You can afford a yacht

April 9, 2020

GIVE US THIS DAY OUR DAILY THREAD...

Time to Read: 9 minutes

From the journal of The Daily Thread

The Insane Costs of Megayachts for the Super Rich

Yachts are the ultimate symbol of wealth.

Everyone knows about private planes. We see them on Instagram and hear songs about them. If you loaded up a custom Boeing 787 it would run you around $220 million. That sum would make you the "little guy" at the megayacht docks.

A yacht gives you access to the ocean like nothing else. You can't tell the cruise ship where to go and you have to share it with thousands of people. Megayachts allow unparalleled access and privacy.

The Great Divide

Because of their enormous cost and opulence, yachts are often used to hate on the world's elite. An anti-Trump coalition in Ohio once untied Betsy DeVos's 165 foot yacht and set it free in the harbor.

David Geffen is riding out the COVID-19 pandemic in the Grenadines. And he wants everyone to know about it. He posted a sunset picture of his yacht, Rising Sun, and used to caption to explain that he's isolating and safe. Twitter blew up with criticism. He later deleted the post.

If you have to ask, you can't afford to know

There are about 5 private residences in the world that cost more than a megayacht. One is Buckingham Palace. I say that doesn't count.

Aside from those homes, there is no greater show of wealth than a megayacht. Even a small megayacht will cost you more than the GDP of some countries.

The largest privately owned yacht in the world is Azzam. It's 590 feet long and cost a reported $600 million dollars. That's $1 million per foot!

It's owned by His Highness Khalifa bin Zayed Al Nahyan. His Highness serves as the President of the UAE, Emir of Abu Dhabi, Supreme Commander of the Union Defense Force, Chairman of the Supreme Petroleum Council, and chair of the Abu Dhabi Investment Authority. I hear he has lots of free time.

The Al Nahyan family possesses a fortune totaling $150 billion. His Highness's share of that is about $15 billion.

$1 million per foot may sound outrageous. But it's not even par for the course. Many of the top 50 yachts cost more than a million per foot.

Do you take Visa?

Most owners of these lavish yachts can splash the cash. But it's smarter to have your money working in other ways, like income earning investments. Cash loses value over time in a bank account due to inflation.

Because of this, some owners choose to finance their aquatic palaces. Finance deals happen with large private banks. Banks typically loan 50-60% of the value of a yacht.

They used to loan closer to 90%. Until 2008. When the crisis hit, megayacht owners pulled out of deals and left the banks high and dry. The banks owned the yachts, but due to the crisis, they struggled to find buyers.

To prevent this in the future, they lowered the amounts they will finance. Most banks also mandate an investment relationship to finance a yacht. Example: I'm going to get a $200 million dollar loan from Big Bad Bank. They may ask that I deposit $60 million with their wealth management group.

But remember, we're talking about some of the wealthiest people in the world. Only about 30% of superyachts and megayachts are financed. The rest are owned outright.

If you were worth $15 billion, would you finance your boat or splash the cash?

Bonus trivia: While there is no legal definition, a superyacht is generally accepted as any yacht over 80 feet (24 meters). It becomes a megayacht once it passes 330 feet (100 meters). The more you know.

Now you wait

You've signed the (really big) check and picked out the carpets. Now comes the waiting. Building a yacht takes a long time. You may wait four years for a full custom yacht.

If you bought a production boat or a semi-custom, it may only be a year. During college, I worked for a shipyard in Malaysia. I only saw one boat leave the yard in three months.

And you thought the purchase price was bad

Boats are like cars. They cost money to buy and they cost money to run. The only difference is that boats cost a whole lot more to run than cars.

You can expect to spend around 10% of a yacht's value each year to keep it running. This will cover fuel, crew, taxes, provisions, mooring fees, insurance, and maintenance.

The late Microsoft co-founder Paul Allen commissioned a 414 foot yacht called Octopus. It requires 60 crew members to operate. Several are former NAVY SEALs. To put that in perspective, Craigslist only has 50 full-time employees.

Mooring cost at premiere events can be astronomical. During the Monaco Grand Prix, it will cost you 20 grand per night for a spot at the dock.

One of the best things about vacation is eating. When you eat on vacation, you do it right. One chef said he spent $7,000 at Whole Foods for one dinner!

Another recalled a time the owner wanted a specific fish but there wasn't any on board. The owner's response? "Send my helicopter."

Then there's fuel. No sense having a boat if it doesn't go anywhere, right? I bet you were wondering how this was going to add up to 10% each year. Read on.

Octopus holds 224,000 gallons of fuel. Marine diesel costs about $3.25 per gallon right now. That's almost $780,000 for a full tank! Fun fact: the median home price in the USA is $200,000.

It's called tax avoidance, not tax evasion...

