The Essentials of Living Aboard a Boat

by Mark Nicholas

  Your most important concern is that you are buying what you have offered your money for. You need to hire a very good surveyor very quickly.

  The Survey

  I made two substantial mistakes when I bought my boat: First, my choice of boat was ultimately very poor for a liveaboard, and second, my surveyor was terrible (yet recommended by the broker).

  While there is a wide range of competencies, it is absolutely critical that you find a good surveyor. This is by far the most important part of the buying process. A good surveyor knows boats, all boats, inside and out. A good surveyor knows every system and type, and common problems associated with every make and model of boat that he surveys. He will have done the research on your boat’s make and model before arriving for the survey. A good surveyor will be honest and ethical.

  Further, a good surveyor will not care whether you actually purchase the boat. The problems of the boat must be uncovered, and you need to know every single problem that exists. Not only might you be able to have the price adjusted to fix problems, but also your safety and the safety of your mates depends on the boat.

  The problem is that many surveyors get much or all of their business from the recommendations of brokers. The surveyors know that if they become known for being too hard on boats and end up causing deals to fall apart, brokers will no longer give them business. So some surveyors soften up and end up trying to appease the brokers. This can be devastating to you. Don’t let it happen. Seek recommendations from fellow boaters, marina management, and Internet e-mail groups. You’ll hear the best surveyors’ names repeated.

  When I first started writing this book, I was prepared to advise that no matter how inconvenient, a buyer should never hire a surveyor recommended by a broker. I did and got screwed so bad that the surveyor returned all of my money for fear of getting sued for quite a bit more. My surveyor’s biggest problem was that the boat fell apart on the maiden voyage (I’m not exaggerating), so that there was no defense for his ineptness. Moreover, my surveyor signed off on gear that, just three weeks after the survey, literally crumbled in our hands (the emergency tiller, specifically mentioned as functional safety gear in the survey, had rusted through and crumbled when the steering system fell apart). That surveyor’s negligence could have easily cost me and my hired captain our lives. By the way, my surveyor is still surveying boats in the New England area. I regretted that I was not litigious and didn’t sue for all of the damages that I incurred, as well as the expenses to fix the things that the surveyor had signed off on as being in good working condition. [The surveyor’s defense was that he didn’t get much sleep the night before, but his bad day cost me many thousands of dollars.]

  John Procter, former president of the Yacht Brokers Association of America and a boat broker that I truly respect, was concerned that my advice that no buyer should ever work with a surveyor recommended by a broker was a bit too strong. John believes that it is a disservice to rule out what is possibly the most knowledgeable source of information available to a buyer. While agreeing with my cautionary note, John believes that boat buyers often have little access to information such as the reputation of surveyors. He suggests it is more important to understand the potential motivations of the broker and surveyor. John adds that good brokers want good surveyors, as it is good business to want the client/buyer to get the best advice possible.

  Let’s take a second to talk about boat owners. Every boat owner is handy when provided with electric tools and silicone, and can drill a hole in anything. The blind use of a drill, however, without any thought behind the ramifications of the hole, is not an acceptable boating improvement. Anyone who has been around boats has seen some insane “improvements” that are a testament to how genuinely absent-minded, lazy, or downright stupid boat owners can be.

  A good friend and local liveaboard had a leaking diesel fuel tank. Instead of cutting the old tank out, he decided to put a new tank in his starboard lazarette. Aside from losing some storage area, he saw no downside to doing this—that is, until there were some engine problems a year later and he hired a mechanic who came by and couldn’t get to the entire starboard side of the engine because the only access was through the lazarette. Not only that, but the fuel and oil filters could no longer be changed, the oil level couldn’t be checked, and the impeller couldn’t be changed—and now we all know that the boat owner did not perform any routine maintenance in more than a year. The mechanic left in a state of shock, knowing that now the new tank would have to be drained and removed, making it impossible for essential boat maintenance to be performed in a reasonable period of time. A surveyor is charged to find this kind of stuff, whether it be this big, or much less obvious.

  Other boat owners like to add through-hulls, sometimes beneath or near the waterline (remember—a boat owner with a drill…). Through-hulls above the waterline, to say nothing of those below, must be completed properly and with care. As will be discussed in the “Climate” section, many boats, of which a significant number were liveaboard homes, sank in Seattle during a snow/ice storm because the through-hulls placed just above the waterline were pushed below the waterline by the weight of the snow. You need a surveyor who will notice this type of potential problem.

  Boat owners like to install their own gear, sometimes not taking the right time to properly seal the installation or use the right tools to do the job correctly. Some boat owners do their own electrical work, using wire nuts and household-rated wires. These wires will crumble, for they cannot survive a marine environment. This is “the easy way out,” and a surprising number of boat owners do their fixes while cognizant of their shortcut, thinking that at some point in the future the wiring will be completed the right way. It often never is—until at a later point by the unsuspecting buyer.

