With the rising popularity of yachting as a leisure activity, investing in yachts has become an attractive prospect for investors looking to tap into the luxury tourism market. However, yacht investment requires careful evaluation of factors like ownership models, operating costs, regulations, demand-supply dynamics and exit strategies. This article provides an overview of five key considerations for assessing the viability of yacht investments.
Yacht investment has high upfront costs but lower operating expenses under charter model
The purchase price of a yacht can run into millions of dollars depending on its size and features. However, the preferred ownership model for yacht investments is via a charter company that covers maintenance, crew, insurance while the owner gets a share of the charter revenue. This greatly reduces operating costs for investors. But regulations on charter licenses and foreign registries need to be reviewed.
Demand for yacht charters is increasing but oversupply can hurt yields
The yacht charter market has grown steadily in recent years driven by rising high net worth individuals. But capacity expansion needs to align with demand as oversupply can lead to lower charter rates and utilization rates. Markets with upcoming events like the FIFA World Cup that attract high-end tourists are attractive in the near term.
Yacht recycling regulations are making resale and exit challenging
Earlier, aging yachts could be sold conveniently to boatyards in South Asia for recycling. But with new international regulations on waste reduction, reselling old yachts has become difficult. Investors need to account for higher ownership periods or lower resale value in their projections.
Preference for charter ready yachts that have the latest features
Yacht buyers prefer charter ready models that have latest amenities and technology onboard to command higher charter rates. Refurbishment capex on older yachts may be required to meet charter standards. New yachts also have lower maintenance costs due to warranty coverage.
Rising diesel and operational costs need to be budgeted for
A surge in crude oil prices in 2022 increased diesel costs significantly adding to operating expenses. Insurance premia could also rise in future renewals. Hence revenue projections need padding for higher budgeted costs to avoid earnings squeeze.
While yacht investment offers substantial revenue potential, diligent evaluation of purchase costs, ongoing expenses, regulations, demand-supply, and exit strategies is crucial before committing capital.