Plan Ahead for Your Marina’s Future Funding Needs
The topic of replacement cost is a subject I wrote on several years ago; however, I think it’s an important topic for marina owners and one worth revisiting. Whether you’ve recently completed a total rebuild of your marina or are beginning to realize that the life of your current docks is finite, taking a good look at the future replacement cost is an exercise worth doing. It makes good business sense and will help you better plan and prepare for the future of your marina.
The question for many marina owners is “what will it cost to replace our docks in ‘x’ number of years and how will we fund it?”
Although there are a number of variables that will affect the answer to this question, the heart of the question can be answered by calculating the time value of money and the future cost of a marina rebuild.
Here is a list of the variables that you’ll need in order to make a reasonable estimate.
1. Cost to rebuild your marina today: An experienced dock builder such as Bellingham Marine can give you an estimate of the current cost to build the dock system you have envisioned for your marina in the future. For funding purposes, plan to have at least 30% of that cost available for your down payment. Most commercial 20 year loans require 25% to 30% down.
2. Annual increase in cost of construction: while this can never be predicted exactly, an experienced accounting firm in your area should be able to provide a rate at which you can expect the cost of construction to increase each year. This will give you a safe number to work with.
3. Interest rate of investment account: If you don’t have a feel for this, you may want to consult with your banker or a local investment firm.
4. Useful life of existing dock system: Modern concrete floating docks are estimated to have a useful life of 35 to 50 years. Lightweight dock systems, such as timber, aluminum and steel typically have a life of 20 to 30 years. If you have an existing system and need help estimating its remaining useful life, there are a number of professionals in the marina industry that can help you come up with a reasonable estimate.
By plugging the above variables into several different equations we can calculate what it will cost to replace your docks in “x” years, how much cash you’ll need to meet the 30% requirement, and how much you will want to put into your investment account each month to reach your goal.
Let’s say you plan to rebuild your marina in 30 years and the cost to rebuild it, if you were to do it today, is $8.5 million. You’ll need 30% of $8.5 million for a down payment, which means if you were to rebuild the marina right now you’d need $2.55 million in cash as your down payment. Assuming construction costs increase each year by 3% and your investment account pays 4%, in 30 years you’d need to come up with approximately $6.2 million for your 30% down payment. Given the same assumptions as above, this means you would need to put $8,900 into your investment account each month.
Mind numbing? For most of us, yes. But having this knowledge can also be freeing and can set you on the right path to ensure that the funds needed to replace your dock system when it reaches the end of its useful life are available.
For more information about this topic please contact Bellingham Marine. We’d be more than happy to talk with you about your marina and share with you the information and tools we have.