Boat Leasing for Commercial Use?

[BrianW]

Gents,

I'm looking for some information on leasing a boat for commercial usage (guess the subject line already said that. [img]smile.gif[/img] )

The plan is to run a small hunting/fishing charter operation up here in S.E. Alaska. Both activities will require accommodating the clients onboard for 3-7 days, so I'll need a large boat.

The down payment requirements these days seem to run around 25% for getting a loan. We're talking about boats that run from $100,000 to $200,000 dollars, so that a lot of cash. I was thinking that perhaps it would be better to lease a boat for a couple years, then if things work out, I could buy one. Or maybe a 'lease to own' sort of deal.

There is a boat in town (this ones not wood, sorry) that would do the job perfectly. Plus, it's set up for power trolling. I could buy a permit and work the winter King salmon fishery in the off-season. Anyhow, it's a classic story of an older fisherman setting up his boat with all the proper gear and equipment, then getting too old to use it after he's done. There's a lot of very nice aluminum and stainless steel rigging, the non-skid decks look barely worn, etc. It's hard to put in words, when a boat looks 'right', but I'm sure you folks know what I mean. Such a shame the owner didn't get to use it more. It's been sitting in the harbor for what seems like 5 years. The bottom has a ton of growth, but somebody is taking care of the top, because it's clean and there's no moss growing in the little seams which is common around here.

The 'grapevine' says the boat owner is looking to sell, but there's no 'for sale' sign on the boat. My thinking is that I could lease the boat from him for two years, at approximately $1,000 a month (just a guess.) In two years the owner has made $24,000 from his boat which was just sitting at the dock before, and I get to test the charter business waters without the debt load of a $150,000 boat. If things don't work out, I'm not stuck trying to sell the boat.

That's the basic deal, but I have some questions...

I'm guessing the boat would survey at somewhere between $100,000 to $150,000. How is the cost of the lease determined? By the value of the vessel, or the amount of income the lessee makes from operating the vessel, or the lessors payment, plus some profit? Is there an industry standard for this?

Who pays for major repairs? Naturally I would pay for and perform normal maintenance. But say one of those diesels that's been sitting for way too long throws a connecting rod halfway through the lease agreement? My guess is the owner pays for that repair. If I hit a rock, then obviously it's my responsibility.

When I ran a search on the internet for 'boat lease contracts' not much came up. Lot's of stuff for leasing houses and cars though. How standardized is this sort of thing in the marine community?

There's more questions, but I'm betting that the replies will lead to stuff I haven't even considered yet. [img]smile.gif[/img]

Thanks

[Donn]

The first question I would ask is "are you a fisherman?"

[BrianW]

Donn,

Nope, not a commercial fisherman.

I'm a Coastie helicopter mechanic/crew member and I'm planning on retiring in 18 months.

I'm not even the worlds greatest sports-fishing dude. [img]smile.gif[/img] Hunting is my main hobby. But hunting seasons only run from late-April-early June, then again in Sept thru November. That leaves me with about 3 months during the summer in which I need to work the boat. Given the vast number of folks who come up here to fish, and the fact I'd have a 'fishing boat' [img]smile.gif[/img] , I decided that running a fishing charter operation for those 3 months would be a good thing. However, the harbors are already flooded with the 'day charter' boats (usually 27' Sea Sports or Parkers.) Even their multi-day trips involve running back to town every night for lodging. Seems like a waste of diesel and time to me. I want to offer a multi-day fishing package where the client sleeps onboard and we travel a bit farther from town.

Power Troll permits are running about $13,000 these days. It may, or may not, be worth it just to fish the winter king season during the winter months. It would be nice to use the boat nearly year around, with an annual haul out in March.

[Donn]

Brian..in order to be a successful charter fisherman/hunter, you have to be able to put customers on fish/game, in any conditions, and keep them comfortable at the same time.

Can you do that?

[BrianW]

Donn,

I know I can do that.

'Comfortable' is relative, right?

