> >all the time.
> >
> >
> Couldn't disagree more with the above statement. Assuming that we are
> talking about a long term lease (over 12 months), a lease is actually just
> an alternative method of financing a purchase.
I'll break in here and address the general postion you continue below.
A typical automotive lease is not a way financing a purchase, though many
people refer to it as alternative financing. In most cases it should be
looked at as an alternative to purchasing. Although the cost of the car,
residual value, money factors (leasespeak for interest), etc. play into the
payment calculation - you are not purchasing the car. It is simply incorrect
to say otherwise.
I have leased cars too (as you mention you have). I'll offer these points to
consider.
All of the car lease contracts I have ever seen refer to payments as "rental".
In a lease, you never "own" the vehicle. I never considered a leased vehicle
an asset, nor did I consider the lease a liability. You do not own the car
and the lease is not a loan.
While it may vary in some states, when you lease a vehicle, you are not even
named as the registered owner. This changes liability issues - if you
finance a car the bank has no liability for damages you may cause to others
if you are in an accident - for this reason the bank will only require
coll/comp insurance to protect the "asset". On a lease, the leasing company
is exposed to liability (just like Hertz or Avis when renting a car) and will
usually require the leasee to carry *liability* insurance at higher limits
than you might be required to carry under financial responsibility laws. You
still have to carry comp and collision on a lease.
You pay sales tax on the rental each month. If you purchased the vehicle you
pay the tax on the entire purchase price of the vehicle (this could be added
to the balance of the loan but you still pay it all).
Maintenance obligations may traditionally be that of an owner, but an owner
is not really required to "maintain" his car if he doesn't want to. On a
lease its just a responibilty delegated in the agreement - there are car
leases that include maintenance - we have looked at them for business
vehicles but they are too costly (the leasor has to be sure they cover their
butt). It is usually more cost effective for both parties in a lease to have
the leasee take care of the car.
Most lease for new cars are not written for any longer than the factory
warranty period. Routine maintenace is not a big issue. If you lease a
house, you still may have to mow the lawn unless the landlord provides
otherwise. I own a rental property and require my tenant to keep reasonable
care of the yard (watering, mowing, etc.) If they burn out light bulbs, they
have to replace them. In consideration of the rent they pay, I "warranty"
most everything else."
Though they can get convoluted, at its core, a "lease" is a rental contract.
It is not a purchase.
Never said it was simple - but leasing is "renting". It is not a purchase.
Regards
Curtis CCR
jer...@home.com wrote:
> Gould 0738 wrote:
> >
> > One of the best aspects of leasing is the provision of a "guaranteed resale
> > value" via the residual.
> >
> > Deal is, user makes payments on a capital asset with a guarantee that it
will
> > be worth no less than $xxxxx.xx at some future point.
> >
> > Should the asset be worth less than predicted,
> > the lender will accept it's return with no questions asked.
>
> the item being leased, the leasing company will accept it back no
> questions asked at the end of the lease no matter what. The lease risk
> company. The risk can be shifted 'more' to the leasing company with a
> closed-end lease but those are much more expensive and merely make the
> lease more expensive. You're still not protected against the item being
In a closed end lease (which in the case of cars is the most common) the
excessive depreciation is the leasor's problem, not the leasee's.
> They'll get you on
> "excess wear" to make up the difference and that comes right out of your
> pocket. The residual is what the leasing company figures the item will
> be worth at the end of the lease. That is what you can buy the item
> from them at the lease end too. If it's not worth what the residual
> amount is on the contract according to their appriser, then the lessor
> owes the difference.
Not true on a closed end lease. Excess wear and tear is different from a
blown residual. You are talking about abuses by the leasor - something
nobody I know has ever experienced. [Open end leases would leave the leasee
open to the risk of whatever the appraiser said the car was worth.... but
that gave such leases a very bad reputation and you don't see them much any
more.]
If the cars has simply depreciated more than the contract says (market
driven) the leasee walks away without owing anything if he fufilled the
obligations of teh contract. (Keep in mind that there are often "disposition
fees" at the end of many leases - you might be obligated to pay a couple of
hundred bucks to give the car back no matter what its worth or how good its
condition).
