Purchasing a business finance advise needed? (lending, fee, mortgage, loan)

[symonddeo]

Could any one give me any information on finance for purchasing a business where you dont have your own home to mortgage against. I plan to continue working full time at my exsiting employment and and wish to buy a houseboat. The housebout will be hired out on a regular basis and is currently already operating very sucessfully and has done so for the past 20 years. Any information would be appreciated.

[sunsprit]

Sounds like a very high risk investment to me, from what you've described.

If you don't have at least 40% of the purchase price as cash in hand, and a year's worth of operating capital backing that up (cash in hand, now), then you're not ready to buy this business.

Any legit source of lending capital is going to view this as a risky business and want you to have enough assets to cover potential operating expenses, insurance, etc., to protect the capital asset and the loan. I assume that the only thing you've got of value to pledge as an asset would be the boat and the business "blue sky". The "blue sky" won't pay the ongoing bills and lender cost of capital if business cash flow falls off for any reason, whether it's beyond your control or not.

Would you be able to make the payments on the loan if you had no boat income for a period of time? That's the question a lender will need to be satisfied about. And, they'll want you to have enough of a personal investment in the "business" that you won't be as likely to "walk away" if things go sour; they'll want you to have enough money in it that it will be personally financially painful if you can't make a go of it.

Having been in the sailing industry and salt water sportfishing business many years ago, I'd be very leery of any boat based business that depended upon a 20 year old boat as the income generating property. There's a lot of maintenance and upkeep expenses which aren't very apparent on the surface, but will crop up from time to time and will be expensive and not be able to be put off, and will have to be paid to your suppliers in a timely manner.

You state you'll keep your current full time job. That limits your availability to be present, and the times when the boat can be rented out. Or, will you have others involved with the day to day operations of the business? That means a payroll, and all the additional costs, overhead expense, and liability/benefit/tax concerns about having employees (which means bookkeeping time, accountant time, etc., costs to your time and cash flow).

If your possible business acquisition sounds like it's too good to be true ... a "goldmine" of "found money" just waiting for you to step in with a bundle of cash to buy the place .... it's probably "too good to be true". Beware. Nobody sells a "cash cow" for less than it's present day upside and market potential.

Oh, by the way ... do you have a marine survey from a qualified professional for this boat? If you're going to operate commercially, you'll need this for your insurance. Might as well have this before you buy so you really know what you're buying.

A final caution: If you're thinking that the boat rental operation will just be a casual operation below the "radar" of a legitimate business ... you may be spending the rest of your life paying off a "claim" from an injured renter or their guest if you don't have the appropriate commercial boating inspections and commercial business operations insurance.

I know of one case where a private boat owner agreed to take out some visiting doctors on a day trip, fishing, for a fee (an arm's length business transaction, not friends splitting expenses) ... and somehow, a lure treble hook got tangled into the eye of a surgeon while somebody was casting; end of career for the surgeon, end of financial life for the boat owner, lost everything he had. His homeowner's insurance just laughed at him when the information developed that the doctor had paid for his day's fishing tour; that's a commercial activity. The boat wasn't inspected for that, the fellow had no professional captain's license for the waters they were in ... we're talking major criminal and civil problems simply resulting because the fellow wanted to have financial help for gas and expenses in what was supposed to be a pleasant day on the water with a group of nice guys having fun fishing and bringing all the beer and a great lunch. Don't go there ....

[cpg35223]

I tend to agree with Sunsprit. I think a better approach is to go through an ownership program run by a large charter company. For example The Moorings has both sail and powerboat ownership programs, where you buy the boat, they do all the chartering, maintenance, etc., and they guarantee that you'll get enough money monthly to cover the mortgage on the boat. That way, the only thing you're out is the initial investment in the boat, you don't have to do any of the chartering or maintenance, they take care of the headaches such as the insurance, and you get revenue and a very considerable tax break--all while still getting to use the boat six weeks out of the year. I don't know if there is a similar program with houseboats, but I'd really consider doing it that way, rather than trying to do it on my own.

[GregW]

I would be very, very careful about investing in a floating house. Do ALL the things suggested by sunspirt and if it still looks to be an amazing deal - look harder.

I though about getting a surplus landing craft (LCVP & M-6) and starting a pick-up truck (marine) business around the Connecticut coast when I got back from 'Nam. Fortunately I didn't have the money (I had been in 'Nam – Riverine Forces - and there was nothing to loot and you don’t save much on Navy enlisted pay) and other things intervened (like a life as an environmental scientist) so I never pursued the idea. It may still be a good idea in an environment with a lot of settled islands where people want to have construction materials, fuel, furniture and other large misc supplies delivered. A landing craft does not need a heavy duty pier for delivery but one would be handy for loading.

I am just about ready to retire and if anyone wants to try this sent me a PM. It would be a great way (but a LOT of work) to summer in Down East Maine and winter someplace warmer. Like pull the boat out of the water and winter in New Mexico far away from the sea.
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[Beena]

Sounds like an emotional purchase rather than a well thought out business decision. I watched dozens of people purchase condos on the ocean in Mexico claiming them as "investments" but really salivating at the thought of being able to use them on the weekends. And they are losing their shirts.