If they day charter guys are getting repeat clients every year, then I guess 27' Sea Sports are comfortable enough for most. So I'm guessing a 50' fishing boat with bunks, a galley, head, etc would be more than comfortable enough.

It's the same deal with hunting. There are smaller boats out there, but I've talked with some guides who worked on them, and they told me the clients really thought the boats were too small.

Our location makes fishing and hunting success the norm rather than the exception. It doesn't take a genuis to catch the fish here. [img]smile.gif[/img] The black bear hunting areas are first class, and well known in the hunting community.

Please keep asking questions, as it force me to think even more about starting a business. But, I would like to hear more about the leasing deal.

Thanks

[dan-marques]

I have no experience from which to speak of, but I imagine liability would be an issue that needs to be carefully considered by all.

If you go and get 4 sportsmen killed, their familes are going to sue both you the charter operator, and the boat owner. I'm assuming that you already though to incorporate, and have insurance, but the boat owner needs to do the same.

I have no idea what the costs would be, but the boat owner is probabally going to account for that in the price of the lease payments, etc.

[BrianW]

cfn,

Good point on the boat owners liability. Maybe we can incorporate together?

Insurance is required by several folks. The State, the Feds, and banks. I'll have insurance! [img]smile.gif[/img]

[BrianW]

Was just checking some costs on the costs for setting up a LLC in Alaska. Fees run about $250 for the State. Found one lawyer who will set it up for another $350 on top of State charges.

Anyone know what happens if a major repair is needed (like the engine blows) and the boat is inoperable for several months? Are the lease payments adjusted to reflect the less than full term of usage? Suppose the owner drags out the repair, can the lease be cancelled?

Any help locating some sort of industry standard would be most appreciated.

[Donn]

Try posting your question on the National Fisherman discussion board. The link is in the lower right hand corner of the home page. The site and the magazine might be good places for research, too.

[BrianW]

Donn,

Not much traffic there, but I went ahead and wrote the moderator asking for permission to post my question.

Kind of strange software program they're using. Such a large publication could do better, but then their subscriptions may suffer.

Thanks

[BrianW]

Still no reply from the National Fisherman Magazine. But I thought I'd bring this up to the top again (although Ian's post about protecting the sail boat from Isabel was more interesting [img]smile.gif[/img] ) to see if anyone who only checks in on weekdays may have some ideas.

Just for fun, here's the boat I'd like to lease...



Thanks!

[ 09-22-2003, 03:57 PM: Message edited by: BW ]

[Gary E]

BW,

As for leasing, I used to own a machine shop and I leased equipment based on a final $1 buy out. The terms of the lease are between you and the leasing company, in the end they are just loaning you money. And as for leasing if the equipment stops working?.... good idea if you can pull it off, Rodger Penske did when he bot Detroit Diesel from GM, no production, no payment. The norm is that you are responsible for all of those costs.

As for setting up a C Corp or S Corp, I sugest you look at a state where the majority of US Corps are, Delaware, or another state with favorable rules, Nevada. You dont need to go there to do it and you dont need a lawyer to do it for you. I had a Del Corp, and never went there. I dont know if a LLC is any diferent.

Also many boats have the home port in Wilminton DEL, boats that have NEVER and WILL NEVER EVER get anywhere near Delaware.

G

[ 09-22-2003, 07:13 PM: Message edited by: Gary E ]

[BrianW]

Gary,

I've been reading a book on setting up corporations (not quite a 'Corporation for Dummies' but darn close and I need it ) and I am thinking a LLC in Nevada sounds like the way to go.

Actually I was not looking to lease to own, at least not right now. It would be nice, if the boat works out, to have part of my lease payments counts towards a down-payment. Not sure if that's possible. It been tough getting info on this subject.

Thanks

[ 09-22-2003, 07:16 PM: Message edited by: BW ]

[Gary E]

Brian,

Sounds like you are on the right track. And the lease deal you may put together is going to be quite diferent than a typical one, sounds like you are talking with the owner, and that makes it easier to define what each of you wants. Whutz the worst thing he can say? No? or how bout this?