Russ Glindmeier, CFP
Curtis CCR wrote in message <7f1kr5$ots$1...@nnrp1.dejanews.com>...
>In article <7f094b$kgq$1...@bgtnsc01.worldnet.att.net>,
> "Russ Glindmeier, CFP" <ru...@att.net> wrote:
>>
>> Curtis CCR wrote in message <7f007l$bpt$1...@nnrp1.dejanews.com>...
>> >
>> >A lease is nothing more than a type of rental contract. People rents
boats
>> >all the time.
>> >
>> >
>> Couldn't disagree more with the above statement. Assuming that we are
>> talking about a long term lease (over 12 months), a lease is actually
just
>> an alternative method of financing a purchase.
>
>I'll break in here and address the general postion you continue below.
>
>A typical automotive lease is not a way financing a purchase, though many
>people refer to it as alternative financing. In most cases it should be
>looked at as an alternative to purchasing. Although the cost of the car,
>residual value, money factors (leasespeak for interest), etc. play into the
>payment calculation - you are not purchasing the car. It is simply
incorrect
>to say otherwise.
You are basing your argument purely on semantics. In that sense, of course
a lease is different than a purchase. But if you look at a lease from a
practical standpoint, ie from a rights and responsibility point of view, a
long term lease is much more akin to a purchase than a simple short term
rental agreement, which was your original statement
>
>I have leased cars too (as you mention you have). I'll offer these points
to
>consider.
>
>All of the car lease contracts I have ever seen refer to payments as
"rental".
>
>In a lease, you never "own" the vehicle. I never considered a leased
vehicle
>an asset, nor did I consider the lease a liability. You do not own the car
>and the lease is not a loan.
>
>While it may vary in some states, when you lease a vehicle, you are not
even
>named as the registered owner. This changes liability issues - if you
>finance a car the bank has no liability for damages you may cause to others
>if you are in an accident - for this reason the bank will only require
>coll/comp insurance to protect the "asset". On a lease, the leasing
company
>is exposed to liability (just like Hertz or Avis when renting a car) and
will
>usually require the leasee to carry *liability* insurance at higher limits
>than you might be required to carry under financial responsibility laws.
You
>still have to carry comp and collision on a lease.
The contract can call the payments anything it wants to. Again, it is
purely semantical. It is true that you are not the registered owner of the
vehicle, although in my state, the DMV now lists the lessee's (the correct
term as opposed to leasee) name and address on the registration along with
the lessor's. This is to help law enforcement officers to verify that you
belong with the vehicle (are the defacto owner) and to streamline the paying
of registration renewals by the lessee, another responsibility of the lessee
in a long term lease that is more akin to a purchase than a short term
rental. You may not consider an unpaid lease a liability, but I sure do.
Since the type of lease we are talking about is considered a capital lease
by GAAP and FASB, so does every CPA. Try ceasing payments on your lease and
you'll quickly see just how much of a liability it really is. Since I book
the liability, I also book the corresponding asset while it is in my
possession. I have first right of refusal to buy out the lease at any time
I wish and have permanent ownership of the asset. I have unrestriced access
and control of the vehicle. The lessor effectively has no liability
exposure because, as you have stated, he requires me to assume that
liability through my own insurance carrier and demands proof of same before
he grants me possession. Notice that my insurance company makes no
adjustments to my rates because the car is leased. From a rights and
responsibility standpoint, it smells a whole lot more like the relationship
I have with an installment loan vendor than the relationship a have with
Hertz for a daily or weekly rental.
>
>You pay sales tax on the rental each month. If you purchased the vehicle
you
>pay the tax on the entire purchase price of the vehicle (this could be
added
>to the balance of the loan but you still pay it all).
Yes, and on a lease you have the distinct priviledge of paying sales tax on
the interest portion of your purchase. Big deal. The sales tax issue is a
non issue. It has no effect on rights and responsibilites.
