After all, there are approximately 17 million registered recreational vessels in the United States, but on average a boat is only used a total of 14 days per year. With that amount of usage, sharing only makes sense, right?
But purchasing any asset with people you know can create the kind of problems that can end those valued relationships. Dreams of weekends at the boat club and watching everyone’s kids grow up together can be replaced with large maintenance expenses, angry calls about who gets which holiday weekend and even possible lawsuits.
So how can you share a boat with others and end up not hating each other? Here are a few tips on how to create a sharing arrangement with friends that works. So you all end up staying friends for many years to come.
You and your potential partners may be close, but do you know how their lives are financially? Have you seen their credit report? Buying a boat together is not unlike going into business together.
They may be embarrassed to tell you about a prior bankruptcy or lien that may have been placed against them years ago. While the issue may all be resolved, it could affect the financing or the rates that you pay.
In addition to past finances, it is important to understand what the future holds as well. While, you can’t completely predict the future…it is important to know how they feel about their position in life. Do they feel like their job is in danger? Are they planning on having a baby soon? Are there any marital problems that could lead to divorce?
These are all uncomfortable subjects and are never easy to address, however, some boat loans can last for up to 20 years. Therefore, one of the first keys to any successful partnership is being open and honest about your situation.
Typically in a group, there are one or two people who serve as the group leaders, doing most of the legwork and letting everyone else in the group know what’s happening.
It is better to outline everyone’s wants and needs ahead of the purchase so those who are doing the legwork have a clear understanding of the goals. In addition, as soon as someone learns that something has changed…it is not only critical to update everyone but it is always good to recap your conversations in writing. This way everyone gets the same message and one partner didn’t hear it differently than another partner.
Make it Legal
No matter how close your group is if you fail to setup a baseline sharing agreement or consider setting up an LLC, that can protect everyone involved…you’re potentially setting yourself up for trouble.
Creating an LLC not only protects everyone involved, and it can also be written so that when one person wants out, the entity stays intact. But if you go this route, it is critical that the insurance is in the LLC’s name or it could affect coverage in a property loss.
Whether or not you decide to form an LLC or not, it is critical for the success of the partnership to create a sharing agreement that outlines some of the basic terms of your agreement.
There are a couple of ways to handle maintenance fees.
Usage – Provided you are tracking your usage of the boat through a system like Nautical Monkey. You are easily able to base the maintenance cost off a percentage of usage.
Monthly Reserve – Maintenance and upkeep is enviable, so one way to minimize unexpected expenses is to create a reserve account and contribute an additional percentage per month.
How will the boat be reserved?
How will scheduling conflicts be resolved?
Want to add the latest gadgets to the boat? Who pays?
What happens when you sell?
What happens when some wants or needs out?
The best-run partnerships are those that are well thought out and discussed ahead of time. If one person gets the boat on Memorial Day, July 4th and Labor Day, there are going to be hard feelings even if you drew those dates out of a hat.
It is always good policy is to rotate holiday weekends or use a slot system that applies some weighting to the different days of the year. This allows for everyone to equally get a shot at a particular holiday or weekend. The biggest key of all is to be flexible and understanding of everyone’s needs.
Create an Exit Strategy
Finally – create an exit strategy. Nothing last forever, and while you may have done a 20 year loan…be realistic in your expectations and people’s needs change over time. A reasonable partnership agreement would be for 3-5 years, with some conditions set on selling the boat or trading it in.