You will almost never see a large yacht registered in the United States. Even when owned by an American.

Eclipse (533 feet) is registered in Bermuda. Dilbar (512 feet) is registered in the Cayman Islands. David Geffen's Rising Sun is also registered in the Caymans.

It's not that billionaires love tropical locales. It's all about taxes. Go on a yacht brokerage website. You'll read the words "Not for sale to US residents while in US waters."

This isn't because mean yacht owners don't want to sell to Americans. You guessed it. It's about taxes. If you buy the boat in the US, let's say Florida, you'll get smacked with a 6% sales tax. Plus a 1.5% duty.

So you bought a $300 million dollar yacht. And now you have to pay $22.5 million in taxes? Yes. But not if your shell company (i.e. only for tax purposes) buys it in the Caymans and registers it there.

Wait a minute, isn't there something called use tax? Yes. Use tax is for goods on which you don't pay sales tax. Florida use tax is the same 6% as sales tax.

But the Caymans and the US have an agreement. It comes in the form of a cruising permit. US ships visiting the Cayman Islands don't officially enter the Caymans. Thus no taxes. Since we're such a nice country, we reciprocate.

Vessels registered to the Caymans don't pay tax in the US. And tax rates in the Caymans? They're virtually zero.

Even more tax avoidance techniques

If you can't afford your own yacht, you can charter (i.e. rent) them by the week. For the big boats, this costs millions per week. Food, fuel, and gratuity not included.

Gratuity is up to you. Most guests tip between 10% and 15%. Unless you decided to tip the entire 15 person crew a brand new Mercedes S Class. That's a true story. Eat your heart out David Dobrik.

So they don't pay sales tax or use tax. What about property tax? Yachts are like houses right? No.

Yachts registered for charter are exempt from property taxes. But the world's richest people don't need charter income to subsidize their costs. They just list the yacht without a price and never actually charter it. It's another tax play.

Remember those shell corporations in the Caymans. They can own fine art too. Bill Gates' art collection is worth over $100 million. That carries a hefty tax bill. Storing and selling art on the yacht is another way to legally avoid taxes.

Disclaimer: To my knowledge, Bill Gates does not own a yacht or store his art on one to avoid taxes. The story about him buying the $600 million hydrogen-powered yacht is fake.

But wait there's more

If you register your yacht in the US, you're on the hook for US employment laws. With a foreign flag vessel, you can cut crew costs.

Who ones these things?

Billionaires. A top of range millionaire may be able to get away with buying a superyacht. They won't be able to own a megayacht.

Gulf Countries royal families and Russian billionaires dominate yacht ownership. Especially the biggest ones. Royal Families of the Gulf Countries own 12 of the top 20 largest yachts. Oil money loves yachts. Billionaire businessmen from various countries occasionally join the list.

Americans like David Geffen, Jerry Jones, and Steven Spielberg dot the list. For the most part, Americans have "small" megayachts. Of the 50 largest, Americans only own three.

Russian billionaires also enjoy yachts. Roman Abromovich is one of the world's most prolific collectors of megayachts. He has owned 5 yachts over 250 feet long.

You won't find oil princes on the world's wealthiest list. This is because their personal wealth is often actually the country's wealth. They also register their boats in their home countries. When you own the country, you can do what you want.

The odd country also owns a yacht. Turkey owns a pre WW2 yacht once owned by the granddaughter of the man who designed the Brooklyn Bridge. It's reserved for the President.

Crazy Features

With the insane money that goes into yachts, you get some pretty cool toys. Jet skis, smaller boats that live in the yacht, and helicopters are standard. Some owners get creative.

Paul Allen's Octopus has a recording studio that he lent to Mick Jagger. It also has a pool, two helicopter pads, helicopter hangar, basketball court, and two submarines. Octopus is my favorite yacht and the most beautiful one ever built.

116 meter exploration yacht Ulysses has a 68 foot boat that lives inside a well on the bow of the boat. Roman Abromovich's Eclipse has a missile defense system, bulletproof windows, armored plates, and an anti-paparazzi laser device.

Galactica Star has a guest gym and a crew gym. Pegasus VIII has a movie theatre. Christina O has a Turkish Bath made from 60 tons of marble as well as a hair salon and two massage rooms.

When you've got billions to spend, you can get anything you want.

Thursday Threads: Sunski Dipsea

Sunny days are ahead. Will we be able to get outside and enjoy them? That remains to be seen.

Sunski is my favorite place to get sunglasses. They are well priced, polarized, and made from recycled plastic. What more could you want?

Oh yeah. They look good too. I've got the Dipseas in the picture below. Next time, I'm gonna go for the Treelines. I've always wanted sunglasses with side shields.

Sunski is running a 30% off sale right now. And they have a sick virtual try on feature!

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