  You need to know this stuff. If it is a sailboat, not only do you need to know the conditions of the lines and sails, but you also need a surveyor who will go up the mast to check out the spreaders and rigging.

  My advice is to do what is necessary and pay what is necessary to be sure you get a thorough survey. A good surveyor should want to explain the problems of the boat to you. Consider carrying a video camera to record explanations so that you get the fixes right in the future. Get a great report and then learn everything you possibly can.

  Post-Survey Negotiations

  Brokers and surveyors like to remind potential buyers that “there will always be problems with every boat,” and “there are always opportunities for improvement.” While true, these statements can be offered with either of two intentions: one, to explain the reality of boats; or two, to mollify the buyer’s reaction when receiving the survey report. Some problems truly need to be anticipated, and some problems might actually be expected to be transferred to the new owner.

  The real question is whether the seller and broker have been forthcoming and offered full disclosure and whether the buyer considered the problems when he made the offer. When you decided how much to offer for the boat, you took into consideration all of the facts that you knew. Every problem that you find out later, regardless of how big or small, is something that makes your offer too high. While nitpicking is annoying, and you might find an unreceptive audience if you come up with too many cost adjustments, that is merely a negotiating strategy issue. You are theoretically entitled to a cost adjustment for every problem that you were not aware of and did not anticipate, especially for any issues that materially affect the value of the boat. Even the nitpicky problems will take time and money to fix—and many small problems will become bigger problems once things have been taken apart.

  When it comes to raising issues with the seller about problems, emotions take over. Buyers don’t want to feel as though they are nickel-and-diming the seller, and sellers do not like to feel as though a buyer is constantly trying to renegotiate a deal that has already been agreed to, or be told that their repairs and improvements were not done correctly, or that the boat has not been maintained perfectly under their
watch. Additionally, structural and engine problems do occur and a seller may be just as shocked to find out about the problems as the buyer is. Moreover, buyers are often already emotionally bound to the boat, and feel frustrated about having to take the time to identify another boat. The buyer does not want to have wasted valuable time and money for the survey, for he knows that walking away from this boat and making an offer for another boat will require spending money again for another survey. And lastly, the buyer does not want to have the seller get mad at him for asking for concessions at this point in the process. Therefore, many problems are never raised and compromises often occur at this stage.

  This may be the wrong result for the buyer, as even minor problems will often end up costing as much as or more than a new survey would have. Do not be so emotionally bound to a boat, which is replaceable, that you end up buying a bad one just to conclude the buying process. Feel comfortable raising issues. The seller does want to sell you the boat and would feel equally frustrated if you walked away. Don’t be annoying; be practical. Remember that your offer did not anticipate the problems that you were able to identify. Be tactful, smart, and strategic. Use your broker for guidance and for communicating with the seller.

  Being told of problems known to the seller after your offer has been accepted is dishonest, particularly if you asked the right questions prior to the offer. The timing of when you are told of problems might be indicative of a dishonest seller. Sellers shouldn’t receive high marks for being honest, but should be graded lower for any problems known to them and not revealed to you before you made your offer. While you appreciate having this information, (i) it is always information that you should have been told anyway, (ii) it is important for the seller and broker to tell you first so that you are not surprised in the survey and don’t waste your money and time, and (iii) it does not impact your right to walk away from an unsuitable deal. Remember that you have the power (and the money) here, and everyone else needs to keep you at the table.

  Various negotiated solutions might be satisfactory, including a cost adjustment. Bear in mind that if you are financing the boat, a cost adjustment will not be immediately realized by you for any boat you are financing. It will only be realized by you in lower monthly payments, and you will still have to find the cash out of your own pocket and the time to make the repairs. Maybe you could get a cost adjustment and have the finance company provide you the difference in cash to make the repairs. Another option would be to have the seller make the repairs. Be careful of this option, since it is in the seller’s best interests to spend as little money as possible, for he will never have to see the boat again. You can make a condition of the repair your right to have your surveyor oversee the repair and sign off at the conclusion of the work. (Sellers usually don’t like that.)

  Always remember that you don’t need to answer right away when presented with a solution. You don’t want to be in a situation of spending a lot of money for a boat and then having to spend a lot of money on problems that really weren’t yours in the first place. Trust me when I tell you from personal experience that this can be financially devastating. Demand excellence and a fair deal.

  Remember that all boats are theoretically sold “as is.” Give that phrase no credence. You will be stuck with what you buy no matter what (absent malicious circumstances). If a seller does not want to make any requested repairs, then adjust the price accordingly.

  Insurance

  Should you get insurance? If you are financing the boat, you will not have a choice. Financing companies want to know that if anything happens to their collateral, they will not be out of pocket for the entire value of the loan. Moreover, some marinas will not allow you to berth your boat in their facilities without insurance.