>
>Maintenance obligations may traditionally be that of an owner, but an owner
>is not really required to "maintain" his car if he doesn't want to. On a
>lease its just a responibilty delegated in the agreement - there are car
>leases that include maintenance - we have looked at them for business
>vehicles but they are too costly (the leasor has to be sure they cover
their
>butt). It is usually more cost effective for both parties in a lease to
have
>the leasee take care of the car.
>
>Most lease for new cars are not written for any longer than the factory
>warranty period. Routine maintenace is not a big issue. If you lease a
>house, you still may have to mow the lawn unless the landlord provides
>otherwise. I own a rental property and require my tenant to keep
reasonable
>care of the yard (watering, mowing, etc.) If they burn out light bulbs,
they
>have to replace them. In consideration of the rent they pay, I "warranty"
>most everything else."
As you stated, maintenance and repairs are traditionally the responsibity of
an owner. And since the vast majority of leases written today transfer that
responsibility to the lessee, it further supports my position. The warranty
is also a non issue. Many consumers do lease for longer than the warranty
period (not the smart ones). But it doesn't matter. All routine
manintenance is outside of warranty as are repairs that are not covered due
to negligence, improper use, and collision. A loss of market value due to
deferred maintenance will most assuredly be considered beyond normal wear at
end of term and is the contractual obligation of the lessee. If it walks
like a duck.......... Comparing an automotive lease to a residential lease
is ludicrous. They have almost nothing in common. A residential lease is
not a capital lease.
>
>Though they can get convoluted, at its core, a "lease" is a rental
contract.
>It is not a purchase.
>
A lease contract is not convoluted to me at all. I understand it
completely. They are actually quite simple, once you break them down into
their basic components. The end result of the contract is that I have
essentially all incidents of ownership both good and bad, and the lessor's
rights and responsibilities are that of an interested party (exactly what my
insurance company calls them) or lienholder. You may wish to continue to
classify a capital lease in the same category as a short term rental
agreement based a weak semantical argument, but I'm not really sure who that
would serve, and the business world would tend to disagree with you. I will
continue stand with FASB and declare that a capital lease is an alternative
method of financing the purchase of a capital asset. You are going to need
a much stronger argument than the one you have presented to shake me from my
position. Too many hours of accounting under my belt to be swayed by this
one.
Russ
Joseph M Tyson
> <snip>
> Why so few boat leases, as opposed to road vehicles? Probably because the first
> year's depreciation on a lot of boats exceeds the entire purchase price of the
> average family car.
Actually, the problem has always been that there is no secondary or wholesale
market for boats. I can pick up a telephone describe the vehicle that I want to
wholesale and have a check in my grubby hands in hours. There is no such market for
boats. You have awful regional vagaries to contend with in addition to the fact
that you'll hardly ever find two boats that are the same (equipment, power,
electronics, etc.). Therefore it is a daunting task to decide on a residual value.
The fact of the matter is that it can only really be determined after the boat is
sold.
> Lease payments, although grounded in reality and unlikely
> to leave a boater "upside down" at trade in time, would be substantially higher
> than marine mortgage payments for long term boat loans. One of the most
> predictable buying signals in any industry is when the prospect asks "uh, how
> much are the payments on that?" One whole heck of a lot of folks are still and
> maybe always will be
> "payment buyers".
The theory of boat leasing is as sound as any durable goods leasing program. The
problem is coming up with even marginally reliable residual values.
--
Joseph M Tyson
Stony Marine Associates
UNREPENTANT FENIAN BASTARD
-Seanchai
cgae...@my-dejanews.com
ever leased and can you provide a contact? I know the ins and outs of leasing
and balloons, I just want a contact, not a discourse on the pros and cons of
leasing!
In article <7evj43$vih$1...@nnrp1.dejanews.com>,
cgae...@my-dejanews.com wrote:
> Has anyone ever leased or done a balloon payment on a used boat? If so, who
> do you recommend for financing? Thanks.