Good luck,

G

[MickeyLane]

Brian,

I really think you need to re-think this thing through again. Your income season is 3 months and your expense season (at least as far as the boat goes) is 12 months. You really have to do everything right the first time if you're going to see any profit from this deal.

Suggestion: Write down a complete business plan - soup to nuts - and take it to a banker as if you're looking for a loan. If you're refused, there might be a valid reason that you need to know about. 9 out of 10 small businesses fail because someone didn't do their homework.

There's all sorts of business plan info on the web. (Been there, done it, etc.)

Good luck with it. I was up in Haines this spring and its a great part of the country to be in.

[BrianW]

Gary,

Your right, I will be dealing with the owner, which means almost anything could happen. As long as he is free of any liabilities, he could be making money on a boat that's just sitting there. I'm fairly sure he'd rather sell it to a family member, but that hasn't happened in the last 5 years I've known the boat. He may feel that a short-term lease can net him some cash, but he still get's his boat back in the end.

[BrianW]

Mickey,

I went back and reviewed the post where I described my intended use for the boat, and can see where you got the 3 month number.

Actually I'd be using the boat from late-April through early-June for hunting charters, then once again in the September through November time frame for hunting charters. During the summer months (the 3 months) I would run fishing charters from the boat.

During the winter I could do some power-trolling for King salmon. So I could keep the boat fairly busy most the year. Still need time for a vacation! [img]smile.gif[/img]

I have run some Excel spreadsheets, but they need revised for this business plan. Your suggestion on taking the business plan to a bank is a good one. They would let me know where I'm screwing up. [img]smile.gif[/img]

[Phil Young]

The company I work for leases aircraft, maybe some similar principles apply. I'm not on the commercial side of the business, but here's what I've gleaned-

Basically there seem to be two types of equipment lease. You can take a lease for a set term and a fixed lease cost, where you are responsible for all maintenance, both scheduled and unscheduled. You pay for regular servicing, you also pay if an engine blows up. You go in with your eyes open, and do a really careful inspection before you lease on that basis-particularly if the equipment has been out of service for a while. Or, you can take a "power by the hour" deal, where you pay for the hours the equipment is used, and the owner is responsible for all maintenance and repairs. Can't tell you the actual costs, but I guess its a formula based on cost of finance, depreciation, maintenance, insurance, plus a profit margin.

[Jonathan Kabak]

BW,

To attack this question from a different perspective...

First are you going to be carrying passengers for hire? I am assuming (always dangerous) that you will be getting underway from the dock. If so then you need a Master's License. Now how many people do you intend to carry? More than six and you are now entering the world of inspected vessels. Six or fewer and you have an uninspected passenger vessel.

If you intend to have your passengers stay onboard for several days rather then sleep ashore you are operating a hotel which may have additional taxes, permits, regulations etc... This is also very important for insurance reasons.

In regard to the terms of the lease, you can set them up pretty much however you like. It will ultimately be determined by both yours and the owner's business prowess.

Finally on a note of optimism I hope it all works out for you but remember to protect yourself Physically and on paper) from self destruction.

Jonathan

[BrianW]

Jonathan,

Thanks for the help. Given the lack of information available for this sort of lease, except for leasing sailboats for pleasure, I've gotten the impression we could make our own terms, check them out with a lawyer/insurance agents, and write a contract.

Yep, I've taken, and passed the USCG Operator of Uninspected Vessel (six pack) test and only lack getting my CPR/First Aid card before I submit the final application. I qualify for the 25 ton Inland Masters and a OUPV 'near-coastal'. The ideal number or clients per trip would be four, but I'm prepared to take six.

Besides the business license, I will also need...

Alaska Commercial Fisherys Entry Commission commercial and Sports Fishing Vessel License.

Alaska Transporters License.

USFS Special Use Permits for the Tongass NF.

Alaska Power Troll Permit.

...to operate as a fishing/hunting charter and commercial firsherman. The Transporter License covers 'accommodating' clients onboard the vessel. Can't sell alcohol or tobacco though. [img]smile.gif[/img]