Can I Trade In A Boat I Still Owe Money On?

Are you looking to upgrade to a bigger or newer boat? If so, you are probably wondering whether you can or should trade in your old boat on a new boat. I went through the process of trading up to a four foot bigger boat a few years ago and thought you would benefit from some of the lessons I learned. Can You Trade-In a Used Boat On a New Boat? So, can you trade in a boat on a new boat? Yes, many boat dealers will take your current boat in on trade. Trading in a boat is a near hassle-free way to get rid of your old boat so you can start enjoying your new boat quicker. When you elect to trade in your boat on a new one, you get to skip the hassles of selling your boat to a private party. With a boat trade-in, you do not have to worry with managing potential buyers, sea trials and surveys. You don’t have to coordinate transportation to the new owner, and you may even gain some sales tax advantages by trading in your boat. Of course, this convenience comes at a price. You will almost always get more money if you sell your boat yourself or hire a broker. A dealer has the cost of surveying your boat, paying for insurance, storage, advertising, transporting your boat to his facility, cleaning, and finally paying a salesman's or broker's commission when it sells. This does not even mention the risk exposure of buying somebody's used boat with who knows what untold problems it may have. There are real risks and expenses for a dealer when taking in a trade. Not to mention the dealer needs to make few bucks on the transaction to compensate them for their trouble. What's in it for you? A quick and easy transaction. Maybe this is all you really thought you wanted to know about trading in a boat, but there is so much more to consider. Keep reading and I will fill you in on the extra details you need to consider when weighing your options to trade-in your old boat on a new one. Tax Savings From Trading In A Boat If you elect to trade in your old boat to a dealer as part of the purchase of a new boat it could save you some money on taxes. In states with a sales tax, you often only pay sales tax on the new boat price minus the value of your old boat trade-in. Here is how the tax math looks in numbers… New boat = $50,000 Purchase Price Old boat = $20,000 Trade-In Value In this scenario, you only have to pay sales tax on the difference between the purchase price ($50,000) and the trade-in value ($20,000). This means you only pay taxes on $30,000! Assuming a sales tax of 5%, you would have sales tax of $1,500 ($30,000 x 5%) due at closing. If you sell your old boat to a private party, and then turn around and buy a new boat from a dealer, the dealer will have to charge you sales tax on the full purchase price. Using the example we used above, buying the new boat without a trade-in could result in a tax bill of (5% x $50,000) $2,500! That’s a full $1,000 more than trading in the boat. Taxes should not be the deciding factor on whether or not to trade in your boat, but you should at least be aware of the difference. *Check with your CPA to verify the tax costs or benefits to trading or selling your boat based on your personal state and federal tax situation. After reading this, you may be convinced you want to trade in your old boat to the dealer to keep things simple. There is a catch… Not all boat dealers offer to take used boats as a trade-in. Other boat dealers have age restrictions. For example, some dealers will only take in a boat that is five years old or newer as a trade-in boat. Some dealers simply do not want the financial risk and hassle of carrying used boats in their inventory. For this scenario, they may offer you an alternative called boat consignment. Boat Consignment: What Does it Mean to Consign A Boat? A boat consignment means that you still own the boat and you are hiring the dealer to list and sell your boat for you. They get a fee for their services, and they make the process easier for you as the seller. If you have ever purchased or sold a home with a realtor, a boat consignment agreement works much the same way. The boat dealer will show your boat to qualified buyers and handle the financial transaction, and transfer title to the new owners once the boat sells. How Much Does It Cost (fees) for Boat Consignment? How much does it cost to consign a boat? It costs 10% of the boat price for the boat consignment fee. This fee may vary from location to location, and often it is 10% or a flat fee minimum if the boat sales price is not high enough. Expect to pay a minimum fee of $500 for boat consignment. Typically, boat consignment costs nothing upfront. Once your boat is sold, the dealer has earned their 10% commission for selling the boat. Also, the dealer only makes money if they sell the boat. If they cannot find a buyer for your boat