The Decision to Move to Fractional Boating

Let me first say, I have never been an avid boater. I’ve always enjoyed the water and have spent many wonderful days fishing, scuba diving, etc., but never owned a boat. In 2006 my business partner (who is an avid boater) and I purchased a Formula 37 PC. The idea was to use the boat mainly to entertain customers and staff so the company covered the basic costs. The first 2 years we averaged 6 to 10 outings and generally the arrangement worked well. The company had an expense and we had access to a boat any time we wanted. So far so good.

Then, early in 2008, everything changed. To make a long story short, we sold the company, my partner and I went our separate ways, and I ended up with a 37 foot yacht that I had driven infrequently as well as the corresponding mortgage, slip fees and insurance payments. I was still upside down on the mortgage having only owned the boat for a few years so selling it was not an option – at least not without a substantial financial hit. So, what now?

I had heard of fractional ownership of vacation homes and condos but had never really seen anything similar in the boating world. So I pulled up Google and started the process of researching fractional boating. After a few days of research it really came down to two main options. Put my boat into one of the fractional boating companies I had found or find a few people to go in with me and go it alone.

Fractional Boating Companies
There are several “traditional” fractional boating companies in existence today including Sailtime and Windpath. The business model changes a little between them but basically you sign an agreement to add your boat to their fleet for a certain period of time – usually 3 to 5 years. Most of these companies will only take new or mostly new boats into their systems. They agree to pay for insurance, maintain the vessel, and affect minor repairs. Sailtime also sets aside a certain amount of money based on engine hours that you get when you take your boat out of their system. This money could be used to overhaul the engines or paint but is basically meant as compensation for the wear and tear associated with having multiple users on your boat.

In terms of the financial model, I have seen two main paradigms. In the first, a new boat is purchased at the time of contract signing (usually as a referral from the fractional boating company). The fractional boating company essentially agrees to pay the mortgage while the boat is in their system and you pay them to become a member. Thus, each member (including the boat owner) pays a monthly fee ranging from $500 to $1,000 depending on how much access they want to the boat and is responsible for gas as well as any damage they might cause up to the insurance deductible.

In the second model, often used when someone already owns a boat, you place your boat in their system and either take one of the memberships or, if you don’t plan on using the boat at all, they will pay you for one of the memberships as long as they have over 50% occupancy. In this case, you are responsible for paying the mortgage but, as above, they take care of insurance, maintenance and upkeep. If you choose to retain a membership, you are still responsible for gas and any damage up to the insurance deductible just like the other members on the boat.

The first model wasn’t available to me since the boat was already a couple of years old so I went with the second model and we were off and running. As I didn’t plan on using the boat very much, I “sold” my membership back to the fractional company and received a small payment from them each month in which they had over 50% occupancy which was most of the time.

Generally, the arrangement worked – most of my mortgage was getting paid and the boat was being well cared for. However, two things bothered me about the situation. First, I was not able to have any control over who became a member on my boat (some people just shouldn’t drive a 37 foot long watercraft) and second, because there were quite a few people using the boat (up to 7 members on any given month), the engine hours skyrocketed and the wear and tear and bumps and bruises associated with heavy usage was starting to show. Not to mention the fact that I had very limited access because it was always in use at the times I might want to use it – even though I had sold my membership back to them, I was still able to take the boat out for a daily fee.

After having the boat in their system for about a year I decided I could probably do better on my own. I’d be able to substantially reduce the number of members and corresponding wear and tear and would likely come out better financially at the same time.

Going it Alone
Since the fractional boating company I had been with was charging $750 per month per member, I figured I could charge at least that as I’d be having far fewer members giving all involved more time on the boat. I initially put an ad on CraigsList which basically resulted in a lot of spam in my inbox. Then a couple of the people who had been members on my boat when it was in the fractional boating company contacted me and to inquire about getting back on the boat. We arranged to meet out on the boat and talk through the possibilities. They were genuinely nice guys and we decided to move forward.

I was now actually netting more money than I was under the fractional company and, had full access to the boat just about any time I wanted it. Additionally, the usage of the boat went down substantially – only three members versus 7. I think the biggest change was the difference in my relationship with the other two members. While I had the boat in the fractional company, the other members were acquaintances at best. I never really had any interaction with them and would never have invited them on one of my outings. After we transitioned out of the fractional company and started doing our own thing, we actually started hanging out together, going to lunch and taking the boat out together. A sense of ownership grew amongst the group with a corresponding higher level of care and more careful usage. Now that Scratch that no One Did, found an owner, the boat always came back ready to go out again and if there was a scheduling conflict, we just went out together, The boating experience had transitioned from fighting to get the boat scheduled on the holiday or weekend we wanted to the three of us working together to maximize usage for each of us and do what was needed to make sure the boat stayed in great condition.

There were a few issues though – should we use a contract? What kind of insurance should I get? What happens if someone wrecks the boat? How would we handle scheduling? What about payments? We looked around for some sort of infrastructure on the Internet which could help us with these issues, but really couldn’t find anything substantial and this was the Birth of Nautical Monkey.

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