>
Joseph M Tyson
> <snip>Very few people could pass that test under the
> scrutiny of an IRS audit. However, there are two easily obtainable tax
> deductions available to most boat owners who purchase the boat using an
> installment loan. If the boat is large enough to be equipped with galley,
> head, and a berth, the interest paid on the note qualifies as a second home
> mortgage deduction.
Wait a minute. IRS letter ruling does NOT require a galley, head or berth.
The boat (or camper) must have a place to go to the bathroom (porta potty is
fine), a place to cook (portable alchohol stove) and a place to sleep (the
shelter of a spray dodger on a center console is fine)
> If not, there is always the option of financing the
> boat through a home equity credit line that would also make the interest
> deductible.
Only to the cost basis of the home.
>
>
> I just don't see pleasure boat leasing becoming mainstream. From the
> lessor's point of view, predicting the market is just too difficult. From
> the lessee's point of view, predicting his holding period is just too
> difficult.
You are right on the money here.
> The best candidate for an automotive lease is the customer who
> knows he will be trading vehicles every 2-3 years anyway. It is a fairly
> predictable behavior pattern. Not so predictable for a boat owner. The
> first thing that gets a for sale sign on it when economic hardship arrives
> is the boat. On the other end of the spectrum, many of us have been
> infected with 2-foot-itis, 12-18 months after buying the boat of our dreams.
> For a lease to be successful for both parties, a predictable market and
> predictable consumer (both heavily related) is necessary. I have only been
> involved in the marine marketplace from the consumer side, but it would be
> interesting to hear from some of our resident dealers how they view the
> predictability of the market and how they feel about the future of marine
> leases. It would seem to me that if there is any chance for it to be
> successful, it would have to have major involvement by the manufacturers. I
> know it is being tested, but I don't know what the early indications are.
>
The disparity in use of boats by different owners is amazing. How often we see
two similar (Hardly ever sell two the same) boats come back after, say, two or
three seasons with one looking as though it was used in the D-Day landing on
Omaha Beach and the other appearing as though it spent the past seasons sitting
in a climate controlled boat house.
What is a used boat worth? It's anyone's guess until you can see it, run it up,
do a compression check. How can we hope to know what it will be worth in two
years?
hkrause
>
> Gould 0738 wrote:
>
> > <snip>
>
> > Why so few boat leases, as opposed to road vehicles? Probably because the first
> > year's depreciation on a lot of boats exceeds the entire purchase price of the
> > average family car.
>
> Actually, the problem has always been that there is no secondary or wholesale
> market for boats. I can pick up a telephone describe the vehicle that I want to
> wholesale and have a check in my grubby hands in hours. There is no such market for
> boats. You have awful regional vagaries to contend with in addition to the fact
> that you'll hardly ever find two boats that are the same (equipment, power,
> electronics, etc.). Therefore it is a daunting task to decide on a residual value.
Amazing. Here is a guy I've never met, a guy actually in "the biz," who
concludes exactly as I have, that because there are no large regional or
national wholesale markets for boats, the price for a used boat is
determined by the seller and the buyer. The so-called buying guides
contain nothing but anecdotal information, and not that much of it.
We sell and buy personal boats fairly frequently, never even look at the
guides and somehow get top dollar for those we sell. Not hard to do. You
have to spend some time checking around, checking dealers for the used
rigs they have for sale and checking private owners for rigs that are
comparable in quality and condition. It's a lot more reliable and
profitable than using a figure that may be based on information that is
mostly 3000 miles away.
Russ Glindmeier, CFP
Joseph M Tyson wrote in message <37148D9C...@banet.net>...
>"Russ Glindmeier, CFP" wrote:
>
>> <snip>Very few people could pass that test under the
>> scrutiny of an IRS audit. However, there are two easily obtainable tax
>> deductions available to most boat owners who purchase the boat using an
>> installment loan. If the boat is large enough to be equipped with
galley,
>> head, and a berth, the interest paid on the note qualifies as a second
home
>> mortgage deduction.
>
>Wait a minute. IRS letter ruling does NOT require a galley, head or berth.
