A Home But Still a Boat

Jackson and his wife love the sea, and they want to buy a boat to live on. They have two options, and one of them they could pay cash for. If it's going to be their home, should they pay cash or take out a loan?

QUESTION: Jackson in Mississippi is a defense contractor. He and his wife love the sea, and they want to buy a boat to live on. They have two options, and one of them they could pay cash for. If it’s going to be their home, should they pay cash for it or take out a loan to buy it?

ANSWER: Yes, it’s a home, but yes, it’s a boat. Boats go down in value, so it’s like a floating trailer financially—not as bad because it won’t go down as much if you buy right and know what you’re doing. You probably won’t get hit as hard as a double-wide, but it is going the wrong direction. The one you’re discussing paying cash for would go up because it’s got the sweat equity in it.

It’s out of my realm. I’m just thinking like a dad with a 4-year-old on there. I want to know that this thing is going to get back, and I don’t want to strand my family because I saved some money here. You’re not going to do that, and you know more about the condition of the mechanics and the process so that that doesn’t occur than I do, so I’m just going to have to assume you’re not going to put your family at risk.

It sounds like the boat you’d pay cash for has upside potential. The other one’s got depreciation in its future, and it’s got debt. You can sweat equity in. I don’t know why you would do the nicer one today. You’re going to end up with a nicer boat with less in it and be in a better position, aren’t you? Let’s just do that. As long as the family’s going to be safe in that setting, let’s just do that. Financially, cash flowing repairs to the cash boat makes a ton of sense. You can cash flow it and avoid debt, and you’re going the right way with the value on the thing.