Fractional vs Charter
Monocle Fractional Ownership vs Chartering
COMPARISON CHART
If you are considering purchasing a yacht outright, chartering someone else’s yacht or taking advantage of fractional yacht ownership, we hope the chart below will be informative and beneficial to you.
OTHER BENEFITS
| Sole Ownership | Chartering | Fractional Ownership |
|---|---|---|
| At your disposal 24/7 | No capital investment | Minimal capital investment |
| 100% decision making | No responsibilities | Pride of ownership |
| Pride of ownership | Free to pick a different yacht every year | No responsibilities |
| Permanent crew | Permanent crew | |
| Known commodity | No tipping policy | |
| Guaranteed annual use on your own yacht | Guaranteed annual use on your own yacht | |
| Captain management | Known commodity | |
| Yacht maintained by crew | A voice in decision making | |
| Professional Management | ||
| Yacht well maintained | ||
| All expenses are only 10 cents on the dollar |
Individuals
Fractional Opportunity for Individuals
In this example you purchase a 5% share of a $3,000,000 yacht for $150,000. This “one time” purchase entitles you to use her 2 weeks per year until you decide to sell your share and of course receive the residuals. A perfect example might be two weeks in the Caribbean or two weeks in New England or the Bahamas each year.
The annual operating expenses are shared among the fractional owners based on a percentage of ownership. The total projected annual operating expenses for an 80’ three stateroom yacht with a crew of three in our program is $300,000. Your 5% contribution would only be $15,000 annually.
The Monocle Fractional Program saves you millions on your initial capital investment as well as huge savings on the annual operating expenses because of our fleet purchasing power and purchasing wisdom.
Example
- Total Yacht Purchase Price: $3,000,000
- Your Total 5% Interest Costs: $150,000
- TOTAL ANNUAL OPERATING EXPENSES
- For the Entire Yacht: $300,000
- Your 5% Share Costs: $15,000
THE ONLY OTHER COSTS ARE YOUR CONSUMABLES WHILE ONBOARD. Estimate food, fuel, dockage at $2-3,000 per week. There is no tipping.
Business
Fractional Opportunity for Business
Fractional Concept – Business Ownership Example with 4 Weeks of Chartering and 75% Bank Financing
In this example you establish a business entity to own your share or shares in the LLC that owns your yacht. As a business investment, you can deduct 100% of your share of the annual operating expenses, the interest on the loan, plus 10% annual depreciation of the total investment. In this example, the entire yacht is purchased for $5M. Your 10% share costs $500,000 and you put 25% or $125,000 down and finance the balance at 6% interest only. The yacht will charter for $40,000 weekly. With each 10% share 4 weeks of use per year are allocated. The total operating expenses for the entire yacht are estimated at $400,000 annually or $40,000 for each 10% share. In this example, you decide to sell your share at the end of year seven for $470,000.
| Summary | |
|---|---|
| Purchase Price | $ 5,000,000 |
| Your 10% Interest Investment | $ 500,000 |
| Your Cash Down Payment (25%) | $ -125,000 |
| 75% Financing @ 6% interest only | $ 375,000 |
| Your Depreciation Tax Basis | $ 500,000 |
In this example your tax statement would look like:
| Charter Income (4 weeks @ $40,000) | $ 160,000 |
| Less: Charter Broker Commissions | $ -32,000 |
| Net: Charter Income | $ 128,000 |
| Expenses Annually (Deductible) | |
|---|---|
| 10% Share of Operating Expenses | $ 40,000 |
| 6% Loan Interest on $375,000 | $ 22,500 |
| 10% Annual Depreciation | $ -50,000 |
| Total Expenses | $ -112,500 |
| Net Taxable Income | $ 15,500 |
The net taxable income is decreased by the depreciation amount which is paper loss only for income tax purposes.
There are many advantages for you to establish a business ownership program. One is the liability and the second is the tax advantage. 100% of your share of the annual operating expenses plus the annual depreciation, plus the interest on the loan are all deductible for income tax purposes for each year of ownership.
CASH FLOW STATEMENT SHOWS RETURN ON YOUR INVESTMENT:
| Net Charter Income | $ 128,000 |
| Less: | |
| 10% Share of Operating Expenses | $ -40,000 |
| 6% Loan Interest | $ -22,500 |
| Total Cash Expenses | $ -62,500 |
| Actual Cash Income | $ -65,500 |
ACTUAL CASH RETURN ON YOUR INVESTMENT:
| Cash IncomeInitial Investment | $65,500$125,000 | = 52.4% Return on Investment |
From a purely cash return on cash invested standpoint the return is 52.4%. This assumes a net charter income of $128,000. In the unlikely event you fail to charter one, or even two, of your four weeks you would still realize a positive cash return. Although a smaller return, the benefit would be increased because in that year the business might show a tax loss, which would lower your overall taxes.
| Assume Future Sale in our Example: | |
|---|---|
| Future Sale Price | $ 470,000 |
| Payoff Existing Loan | $ -375,000 |
| Your Proceeds from Sale | $ 95,000 |
Since you will owe about half this amount in capital gains taxes, based on the depreciated cost of your yacht, this may not seem like a lot. But remember, you’ve had a positive cash flow of over $65,000 EVERY year and have only been taxed on about $15,000 each year.
(Individuals should review this information with their personal accountant and attorney.)