>The boat (or camper) must have a place to go to the bathroom (porta potty
is
>fine), a place to cook (portable alchohol stove) and a place to sleep (the
>shelter of a spray dodger on a center console is fine)
The actual verbage is sleeping, cooking, and toilet facilities. Like most
IRS regs, this one is subject to interpretation and falls into shades of
gray. The porta potty is solid and not challengeable in my opinion. I
would feel comfortable defending a portable stove as a cooking facility. I
don't know what a spray dodger is, but my guess is that is the one that
would fail an audit.
>> If not, there is always the option of financing the
>> boat through a home equity credit line that would also make the interest
>> deductible.
>
>Only to the cost basis of the home.
>
Cost basis doesn't enter in to it. The limit for home equity debt
(non-aquisition debt) is:
The smaller of 1.) $100,000 or 2.) fair market value of the home reduced by
its aquisition debt or grandfathered debt. Another way of saying it is the
equity in your home beyond its aquisition debt (usually the first mortgage),
limited to $100,000.
Russ
Russ Glindmeier, CFP
cgae...@my-dejanews.com wrote in message
<7f25em$6a8$1...@nnrp1.dejanews.com>...
>Uh, has anyone considered answering my original post, which was: has anyone
>ever leased and can you provide a contact? I know the ins and outs of
leasing
>and balloons, I just want a contact, not a discourse on the pros and cons
of
>leasing!
>
>
rec.boats. Even the most innocous and straightforward of original posts
can be expected to incite vigorous discourse and debate that can go on for
days with this group. Sometimes you can even learn something from the
ensuing exchange.
Your original post asks "who do you recommend for financing" and I gave you
a contact yesterday. I don't know if they do balloons or leases. Since you
now claim omniscience of leasing and balloons, I can only conclude that the
reading of the above discourse was indeed beneficial, or that you were just
jerking our collective chain to begin with.
Russ
ram...@my-dejanews.com
In article <7f2a5o$41l$1...@bgtnsc02.worldnet.att.net>,
"Russ Glindmeier, CFP" <ru...@att.net> wrote:
>
-----------== Posted via Deja News, The Discussion Network ==----------
sad...@home.com
No such thing as a straight answer.
That leaves no room for expunging opinions.
(Of course, that's just my opinion)
Never seen one for boats, and don't expect to.
blueboo...@my-dejanews.com
cgae...@my-dejanews.com wrote:
> Uh, has anyone considered answering my original post, which was: has anyone
> ever leased and can you provide a contact? I know the ins and outs of leasing
> and balloons, I just want a contact, not a discourse on the pros and cons of
> leasing!
>
Try Russo Marine in the Boston area. They have been leasing boats for a
couple of years. A number of their customers have taken advantage of the
opportunity of being able to walk away from a boat after three or four years.
They have their own finance division.
Joseph M Tyson
> Uh, has anyone considered answering my original post, which was: has anyone
> ever leased and can you provide a contact? I know the ins and outs of leasing
> and balloons, I just want a contact, not a discourse on the pros and cons of
> leasing!
Russo Marine in Massachusetts has (haad?) a leasing program.
Chris J. Scoggin
Sorry I'm getting in on this string so late but taxes and Peat Marwick auditors
swarming around have me virtually buried. As a CPA and CFO of an auto lease
company, the leased vehicle is not considered an asset to the lessee according
to GAAP, nor is the lease contract considered a liability to the customer. The
asset remains on the financial statements of the lessor and is a somewhat
convoluted journal entry where the entire amount of all lease payments plus the
anticipated residual value are recorded as an asset and the unearned portion of
the lease payments (interest to be earned) are recorded as a contra asset. The
only time that the asset and corresponding lease liability should be recorded on
the books of the lessee is when the lessor has a contractual right to enforce
the purchase option against the lessee. Then it would be considered a financing
versus a renting transaction. The appropriate corollary would be signing a
lease agreement for office space. While the lessee is committed to lease that
space for the given period, the lease is not a balance sheet liability. I don't
have time to pull my FAS references right now, but we should meet soon at PF
Changs for lunch and I'd be happy to drag my binders over.
