As a licensed CPA and long-time boat owner, I’m no stranger to the financial consequences of keeping a boat. People like to joke about how quickly money flows into a boat, like stuffing $100 bills down a bottomless drain. Or, how many “boat units” a particular upgrade or repair will be. Somehow, six boat units sound better than $6,000.
When we were shopping for our trawler, our yacht broker shared this financial rule of thumb: expect to spend about 10% of the value of the boat each year on maintenance, upkeep, moorage, and other ownership costs like insurance, taxes and fees. The rule worked on our $70,000 sailboat. We spent about $7,000 a year on boat-related costs. But surely, that math couldn’t extend to a $700,000 trawler. Could it?
Here’s a summary of last year’s costs for Indiscretion. We spent roughly $44,000, a small fortune for us frugal sailors, but “just” 6% of the boat’s value. Here’s where the money went:
Two insights to share upfront. First, fuel costs of operating a full-displacement trawler are usually low on the list of expenses. We took on fuel just once in 2019. This was a positive surprise as we entered the world of these efficient yachts. Second, since owning Indiscretion, we’ve incurred almost no costs for equipment or mechanical failures. Everything we’ve spent has been either upgrades or preventative maintenance to avoid costly repairs in exotic locations — also a positive surprise.
About half our annual expense came in one fell swoop during our haul-out at Canal Boatyard in Ballard. Oomph! We outsourced the work to a marine contractor since we had some specific deferred maintenance tasks we needed to tackle. In our case, overdue seal replacements for our stabilizer system and a reconfiguration of our electrical panel, which totaled about $7,500. The balance of the costs hit us like slashing knife wounds: $1,500 to drain and replace engine coolant, $2,000 to update our electronics software and charts, $6,000 for bottom sanding and painting, $2,500 for yard fees and haul-out, $1,000 for hull waxing, $1,000 for assistance with transiting the Ballard Locks, and $1,600 for a sundry of supplies and other charges incurred during the haul-out.
Once the initial shock wore off, I took a more philosophical view of these expenses. Some of the bigger ticket costs were expert upgrades or infrequent maintenance tasks that won’t repeat each year. A complete bottom sanding and painting can last two or three years. And the thousands we spent on tasks like changing the engine coolant or help with moving the boat, I will undoubtedly do in the future. However, I am sure I will need other upgrades or expert assistance in the future. For example, this year, we employed an electrical contractor to replace Indiscretion’s battery charging system to make our generator time at anchor more efficient. And sooner or later, I will need to pull out the boat’s aging muffler system and replace it with a new one. After reading about the replacement experience on a sistership’s blog, I quickly concluded that this is a job best left for professionals.
Lessons Learned from Employing Marine Contractors
I learned some lessons about the use of marine contractors during our two years of trawler ownership. First, there are some amazingly talented marine technicians who can perform near-miraculous repairs and upgrades to yachts based on their years of experience and inside knowledge. Second, they operate like any business and thus are, of course, incentivized to maximize their revenue. This might mean replacing equipment that could be repaired more economically or undertaking work that isn’t necessarily warranted. Third, anything I outsource to a contractor that I might need to do in the future to maintain the safety of the boat is a lost learning opportunity to advance my mechanical skills.
Here’s a prime example of a case where the contractor’s business model conflicted with my best interests: shortly after purchasing Indiscretion, I noticed a small amount of oil in the engine room flowing from our wing engine. I examined the engine, but I could not locate the source of the leak. It wasn’t a lot of oil, but after cleaning the bilge, more would soon appear, even if I hadn’t operated the engine. Our contractor diagnosed the problem and recommended we replace the wing engine’s transmission. The job would take a couple of weeks and cost $6,000. We learned all this at the beginning of summer, and since the transmission worked fine, and we weren’t losing any oil in either the engine or transmission, I deferred the job until the offseason. During our summer cruising, the leak stopped altogether and hasn’t reappeared. I now suspect that the oil resulted from a spill during an oil filter change. We clearly didn’t need to replace the transmission.
I’ve learned to limit my use of marine contractors to projects that meet these three criteria: (1) it’s a difficult task that I wouldn’t be able to do without investing a lot of time and money in tools; (2) there is a specific scope and agreed-upon cost estimate for the project upfront; and (3), I’m able to participate in the work, so I continue to develop my skills as a fledgling trawler mechanic.
I thought last year might have been an anomaly, and our costs might drop in 2020. After all, we took a much more hands-on approach during our annual haul-out and had gotten many of the upfront costs of tools and spares behind us. But, alas no. Our boat costs this year will come in around $45,000, slightly higher than in 2019.
So, while our annual boating costs have come in below the 10% threshold, I still think it’s a good rule of thumb. So far, our voyaging has been limited to the Northwest, but our plans include open ocean travel and thousands of nautical miles under our keel. Insurance costs will rise, along with fuel, marina fees, weather routing, and other unforeseen costs. And If you count the 10% Washington state sales tax we paid on the purchase of the boat, and the 10% brokerage fee we’ll pay on sale, our annual costs need to stay under 6% each year to avoid exceeding the 10% rule-of-thumb over our planned ownership of Indiscretion.
Few buy boats for the financial return, but it’s smart to be realistic when planning your finances as a boat owner. None of these costs has come at a surprise to us, thankfully. We used the 10% rule as a budgeting guide going in, and these high expected operating costs in part informed our chosen name for our trawler: Indiscretion. What kind of CPA would buy an asset that not only depreciates but requires additional cash each year just to keep it running? This one did, and I have absolutely no regrets. After all, you can’t put a price tag on dreams. Just remember to keep the boat kitty full. And make sure to translate any big-ticket items into boat units when discussing costs with your first mate. It really does sound better.
