Depreciation rate for boat upgrades

[Insequent]

I did an extensive upgrade on my boat in 2012-2013. Re-power, Naiad's, new fuel tanks, basically rewired, new switch panels and more. I've had trouble free cruising for over 2000 hours on the engines, which was the objective of doing everything at once at that time. The only stuff I've done since were items not touched way back then. These include windlass and hot water system. I'm not contemplating selling, but am wondering what would be a reasonable rate of depreciation that could be applied. After all, by now I could no longer claim new engines' etc.

What I was thinking was the initial purchase price, for a boat that was then 30 years old, had basically flat-lined or effectively be 'fully depreciated'. Or perhaps look at it this way, assuming good condition the annual routine R&M spend to keep in good condition equals the depreciation, so zero sum for the year.

But my major upgrades could reasonably be expected to depreciate at some annual rate. I'm curious as to what that rate would be, in the considerable wisdom available here!

Ideally I would be interested in an annual rate that could be applied on a declining balance basis to derive an estimate of reasonable market value, in my own mind at least. Its not for any tax purposes or accounting calculations. I think for boats in particular, where sale-comps are often not available, "fair market value" is a bit of an imperfect science to put it mildly. Condition is so variable etc.

Now, an engine can last many years, can have a wide range of annual operating hours and be operated at high or light loads. A bow thruster could have an entirely different depreciation rate. With some work I could apply different rates for different items, perhaps an annual rate for materials, but year 1 100% write down of labour costs. It would be easy to over-think or over-calculate. But what would you regard as a reasonable number to apply across the board?

 

[socalrider]

Oh man... I don't think you can do what you're looking to do. Right now it's a seller's market, but that could change & whatever your depreciation assumptions are would be invalidated.

Also each upgrade has a different value to different sellers. Someone looking for a dock condo might not even know what a repower is or how much $$ it costs. That person could offer you full asking price in cash because there are only 2 50'-ers locally and you vacuumed your floor recently, and the other one smelled of cigarettes. I exaggerate but only a bit.

Most refits preserve value, rather than enhancing it if that makes sense. You'll have a hard time selling a boat with a hot water system leak, but few will give you credit versus the same boat next door with its original system that hasn't leaked yet.

 

[Insequent]

Oh yes, you are right. So many variables and impossible to calculate 'properly'. And value is always in the eye of the beholder. I could just make a WAG. And I'm just curious, not selling.....

 

[socalrider]

Oh yes, you are right. So many variables and impossible to calculate 'properly'. And value is always in the eye of the beholder. I could just make a WAG. And I'm just curious, not selling.....

I remember someone suggesting 10% of your spend could be added to the asking price. For a year or two.

Something binary and desirable like stabilizers (has it/doesn't) seems like it would be somewhat more persistent.

Something that you assume should work (wiring, windlass, hot water) probably washes out after a year or two.

An interesting exercise would be to look at the range of selling prices for a given boat; a broker would have this data. You could probably pull something meaningful out of looking at a relatively common model like, say a 4788 or a Mainship 390.

I suspect you'd find that for a given model, setting aside "project boats" where something major doesn't work, the range in prices is +/-, say 20%. Meaning that you're also fighting comps when you look for credit for your upgrades, and you're unlikely to get above a certain amount regardless of the $$ you've spent.

 

[klee wyck]

How about this depreciation schedule:
On major refit items. For the first year, twenty percent of the investment disappears upon re-launch and then 10 % for each of the next six years of moderate cruising. The last 20% of the value of the upgrade hangs on for a long while.

 

[fgarriso]

How about this depreciation schedule:
On major refit items. For the first year, twenty percent of the investment disappears upon re-launch and then 10 % for each of the next six years of moderate cruising. The last 20% of the value of the upgrade hangs on for a long while.

I agree. That seams to be in line with everything I have seen.

 

[mvweebles]

As a guy who has similarly over improved a boat, I noodle over the same question.

There is a hard ceiling to the value of an older boat, a point beyond which buyers have other options and simply exit the market for a boat (or never entered it in the first place). Buyers have budgets and shop in ranges so it's hard to cross over categories.

Depreciation by definition means an asset has residual value based on installed cost spread over its useful life. There is a financial high water mark for any boat, beyond which any added upgrade has $0 immediate value let alone residual value no matter the useful life. Absent a smitten unicorn buyer, probably hard to fetch more than a 50% premium over average selling price for a production boat, at least in normal times.

Sounds like you have the nicest OA50 on the planet, one of the nicest designs on the planet. Congrats.

Peter

 

[OldDan1943]

Any improvements I have made on my boat were for me, with respect for the next owner.
One cannot sell a boat with a non-working main engine etc and expect to get a good price.
What you have added to the boat, to me, means little or nothing. Maybe all the improvements I added will make the boat sell faster but, I dont seek a higher price.
Examples? The number of cabinets I added or stainless hand holds or the dripless shaft seals..... These are all for my benefit. Maybe the next owner will appreciate these and other things, maybe not.
The important thing is *I* appreciate them.