Well, 36 and a half hours to go before the returns are due so I better go.
Chris
Skipper
>> Wait a minute. IRS letter ruling does NOT require a galley, head or berth.
>> The boat (or camper) must have a place to go to the bathroom (porta potty
>> is fine), a place to cook (portable alchohol stove) and a place to sleep
>> (the shelter of a spray dodger on a center console is fine)
> The actual verbage is sleeping, cooking, and toilet facilities. Like most
> IRS regs, this one is subject to interpretation and falls into shades of
> gray. The porta potty is solid and not challengeable in my opinion. I
> would feel comfortable defending a portable stove as a cooking facility. I
> don't know what a spray dodger is, but my guess is that is the one that
> would fail an audit.
I've heard that the best estate planners know more about tax law than
some tax attorneys. I would not want to argue tax law with Russ.
--
Skipper
blueboo...@my-dejanews.com
The problem with boat leasing is several fold as many have pointed out. The
biggest drawback is that the financier must take on an inordinate amount of
risk regarding what the boat will be worth at the end of the lease period. I
have worked with a number of banks and lending institutions over the years who
thought they wanted to get into boat leasing. After going over the projected
residual values they usually have a change of heart. Russo Marine is the only
dealer that I am aware of that has their own financing division and provides
leasing on all their new boat lines.
Russo Marine arrives at some sort of residual value based on an average our
book, (ABOS Marine Blue Book), BUC and NADA. They then make adjustments based
on their own experiences with their brands in their area. Jerry Pitts, their
leasing manager, came over from the leasing side of automobiles and is very
familiar with how to tailor a leasing package for the marine industry. He has
some clientele who don't want to deal with ownership and are glad to pay extra
for a lease that serves their needs better than does traditional financing.
Russo provides fore to aft warranty and service on the boat during the lease
period so that they have a pristine used boat to sell at the end of the lease.
Russo is willing to take a risk because they are in a good position to best
guess the residual market and they never have enough good clean late model
boats to sell.
> Gould 0738 wrote:
>
> > <snip>
>
> > Why so few boat leases, as opposed to road vehicles? Probably because the
first
> > year's depreciation on a lot of boats exceeds the entire purchase price of
the
> > average family car.
>
> Actually, the problem has always been that there is no secondary or wholesale
> market for boats. I can pick up a telephone describe the vehicle that I want
to
> wholesale and have a check in my grubby hands in hours. There is no such
market for
> boats. You have awful regional vagaries to contend with in addition to the
fact
> that you'll hardly ever find two boats that are the same (equipment, power,
> electronics, etc.). Therefore it is a daunting task to decide on a residual
value.
> The fact of the matter is that it can only really be determined after the
boat is
> sold.
>
> The theory of boat leasing is as sound as any durable goods leasing program.
The
> problem is coming up with even marginally reliable residual values.
>
> --
> Joseph M Tyson
> Stony Marine Associates
>
> UNREPENTANT FENIAN BASTARD
> -Seanchai
>
>
hkrause <hkr...@erols.com> wrote:
> Joseph M Tyson wrote:
> >
> > Gould 0738 wrote:
> >
> > > Why so few boat leases, as opposed to road vehicles? Probably because the
first
> > > year's depreciation on a lot of boats exceeds the entire purchase price
of the
> > > average family car.
> >
> > Actually, the problem has always been that there is no secondary or
wholesale
> > market for boats. I can pick up a telephone describe the vehicle that I
want to
> > wholesale and have a check in my grubby hands in hours. There is no such
market for
> > boats. You have awful regional vagaries to contend with in addition to the
fact
> > that you'll hardly ever find two boats that are the same (equipment, power,
> > electronics, etc.). Therefore it is a daunting task to decide on a residual
value.
>
Russ Glindmeier, CFP
Chris J. Scoggin wrote in message <3714DC75...@falconcapital.com>...
I knew you'd have the complete story on this one. My accounting references
are a bit dated. I was using FASB statement No. 13, which was written back
in 1973, as my reference. Has this been superceded? When you get your head
above water, drop me a line. Lunch at Changs sounds great. Almost as good
as lunch at the lake.
