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Wealth Planning

Buying a luxury yacht in 2022?  Here’s what you need to know

A quick guide to true costs, the current market and ensuring the purchase fits into your broader financial plan.


 


Warm weather always coaxes yachting enthusiasts into the water and inspires many to dream of helming seagoing vessels of their own.

The United States has long led the world in the number of luxury yacht owners. But ever since the COVID-19 pandemic hit the states in early 2020, there’s been a boom in yacht buying, particularly among Americans—though Europeans may not be far behind. And for many of the wealthy everywhere, the desire seems to be the bigger, the better.  

If joining the grand tradition of yachting is your passion, we suggest making this major purchase with your head as well as your heart. To that end, we offer this quick guide to true costs, current market conditions, all your options for venturing into the sea—and most importantly, how you might ensure owning a yacht meshes with your other financial goals. 

Your options for venturing out into the sea

Yachts are by definition any sea vessel used for recreation. If you think you might like to buy any kind of yacht, step one is, of course, to define how you’ll use it: With how many people? Going how far and where? How often?

Your answers will help you decide whether it makes more sense to build new, buy pre-owned or just charter—and how big and well-appointed the yacht should be. 

For example, you could choose to own a relatively modest yacht, but then charter a “superyacht” or “mega yacht” every year for an extended family-and-friends vacation.

Initial price tags for luxury yachts that are privately owned and crewed start at about $2 million. But the purchase of a superyacht (those at least 24 meters or about 79 feet long) can run into the hundreds of millions.1  (By some accounts, mega yachts are 60 meters and longer.2 )

Of course, final price tags depend not only on final length, but also amenities (swimming pools, hot tubs, decks, gyms, suites, bars, dining areas, offices, helicopter hangars, etc.). 

Expect annual costs for maintaining and operating a private yacht to be at least 10% of its purchase price. This percentage includes paying for the crew, dockage, boat insurance and maintenance.

Note this estimate does not cover fuel, insurance or security for any valuables you might keep on board (some valuable art collections are kept on today’s superyachts).

Current demand for new yachts is high; wait times, long

Wait times for a custom superyacht are now three to five years, and demand may be expected to push prices higher.

While the pandemic temporarily slowed construction, it also fueled the demand for yachts 24 meters and longer. According to Boat International’s 2022 Global Order Book, a record 1,024 superyachts were under construction or on order in 2022, a rise of 24% over the previous year.3 

Much of this new demand comes from the United States, which has 500 more billionaires now than it did before the pandemic, ending the year with around 2,755, according to Forbes.4  COVID-19 lockdowns and travel restrictions led buyers to seek superyachts as COVID-19-secure “floating islands.”5 

If you are looking to set sail immediately, you’ll have to consider alternative options, such as chartering. Demand for charters also reportedly rose during the pandemic, but it’s always a popular choice, even among some of the world’s wealthiest.6 

Practical considerations

When deciding whether to build, buy pre-owned or charter, it’s wise to consider how each of these options might affect your overall lifestyle and other financial goals. Each comes with different cash-flow implications and tradeoffs. 

For example, chartering would likely cost you less (all-in) and may give you access sooner—and to a larger vessel. But of course, then you’d be dependent on availability. On the other hand, if you build, you can customize amenities to your liking and have unfettered access. Of course, then the price tag would be higher, and you’d likely have to wait for delivery. But you could charter in the interim.

If you do decide to purchase, you’ll naturally want the best advice from such experts as: 

  • Brokers to help you identify a yacht and negotiate the purchase
  • Lawyers to help you decide where to flag the vessel, and to set up all the contracts, etc.
  • Surveyors to help you identify hidden defects and technical issues with the yacht
  • Managers to help you oversee the operations and maintenance of the yacht once it is delivered
  • Private banker and investment manager to help you make sure this new commitment is incorporated into your wealth planning, and to find your best financing options

Even if you are able to afford to purchase the yacht outright (with cash or by liquidating assets), you may want to consider whether doing so is the most efficient use of your capital. 

You may find it more efficient to borrow against your assets (e.g., a loan secured by marketable securities). Or your financing could be secured by the yacht itself. Indeed, given the demand for newly built yachts, construction financing might prove to be a compelling option.

Your financing would be tied to the scheduled payments due to the shipyard or manufacturer under the purchase agreement. As an alternative, you could create a contract with the initial payments funded by your equity.

For new yachts, about 50% of the contract price is typically needed as a down payment.

We can help

Buying and maintaining a yacht is a large financial consideration, but there are some additional planning issues you might want to keep in mind, including:  

  • Setting some ground rules with your family for who can use the yacht, and when and how
  • Considering how you might own it (in a trust limited liability company or limited partnership) to potentially protect your personal finances from liability
  • Accounting for it in your will, so it’s clear what should be done with the asset 

Your J.P. Morgan team can help you think through all your options and considerations so that you might ensure this new commitment is incorporated into your family and financial plans. Specifically, we can help you make sure your liquidity and lifestyle buckets are funded and invested to help support your owning and maintenance of a yacht for adventures on the high seas.  

 

 

 

1.Technological advances keep making it possible for motor yachts to grow larger and more comfortable (modern gyros can reduce rocking and rolling by 90 to even 95 percent). At last count, the longest yacht, named Azzam, was 180 meters and cost an estimated $600 million to build in 2013. Tamara Hardingham-Gill, “10 of the world’s biggest superyachts,” CNN Travel, November 25, 2021.  Lenny Rudow, “Yachts of the Future: Boat Trends In 2022 and Beyond,” Yachtworld, May 20, 2021. 
2.“What’s the difference between a superyacht and a mega yacht?” John Warren, CEO, Premier Separator Services Ltd., LinkedIn, August 22, 2020.
3.https://www.boatinternational.com/yacht-market-intelligence/luxury-yachts-on-order/how-many-superyachts-on-order-for-2022.
4.2020 “was a record-setting year for the world’s wealthiest—with a $5 trillion surge in wealth and an unprecedented number of new billionaires.” Forbes’ 35th Annual World’s Billionaires, Forbes, April 2021.
5.Supra 4.
6.“Private yacht vacations are on the rise and may not be as expensive as you think,” Travel & Leisure, March 13, 2020. 

 

 

 

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