  Insurance companies generally require a survey when the boat is first purchased, and they might even require ongoing surveys periodically thereafter. Pay attention to the needs and wants of your insurance company. If there is ever a problem, and at some point there will be, you want to make sure that your thousands of dollars actually bought you the peace of mind that you paid for.

  Insurance is typically significantly higher for liveaboards than for non-liveaboards. I’ve heard different justifications for this, but it is the way of the world. At least remember that you will not have to be paying homeowner’s insurance as well, so it will not hurt as badly, but it will still hurt.

  Insurance companies typically have “use” clauses that limit how, when, and where you can do certain activities. You might have a company that will not let you go offshore more than ten miles, or that will not let you sail more than a few miles off of the Southeastern United States during hurricane season. Make sure that you acquire insurance that provides coverage for your type of activity.

  As mentioned previously, your insurance company might not provide insurance for certain types of boats. Wooden boats and older boats, among others, are considered higher risk and might not be permitted coverage at all. Or the rates might be overwhelmingly high. Know and understand the insurance company’s preferences and concerns before it is too late and you get stuck paying obscene premiums.

  Financing

  Financing is pretty simple. A financing company hands the seller some money to cover the amount of the purchase price that you don’t pay. If your boat is pretty typical and if you have a job and can make your payments, there will be many companies lining up to do this for you. If the boat is insured and you pay a nice-sized down payment, the financing company’s risk is fairly limited. In return for their loan, financing companies get a pretty good rate of interest for their money, significantly more than a typical home mortgage would offer. They make quite a bit of money off of you.

  Most finance companies require the buyer to make a down payment of 20 percent of the cost of the boat, and will have the boat appraised to make sure that the boat you are buying is worth approximately what you are paying. This appraisal not only protects you, but it also protects the finance companies from fraud. The maximum term for most boat loans is twenty years. Finally, since you are living aboard, interest should be tax deductible just as if the residence were on land. Regarding tax treatment, you will need to consult your tax advisor.[2]

  Financing companies, just like insurance companies, will not lend money for all boats (again, old boats and wooden boats, and especially old wooden boats). There will be other limitations and conditions as well. Just as for your insurance policy, get to know what their rules will be before you spend too much time looking for a boat for which you will be unable to acquire insurance or financing.

  Remember that you are personally liable for your loan. If you forget to pay your insurance premium and you hit a rock, you will have to repair your boat out of your own pocket and will still have to make all of your payments to the finance company. If your boat sinks and you don’t have insurance, you will still have to make potentially twenty years’ worth of payments even though you no longer own a boat—that is, unless the finance company wants its money all at once for your violating the terms of your loan.

  You may also be liable for any balances due in the event that either (i) you sell your boat for less than your outstanding loan balance, or (ii) your boat is repossessed and auctioned off. For instance, if the boat that you purchased for $100,000 (with a down payment of $20,000 and loan of $80,000) is sold at the end of four years for $60,000, and after four years your loan balance is $70,000, you will owe the finance company $10,000 out of your own pocket (in addition to the brokerage commissions).

  As one final thought on financing, there might be options for acquiring a loan other than going to a company to lend money specifically for the boat. You might be able to take money against real estate, such as by way of a line of credit or home equity loan, or you might seek a personal loan. The advantage of a line of credit or home equity loan is that you might be able to secure the funds at a lower interest rate, and the interest should continue to be tax deductible. Personal loans often prov
ide for higher interest since there is often no stated collateral, and the interest on such loans is usually not tax deductible. Boat loans often charge a higher interest rate because boats are viewed both as a luxury item and a high-risk loan because of the decrease in a boat’s value.

  The Closing

  So you’ve decided on a boat, made an offer, had the offer accepted, completed a survey and final negotiations, secured financing and insurance, and are now ready to proceed. Congratulations. All you have to do is “close” the purchase and sale transaction.

  Closing is very simple. You give the seller the rest of the money, and the seller gives you the title and the keys. Or at least the keys, as it can sometimes take months to get the title back from the Coast Guard if the boat has been documented with them. Easy as pie.

  Brokers exist for closings. Literally. It is the broker’s job to make sure that every single thing required of either party is done. In the boating world, unlike the real estate world, it is common for both parties and the finance company to deal directly with the broker. In other words, the broker gets the keys from the seller, title from the seller or the seller’s lender, payoff information from the seller’s lender, down payment from the buyer, certificate of insurance from the insurance company, money from the financing company, and signed documents from everybody. Once the broker gets everything, the broker simply sends the buyer the keys and sends the title either to the buyer or the finance company. My broker calls it “closing by FedEx.”

  All done, right?

  Almost. Many financing companies want to make sure that your boat is properly registered or documented (or in some areas, both) with the state and/or federally in the United States with the U.S. Coast Guard. While the buyer could very easily take care of this himself, some financing companies don’t want to take the chance that something could go wrong (of course, they make money by doing it as well). Accordingly, your financing company might charge you a fee or hire a documentation company to complete your desired form of registration or documentation, or might even require that your boat be federally documented.