If you’re a trawler owner, do you subscribe to the ten-percent rule? If not, how have you managed to keep costs low? Share your feedback in the comment section below.
Hi
We are owners of a Nordhavn 76. I was a professional Mariner and owned a fleet of tugboats in New York for many years so I can elaborate a little bit on preventive maintenance and the costs and or budgets of running a vessel. The 10% rule is a good rule but I think it pertains to larger vessels mostly yachts over let’s say 125 feet. The Thing to think about with the cost of the vessel I think are these two important items.
1. What you pay for the vessel and what you sell the vessel for, whatever the difference is including brokers fees, taxes depreciation etc. has to be measured in how much pleasure you derived from the vessel in the time you owned it and should not be included in the 10% rule.
Two. Any maintenance costs are well worth the money. I can tell you that deferred maintenance is the biggest killer of any vessel. The old saying “pay me now, pay me later” was written for a reason. My CFO used to go a little crazy when he saw what I spent on our Tugs but when he saw how little revenue we lost because of the lack of downtime he became a believer. The other killer of preventive maintenance is when something decides to quit working it is never when you were at the dock or even near a dock. It will die when you’re 100 miles offshore, that rule is almost guaranteed. Granted sometimes even new stuff fails but more times than not it’s something that has been ignored for far too long. Vessels like Aircraft are a special piece of equipment operating under hostile conditions so when you say you’re going to have a “budget“ I never really believed that word pertains to any kind of vessel.
Spare parts is another expense that you cannot limit. You almost have to think of spares and special tools etc. as an insurance policy, most likely if you have it you’ll never need it but if you don’t have it I guarantee you you’ll need it. I have been amazed and how little spares some people carry and that goes for the commercial world as well. I once worked for a big oil company that had a fleet of tugs and their motto was “we can get you anything you need inside of 24 hours“ I told them “yeah that would be great but I’m 100 miles off Cape Hatteras so send the company helicopter out”. They found out the hard way and after that we pretty much got what we needed.
As JP Morgan said of his yacht “if you have to ask how much it cost you can’t afford it“..
Enjoy,
Chris Roehrig
M/V Tugnacious.
7626
Hello Chris great advice thank you .I’ll go admire your vessel now online . Cheers Ken
Thank you for posting your real-world experiences. Cost of ownership is one the most asked questions on the dreamers, trawlers and cruisers forums with the 10% rule richly debated. Your point regarding the 10% brokerage fee is spot on and often overlooked during annual cost of ownership discussions.
Thank you so much for this article! This is my first time visiting your blog and I also really enjoyed your article on the “mechanically challenged”.
A quick question on this, maybe I missed it, but when you’re talking about 10% or 6% and what not, is this referring to total cost of ownership that year? Are you including loan payments and insurance and stuff like that or is this purely maintenance costs and operating costs like fuel and other consumables?
thank you
-Walter
Hi Walter – Thanks for reading the blog, especially the super-long mechanically challenged one! You’ve asked a good question about what should be included in the ten-percent rule. Lots of differing opinions on that. In our case, we are including all boat-related operating costs like maintenance, licensing, insurance, fuel, moorage, etc., but not the cost of the boat itself ( i.e. boat payments). I included a table in the blog post that breaks down our total costs for 2019 by major category so you can see what all we spent the money on. In our case, this has worked out to be about 6% of the value over the past two years, but we do expect this to rise as head for open ocean and destinations south. Hope this helps!
Hi Robert…I’m a little late to your blog, and I don’t know why. I’ve read some of your posts on the Dreamer’s site and Facebook, but I haven’t visited your blog and it’s my loss. There’s a ton of good info here! I had a question about the 10 percent rule. Your cost for Indiscretion was roughly $45,000 for the year. An N75 EYF sells for around $3 million, and, according to the 10 percent rule, that would be around $300k. Can expenses really be that much higher for the 75 vs. the 43? I realize a N75 has twin engines, but $300k seems really high to me, in comparison to your costs.
Hi Matthew – Thanks for reading our blog! Your question about boat costs and the ten-percent rule is a good one. Our $45K per year costs are running about 6% of Indiscretion’s $700K value. On a new boat, maintenance costs would be lower (though outfitting costs would be higher), and of course, the value denominator would be higher. A newly commissioned N475 is close to $1.2 million (I think). So, our cost experience on a new boat would be something less than 6% for sure. A $3 million N75 would have proportionally higher costs for moorage, licensing, insurance, and maintenance cost driven by foot: waxing, bottom painting, etc., or equipment level: twin engines, more systems to maintain/replace, etc. Probably not anywhere close to $300,000 (unless you hire a captain!), but I’d still plan on a budget of $150,000 per year, or 5% of the overall value. Some years could be a lot less, but then you’ll have a zinger year to prop up the average. I don’t have any experience with brand-new boats or larger Nordhavns, so I could still be way off. One thing I have learned is that boats, no matter the size, find a way to cost you money! Good luck!
Just found you blog. Best one out there. As someone who has owned sailboats for 45 years and now thinking of a Nordhavn 43 for my “golden years” your posts have been an inspiration. I’ve always thought the 10% rule made no sense. For example, if I by a two year old Beneteau for $500,000 my annual cost would be $50k, but if I buy a 12 year old sister ship for $150,000 I’ll only pay $15k. Slip fees will be the same, insurance cheaper on the old boat, engine maintenance equal to or higher on the old lady. When you look at many of the items in your list they are a function of size, not purchase price. I like how you laid out your cost. As costs very much by region and how the boat is used, your list gives people a basis to figure out their expected cost.
Thank you, Steve! Glad the cost information is useful. All the best in your future boating plans. Coming from sail to trawler, we’re still delighted with the Nordhavn 43.