you can cancel your contract and pick up your boat at any time. *With this said, be sure to read the fine print of the boat consignment agreement. What Are The Downsides To Boat Consignment? Boat consignment is often a great way to sell your boat. However, there are some downsides to consider before you consign with a boat broker to sell your used boat. Let’s discuss a few: Lots of Inventory: A boat dealer (broker) may have a lot of used boats to sell. Will your boat get their full attention?Marketing Attention: How will the boat dealer market your boat for you? Is it simply listed on their website, or will they list the boat in national publications for maximum exposure? (I purchased my last boat from Florida and I live in North Carolina)Brand Knowledge: If you are switching brands, the dealer handling your consignment may not be very familiar with your type of boat. A great friend of mine got a real deal on his latest boat. He purchased a power catamaran from a dealer down in Florida that only sold monohulled boats. They did not know how rare the boat was and had it listed nearly $10,000 below market value. He called, put down a deposit contingent on sea trial and inspection. The dealer had 3 higher offers come in within hours of my friend locking up the deal. Sure I could have left out these negatives, but you need to think through the pros and cons of any financial transaction and the purchase of a new boat, even if it is a used boat, is a major financial decision. Editor's Note: Want to know how I sell my boats for top dollar? I call Bob over at Anglers Edge Marine and usually work with him. This leads us to the idea of buying a used boat. Can I Trade In My Boat On A Used Boat? What do you think? Can you trade in your old boat on a used boat? Yes, in some cases you can trade in one used boat for another used boat. It is similar to trading in a used car for another used car. This being said, you may find dealers are less willing to trade on a used boat. This is often due to the profit margins associated with new boat sales in relation to the profit they make (10%) on a used boat sale. For this reason, I would expect selling your boat yourself or going the consignment route is your best bet when trading up from one used boat to another. Can I Trade In A Boat I Still Owe Money On? Yes, you can trade in a boat you still owe money on. If your boat has a trade-in value of $20,000 and you still owe $10,000 on the boat, when you trade in the boat, the dealer is purchasing the boat from you for $20,000. $10,000 will go to the bank to pay off the loan and the remaining $10,000 balance will go to you. In the case of a trade-in, that $10,000 that is coming to you will be applied to the purchase price of the new boat. Another scenario that I hope you don’t find yourself in, but many people do is referred to as “being upside down” in your boat. This is when you owe more than your current boat is worth. If you are trading in a boat that you are upside down on the payments, then you can assign the additional debt to the purchase price of your new boat. The debt does not go away, but it is tied to the new boat so you have the benefit and enjoyment of the new boat, but the responsibility to repay your debts in full. With this said, all of this is based on your credit score and the ability and willingness of the lender to work with you when you are trading in a boat you are financial upside down in. How Long Does It Take To Sell a Boat? When I sell a boat I expect it to take five to six months to sell a 21’ to 28’ boat. With this said, there is only one way to answer the question of how long it takes to sell a boat. Do you want to guess what the answer is? A: It Depends I know this is not the answer you what to hear, but each type and model of the boat will have varying abilities to sell. There are so many factors that impact how quickly a boat may sell. For every boat that sells in a month or two, there are boats that take two or three years to sell. In general, the bigger the boat the longer it takes to sell. A 21’-24’ boat is likely to sell faster than a 40’-50’ boat. This is due to the price, size and reduced number of potential buyers looking for a boat in these size ranges. My expectation when I have sold my prior boats is to expect it to take 5-6 months to sell a boat. I have been fortunate to sell my boats quicker than most because I have a few trade secrets that I will share in a future article. Okay, I think we have covered a lot of ground with regard to the topic of trading in a used boat. I hope you found this article helpful. I have a passion for boats and as strange as it may sound, I enjoy the selling and buying process of boating. Maybe it is just the excitement of getting a new to me toy! Anyone else like this? Trading In A Boat: Everything You Could Possibly Want To Know