 

[PM]

Improvements on a boat, even major ones like a new engine or new fuel tanks do NOT add any value to the boat. They may add a tiny amount at resale but only if done in the preceding 6 - 9 months, otherwise you are looking at a big $0.

Depreciate at 100% after two days. Sorry but thats the way it is in the real world.

Those improvements (upkeep would be a better word) are GREAT selling points, making your boat more desirable to the future buyer but don't fool your self into thinking you will get any of your money back. (Notice I didn't say investment).

Here is a personal example. Two years ago my boat might have been worth about $30,000. I put a new engine in it last year, actual cost $20,000. Does that make the boat worth $50,000? No, more like about $32,000, negotiate down to about $30,000.

pete

 

[Larry M]

Brian: From an insurance stand point, the underwriters dropped the agreed value of Hobo 26% from 2012 to 2020. She is 34 years old. They said they may insure Hobo for a higher value if I could justify it with a survey but there was no guarantee so I declined. I do think some boats hold their valve better than others.

 

[O C Diver]

At around 10 years since the upgrades, I would assume there is little to no value above top value for boats of same make, model, and year.

I can certainly see an added value for a boat with a one or 2 year old engine. The added value in my mind would be less than half the cost after one year. When the old engine was removed, the boat would have a reduced value as the boat is expected to have an engine to be of market value. Installing a new engine must first bring the boat back to market value before it can be increased. The same is probably true for electronics, exterior paint and most other items.

Ted

 

[Greg Salish Cruiser]

Any improvements I have made on my boat were for me, with respect for the next owner.
One cannot sell a boat with a non-working main engine etc and expect to get a good price.
What you have added to the boat, to me, means little or nothing. Maybe all the improvements I added will make the boat sell faster but, I dont seek a higher price.
Examples? The number of cabinets I added or stainless hand holds or the dripless shaft seals..... These are all for my benefit. Maybe the next owner will appreciate these and other things, maybe not.
The important thing is *I* appreciate them.

+1 - Just sold my boat. I did A TON of expensive work on it as I was not planning to sell it. I just sold it at what I would say is the higher end of (but certainly still) FMV which is capped for an older boat. Sold in one day (to the broker who grabbed my iines at the sales dock). I maybe could have painfully eked out a few more $$ given enough time and energy. Then again, maybe not... Happy with what I got in the end.

 

[bayview]

As a buyer unless I am exclusivle in love with that model

2000 hour engines, no big deal. Thee are lots of boats with modern engines

I expect boats o have wires in good shape.
newish tanks would be a reason to putt the boat of that age higher in my list.

However there are many other things on the boat that are old e.g. windows, steering etc

 

[DDW]

How about this depreciation schedule:
On major refit items. For the first year, twenty percent of the investment disappears upon re-launch and then 10 % for each of the next six years of moderate cruising. The last 20% of the value of the upgrade hangs on for a long while.

I think it is much steeper than that (unless the boat is a unique custom with no comparables). After relaunch, 70% depreciated, next year an additional 15%, after two years effectively even. They may make the boat sell faster but the overall condition sets the price, typical upgrades being usually a small part of that.

 

[socalrider]

I think it is much steeper than that (unless the boat is a unique custom with no comparables). After relaunch, 70% depreciated, next year an additional 15%, after two years effectively even. They may make the boat sell faster but the overall condition sets the price, typical upgrades being usually a small part of that.

I still think the addition of something desirable and expensive like stabilizers in the Pacific or AC in Florida, or a re-power, will add persistent value (though at pennies on the dollar as we all seem to agree).

Something like a full electronics upgrade probably follows your suggested curve.

The argument about "maintaining value" versus "adding value" is kind of interesting - they're really the same thing; all of us are fighting the depreciation curve of the vessel as a whole - what do we think on that? 10%/year is what I've always assumed.

 

[DDW]

I'd agree that an addition that adds a significant capability to a boat will increase its value - but not much more than that same feature as originally installed. In other words, the fact that it is new isn't very relevant, only the fact that it is present.

 

[JLD]

I would offer that quite often "upgrades" are really part of maintenance and not really improvements.

I have heard folks often say that "upgrades" often don't raise the value of a boat, but make that boat a lot easier to sell.

Jim

 

[denverd0n]

Coming up with a schedule... I wouldn't even try.

I think adding stabilizers probably adds some persistent value to the boat. Only a fraction of what they cost to install, but still something.

Rebuilding the engines and replacing the tanks probably adds some value also. Though I think that value will depreciate to zero within 3-4 years at most.

Things like wiring, switch panels, electronics, new galley fixtures, anything else, really... I don't see those things adding any value at all to the boat, or if they do then they depreciate to zero within months at best.

 

[Shrew]

Very little of what you add, adds value IMHO. Most of the money you spend, only makes the vessel sell faster or easier. You could take a vessel worth $100K and put $70K into it. It simply will not sell for $170K.

You can add $25K in electronics, but if the vessel is expected to have electronics, you can't simply add that to the bottom line.

To me the time to dump money on a boat is when you first buy it. Then the rest is maintenace and upkeep. Once you get to a point where you have the next round of large expenses, you have to think hard about simply moving in to a newer boat.

