Partnerships to Own a Cat in Charter

I've half-heartedly looked into this a little in the past but a recent email got me thinking about it again. That email was for a 1/5 spot on a 52' cat that would just be way too big for our interests. I'd like to explore the advantages and disadvantages of doing something like that with a 45' cat and would love to hash it out with someone who has experience.

Does anyone here have any specific experience, not just with owning a charter boat but owning it as a partnership? I feel like it's a big investment and a big risk that might be better is spread around. However I'm sure there are pitfalls I just can't predict.

I'm curious about requirements for proving non-passive income.
Total strategy in terms of not just getting in but eventual exit strategy. What's the tax exposure when you cash out of a fully depreciated boat?

There's some other stuff but you get the idea. I feel like it would be great for getting us on the water more often but I feel like there is an awful lot I need to learn.

Thanks to anyone who wants to be my voice of experience.

Dave

I would think dealing with a charter boat owned by 5 different individuals would be very problematic. Since few charter boats are profitable without figuring several weeks a year of the $ the owner would be spending on chartering the boat. This “phantom “ income of say sailing for 4 weeks to be worth let’s say 35,000$, makes the losses over the life of ownership much more likely to be “worth it”. Coupled with income minus expenses the rest of the year for some this is an appealing situation.

What you are talking about is quite different indeed. If all 5 parties use the boat 4 weeks a year...you are not going to have much charter income. A reputable charter company is now t likely goin towant to get involved and if they do I’d expect they would charge a premium over a single owner vessel. Generally speaking maintenance and turnaround fees in an income split charter arrangements are quite high. For example let’s say the turnaround fee is 1000$ . That’s not so bad if the charter is going out and you are getting 6000 from a charter. But let’s say you have 10 owners trips of two weeks each year, that will be 10 k in turnaround fees with no income to offset. With 5 Owners it is likely they will all want to use the boat at least a couple weeks during “high season.

There is no way in he** such an adventure will be viewed as active participation by the irs.

Finding 5 “partners” that will be wanting to do this will by necessity mean you will know little about their seamanship or how careful they are with “nice things” . Of course that is true of charter guests as well. One person would have to be the managing partner and liaison with the charter co... it will be a thankless job and likely to be disliked by other members and the charter co.

Probably a better idea with 5 interests is forget chartering and purchase a private vessel for the use of the 5 interests. .Good luck.

There are quite a few details that would need to be hashed out with the partners to make this work, but my free advice would be to make sure you have a rock solid operating agreement. When things are going well, nobody thinks about it, when the [censored] hits the fan a poorly executed operating agreement is normally the reason partners end up in court. I won't work with any business entity clients that don't have one, and if new clients come to me without one, it is made clear they must have one within X days or we will disengage from that client.


Good Luck

I want to jump in before too many assumptions are made here. I'm not looking to question what that other group has done. It's my understanding it's been going for over 10 years and has been successful for them. There are answers to some things Will questioned like there being only 2 owner weeks and that for each owner trip the traveler pays the turn around costs among other things that might be different than what most owners have.

But again, I'm not looking to dissect their system. Rather, I know these partnerships are out there and have worked for some people. What I'd like to hear about is from some people who have the experience of working this all the way through from conception to exit and see what their thoughts are. Both the successes and failures.

BTW, if you'd rather not put business out there feel free to PM me and we can exchange emails.

Thx

Have you checked out the Moorings or Sunsail owner information? Cash positive for first five years.
But most loan amortizations for 10+ years. So main issue is what you do after the 5 year phase out.
I know two Moorings ownership groups. Formed LLCs with +-10 members. Good results, but must be structured properly.

While not exactly on track with this thread, my advice would be to buy a smaller boat by yourself and save yourself a lot of grief.

Or at least limit the number of partners to the absolute minimum.

Or have more partners and don't put the boat in charter? Maybe 6 shares at 8 weeks per year, or 12 shares at 4 weeks per year, or even 24 shares at 2 weeks per year (owners could buy more than one share if they want more weeks). With twelve owners entry costs could be as low as $60-65,000 per share for a nicely equipped new 45' cat with no loan and ongoing costs could be allocated equally to each share. People could own more than one share and shares could be bought or sold with first rights of refusal to existing owners. I also think the boat would be better taken care of in this situation and the group would have more flexibility in terms of where it is located (and when) as well as control of the related costs and expenses. Plus, you could branch out and away from the typical charter boats if desired. As stated above, you would want a rock solid partnership agreement with a defined exit plan. If we weren't in the middle of another project right now I'd be interested in being part of that type of agreement.