Russ
Russ Glindmeier, CFP
Skipper wrote in message <3714E1C4...@DTC.net>...
Actually, this particular area of the tax code is not my specialty, but
unlike leases, the deductibility of mortgage interest is unusually
straightforward for tax code. Chris Scoggin, an actual expert in the area
of leasing, just posted a correction to a portion of one of my previous
posts regarding the technical accounting of leases. Since he lives in my
area, we'll have to discuss it over a beer. I still contend that from a
practical consumer's point of view, a long term lease is an alternative
method of financing the acquisition of an asset. Chris hasn't addressed
this facet of the argument, but I would be interested in his opinion.
Russ
Russ
Chris J. Scoggin
deduction of interest of a boat/yacht as a vacation home, the only true
stipulation the IRS puts in the code is that you must live there 14 days per
year. However, the real trick is defining "live". Technically I could live in
my truck 14 days a year in commute time alone. I don't think that argument
would fly when I'm sitting across the table with a service agent. Some of the
items that an agent would use to determine if you are living there would
probably be things like a head, a galley and the like. You guys probably have
more experience than I do on the actual application of this code section as I've
never utilized or argued it.
As to the renting vs. financing issue, my company has our fair share of both
types of clients. Many times we see somebody who wants to own a certain vehicle
but can't afford loan payments on that vehicle. Therefore they use the lower
upfront costs of leasing to get into that more expensive vehicle. Once the
vehicle has depreciated over 36 or 48 months, they then refinance it in a loan
transaction and take ownership. On the other hand, other clients (a majority)
use it as a rental (in their minds, but not technically). At the end of the
lease, they will use the vehicle as a trade for their next new car or turn the
vehicle in to us. Russ is right that essentially, all leases are financing
transactions in the sense that the customer takes on the risk of loss from acts
of god. In a typical rental transaction, the owner of the property takes the
risk of loss of property.
I know that the issue is more complicated than my over-simplified explanation,
but you guys should know better than to bother a bean-counter on April 14th.
Chris
Curtis CCR
cgae...@my-dejanews.com wrote:
> Uh, has anyone considered answering my original post, which was: has anyone
> ever leased and can you provide a contact? I know the ins and outs of leasing
> and balloons, I just want a contact, not a discourse on the pros and cons of
> leasing!
Uh... oh yeah! That's right...what was the question again? ;-)
Actually I recall last year that Bayliner or Sea Ray was advertising leases
on their larger boats - I don't recall the details - something like one
year... which to me sounds expensive. You might check with a new boat dealer
- just for information (even though you are talking used).
> In article <7evj43$vih$1...@nnrp1.dejanews.com>,
> cgae...@my-dejanews.com wrote:
> > Has anyone ever leased or done a balloon payment on a used boat? If so, who
> > do you recommend for financing? Thanks.
Russ Glindmeier, CFP
Chris J. Scoggin wrote in message <3714FFCC...@falconcapital.com>...
>I'll attempt to give a quick $.02 answer to the $64,000 question.
Regarding
>deduction of interest of a boat/yacht as a vacation home, the only true
>stipulation the IRS puts in the code is that you must live there 14 days
per
>year. However, the real trick is defining "live". Technically I could
live in
>my truck 14 days a year in commute time alone. I don't think that argument
>would fly when I'm sitting across the table with a service agent. Some of
the
>items that an agent would use to determine if you are living there would
>probably be things like a head, a galley and the like. You guys probably
have
>more experience than I do on the actual application of this code section as
I've
>never utilized or argued it.
Well, I've got you on this one, Chris. IRS removed the 14 day living
requirement for most people a few years ago. Now the requirement only
applies to those that rent out their second home for part of the year. If
you rent your second home, you must use the home for 14 days, or 10% of the
time it is rented, if greater. If there is no rental of the second home,
there is no longer a personal use requirement like there used to be. This
might explain all the neglected and lonely cruisers at my marina.
Looking forward to lunch in a couple of weeks.
Russ