I liken it to the guy that takes a small ranch or split, then just keeps adding on and adding on and adding on some more. Eventually you step back and say "Maybe I should have just sold and bought the house I wanted".

 

[slowgoesit]

I think it is much steeper than that (unless the boat is a unique custom with no comparables). After relaunch, 70% depreciated, next year an additional 15%, after two years effectively even. They may make the boat sell faster but the overall condition sets the price, typical upgrades being usually a small part of that.

This is more in line with what I would figure. Unless something is added that most boats of class/age don't have (the only thing you mentioned might be stabilizers) I don't really see any added value, just more buyer appeal. New tanks, or old tanks that are functional . . . I would prefer the one with new tanks, IF they were installed correctly, but added value? Not so much. Might make me offer on your boat instead of the boat with the old tanks . . . but not much difference in my offer price . . .
Besides, as mentioned previously, your "upgrades" may not even be what a buyer is looking for.

 

[socalrider]

Besides, as mentioned previously, your "upgrades" may not even be what a buyer is looking for.

Yep, or in a boat that's not what they're looking for!

We bought our boat because after 5 months of looking she was the only one we found in SoCal with 3 staterooms under 45'. The PO had spend $10,000 installing a 5.5kW generator to power a 40A battery charger. We pulled the generator and sold it for $4k. It did not impact our offer!

Another funny story - I got a call on our 40' sailboat the day after I'd decided not to sell her and had driven all the cushions down to get re-upholstered ($4k I think). They came and saw the boat with no cushions at all & made me a solid offer (10% below asking, about $45k) which I accepted before the cushions were done.

So my $4k in reupholstery (which genuinely made the boat a ton nicer) returned exactly $0, despite *negative* time passing between installation and the sale!

 

[PM]

IMHO, there is exactly ONE THING which has increased the actual cash value of a used boat.It does not come about often, in fact I have witnessed it exactly one time.

It is called COVID 19. It is temporary but it has lasted almost one year and might last another.

pete

 

[twistedtree]

I think the unfortunate reality is that the cost of improvements made to a boat are largely unrecoverable. I think it does all get rolled into the overall condition of your boat vs other similar boats. But dollar for dollar for any given major improvement I suspect the costs are largely lost. I'd venture at least 50% is lost in the first year, 75% by the second year, and 100% by the third year. And I think that's pretty optimistic.

 

[OldDan1943]

I think the unfortunate reality is that the cost of improvements made to a boat are largely unrecoverable. I think it does all get rolled into the overall condition of your boat vs other similar boats. But dollar for dollar for any given major improvement I suspect the costs are largely lost. I'd venture at least 50% is lost in the first year, 75% by the second year, and 100% by the third year. And I think that's pretty optimistic.

Twistedtree, yup, VERY optimistic.
ANY enhancements made to a boat are made for the current owner's comfort.
All cabinetry I have added to my AT are for MY comfort. I suspect I have increased the usable storage maybe 1/4.
I doubt if the next owner will say, "Gosh, he sure did a lot to increase the storage, so perfect."
If someone tours this boat first, he/she/they will not even notice the additional cabinets. They all blend into the existing cabinetry. When they tour a standard AT34/36, they will notice the absence of cabinets. LOL

 

[OldDan1943]

Let's think for a moment.
If there was an accepted depreciation schedule for a boat, a 30 year old boat would have no value.

 

[smitty477]

In general...
The worse the shape that the boat is in the higher the value of any improvements made.
The better the shape that the boat is in the lower the value of any improvements made.

 

[Ken E.]

Like Insequent, I have rehabbed an old boat. Repower, genset, paint, interior, heads, galley, electronics, etc. I expect to basically get none of this back on resale. The value is in my use of the improvements, and the boat will probably sell faster than its unimproved peers.

 

[OldDan1943]

Like Insequent, I have rehabbed an old boat. Repower, genset, paint, interior, heads, galley, electronics, etc. I expect to basically get none of this back on resale. The value is in my use of the improvements, and the boat will probably sell faster than its unimproved peers.

LOL, if I charge for only the improvements, my boat would be worth maybe $100K. Pity the guy who offers me $100K, he will be about $250K short.
LOL

 

[Shrew]

There is also the differences in what is perceived as 'improvements'. What is a dream to one person is a nightmare to another.

You might love that glass cooktop and the 'cubby' storage below where the oven used to be. The next buyer might be horrified that the oven was removed.

I've seen many who love their composting toilet, when all "I" see is that I need to install a traditional toilet, sanitation line and possibly a new holding tank.

I ran into a thread on a sister site where the guy wanted to remove all of the 120VAC electrical outlets in the entire boat.

Some folks don't see why they need to install a dual voltage fridge, or why a small dorm fridge isn't good enough. (IMHO YUK!!)

Some guys install all their electronics across the helm, so you can barely see over them, while I would prefer they be overhead. Now I have a bunch of holes in the dash to deal with.

In short, sometimes all the money and work only looks like more things I need to fix (more money and work to un-@#$% what the PO did).

 

[CompuNerd]

more money and work to un-@#$% what the PO did

Ah yes, the legendary "owner muddlefications." The Dunning-Kruger Effect definitely comes into play here.