Looking for a Boat? Lease or Buy?

Lease-or-Buy a boat?

How one manufacturer is offering an alternative to boaters who don’t want to purchase a boat.

When it comes time to get a new car, do you buy or do you lease? Things to consider in making that decision include whether you plan on keeping a car for a long time or prefer to have a new one every few years and whether you want to avoid the financial costs associated with owning and the hassles of dealing with depreciation and resale values. For many, leasing is an affordable, convenient alternative that allows people with changing needs or tastes to trade in their existing vehicle for a newer model after a few years with little aggravation.

Since,reportedly, more than half of all American drivers now lease their cars, it may come as a surprise that most boat dealers do not offer leasing. After all, the down payment on a purchase can tie up a lot of money, and the residual (resale) value of the boat will drop the minute she leaves the dock. In addition, boating needs, like car needs, can change. There are numerous ways to finance a boat purchase, but few options are available to you if you don't want or can't easily afford to buy a boat outright.

So what about the family with two children which is presently well suited in a 35-footer but might need to upgrade to a 40-footer as the children grow, or downsize to a 30-footer as they become involved in activities outside of boating? Or what about the wealthy businessman with substantial personal assets who wants use of a boat whenever he desires, but doesn't want to tie up $20,000 of his money on a down payment?

Enter Russo Marine, which bills itself as New England's largest powerboat dealer. In combination with Russo Marine Financial Services, the company's own leasing/lending agent, Russo Marine has been offering boat leasing since 1997. President and CEO Larry Russo, Sr. says the program was designed as an alternative to traditional marine financing and to create "a shorter vessel-ownership cycle." Today, leases reportedly make up ten percent of the company's annual sales. In fact, leasing has been so successful for salespeople that "I just spent two hours talking with a customer about leasing who decided to buy the whole boat instead!" has reportedly become a running joke amongst the sales team.

Russo expanded the leasing line to include larger, more expensive models.

While this is an ideal problem for a salesperson to have, many companies have tried leasing, but most have failed. The main reason is that there is no wholesale market for offloading boats at the end of a lease, as there is with a car, says a representative from Sea Ray, which tried leasing briefly in the 1990's and gave up on the plan shortly thereafter. In addition, says the representative, companies have a certain "brand promise" to live up to, which is difficult if the boat came from a lease where the user knew little about important maintenance concerns, like winterizing. Lewis Dorgan, a general manager of Surfside 3 Marina in New York with more than 35 years' experience in the industry, also points out that banks are reluctant to get involved in leasing because there is no easy way for them to determine what a particular boat's residual value will be three years down the road or how much money will be required as a down payment to make the lease work.

But Russo Marine did a few things differently, and has been successful in an area other companies have not. Its entry into leasing began with entry-level boat packages, like that of a Boston Whaler, which could be offered for a tax-included monthly payment of $199 to be paid over three years, thereby opening up the boating market to more people, according to the company. After a year, when it was clear offering leasing was profitable for the company, Russo expanded the leasing line to include larger, more expensive models from Carver, Robalo, Egg Harbor, and Chaparral. Russo's lease terms do not limit hourly usage like automotive leases limit mileage. In addition, Russo created its own leasing company to back the lease so that it didn't have to borrow money from an outside lender.

The most important thing Russo says it did, though, which manufacturers that tried leasing struggled with, was look over sales records to determine a realistic residual value of the vessel. This way the customer knows what the purchase price will be at the end of the lease (since the residuals are assigned at the beginning of the lease, according to Pitts) should he/she choose to buy. If he/she does not, the dealer will own the boat at a figure that allows him a fair profit on the resale of the vessel.

Undeniably, the one drawback to boat leasing is a higher monthly payment.

Leasing a boat is also good for someone who wants to customize the terms of "ownership." For example, Pitts mentions a lease agreement the company did with a British graduate student who was only going to be in the United States for one year and wanted a boat to use while here. Russo created a custom, six-month lease for him, outlining the delivery and pick-up terms by which the dealer would deliver the boat to him in Marblehead, Massachusetts, in mid-May and would pick it up in mid-October. Another customer wanted his lease payment to include everything apart from fuel costs and therefore had Russo include the taxes, warranty, and projected maintenance and slip fees into one monthly payment. So for people who only want a boat for a short period of time, want to get out after three years or so without worrying about resale value, or who don't want to reach into their pocket all the time for the added fees that go along with boating, the custom-designed lease can be a good solution.

Undeniably, the one drawback to boat leasing is a higher monthly payment. In the case of Russo Marine, a lease payment is about twice as much per month as a purchase payment would be, though the company says the end cost of purchasing versus leasing is the same. However, leases can be drawn up with zero money down (but include the first payment and a refundable security deposit equal to another month's payment), as opposed to the typical ten- to 20- percent down to purchase, which on a boat that costs $400,000 can be $80,000. State sales taxes are also factored into a purchase price but not into a lease, since the leasing agent (i.e. the dealer, bank, etc.) technically owns the boat. Massachusetts, for example, where Russo Marine is based, has a five-percent state sales tax, which works out to an additional $5,000 on a purchase of $100,000. So you could either dish out $25,000 to own or, assuming your monthly payment is around $1,500, could pay the first month's payment plus a security deposit and lay down $3,000 to lease the same boat. (See chart, previous page.) Albeit, you'll be making a higher monthly payment, but with less money down, you'll have some extra money to play around with that would otherwise be tied up.

Russo Marine offers leasing on every boat it sells, and the company says it's developed a circle of sophisticated customers interested in the concept. "Sure, the credit checks are strict, and people who lease must have a long credit line and a good credit history, but the people buying big boats are generally smart, astute business people," says Pitts. "I mean, usually the guy buying the $300,000 boat knows as much about `cost of money' and all the other credit principles as I do!"

While it's uncertain if other companies will take a (second) shot at leasing, Russo's leasing program makes boating an option for people who are not ready to buy for one reason or another. Leasing will work for some people, and it won't work for others. But after weighing the positives and negatives, and working out the finances, it's another way to encourage more people to get out on the water.

Russo Marine
Phone: (781) 395-0050. www.russomarine.com.

This article originally appeared in the January 2003 issue of Power & Motoryacht magazine.

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