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This is a great project for anyone with a little time to spend. r/c jetboats are quite rare and always turn heads when you go out for a spin,  this one even more so because of the homemade jetdrive. in this instructables ill hopefully explain the full process building the hull and jetdrive and how to install all components.
below are the links to some videos i made.
http://youtu.be/Wu_YrjGjVxE
http://youtu.be/QZbnTlV_JWI

Step 1: Jetdrive

The jetdrive is made from a 20mm stock diameter of aluminium because its light, corrosion resistant and easy to machine.
to the main jet housing a stator, impellor, nozzle, water seal, steering nozzle and plastic seat is added.
note: an impellor is a propellor that turns inside a housing.

To start with, the 20mm aluminium rod is cut to a 40mm length, this will be the main jet housing. It is then setup in the metal lathe and a 16mm hole is drilled into one side of it, 10mm deep, and then a 2mm hole is drilled all the way through for the prop. shaft. (the size of this hole depends on the size of the shaft and must be tolerant to within 0.10 mm. it is not neccesary to ream this hole).
The prop. shaft is made of 2mm brass rod. brass is used as it is quite soft and will not scratch the inside of the 2mm hole.
The impellor i used was bought from a hobby shop and was larger than 16mm, this is so that i can carefully trim it to fit the inside of the jet housing. The requirements for a waterjet impellor normally include no gaps between the blades, a fine pitch and very close tolerences between the tips of the blades and the inside of the jethousing. The impellor has a 1.8mm inside diameter and is therefore press-fit onto the prop. shaft.

Step 2: Jetdrive

The stator housing, which can be seen in the exploded view in the previous step, can be made from either aluminium or PVC plastic, I used plastic as this was better for glueing the stator vane onto. The vane was cut from an aluminium drinking can and trimmed to size before being glued into place with epoxy resin.    (A stator is used to stabilise the spinning motion of the water as it leaves the prop and to direct it in a straight line, in this r/c boat it only needs to be a single vane type)
The nozzle is made from the same 20mm aluminium rod as the main jet housing. It is used to speed up the water coming from the back of the boat, like when you put your finger over the end of a garden hose. The rod is first cut to approximately 20mm length and is then placed in the lathe and an 8mm hole is drill all the way through.  one end of the nozzle is turned down to 16mm to fit inside the main jet housing and an inside taper is added using a large 20mm drill. the other end is turned down to 10mm with a taper to make it look nicer, a diagram is shown in the top left of the drawing above to demonstrate this. 
To the nozzle, a steering nozzle is also added, this is made from a 12mm round piece of plastic pipe, about 8mm long. it is carried on the end of the jet nozzle by two small pins, so that it can swivel. The steering nozzle also has a servo horn glued to the top of it to which a linkage will be attached later.

Step 3: Jetdrive

To achieve the 45degree hole in the bottom of the jet housing, which allows water to enter the jet from beneath the boat, it is best to make a wooden cradle as shown in the above diagram. 
The jet housing is then set in the cradle and a drill press used to make the hole.
Now that the jet housing is finished, it's plastic seat can be made. I used a piece of acrylic plastic bent into an L shape with a large oval hole in one side and 3 small holes in the other. this plastic seat is used to mount the motor to the jet drive and mount the motor the bottom of the boat.
A good technique for water sealing the jetdrive is to coat the prop. shaft in vaseline (petroleum jelly) and then after inserting the prop. shaft into the jet housing cake the area around the prop. shaft with hot glue. the glue will stick to the jet housing but not to the prop. shaft because of the vaseline, which also acts as a good lubricant.


Step 4: Hull

The hull is shrink formed with acrylic plastic. The first thing to do, therefore, is make the wooden molds, as you can see in the pictures mine were cut and carved from a soft wood. The design of the hull is up to your imagination however, the bottom of the boat molds must have a flat area (to incorperate the jet drive) and be a planing hull not a rowing hull.
The top piece can be a simple flat cover or you can make a windshield as this looks more realistic.
Once the the shrink formed plastic hull has been made it can be cleaned up and, measurements can be taken to start cutting holes for the jetdrive.
I also added some small trays, made from offcuts of the hull material, to attach the electronic components to.

Step 5: Mountings

The jet drive is now ready to be assembled. 
First the nozzle is inserted into the stator housing, which is in turn attached to the mating surface of the main housing with epoxy resin.
The motor, which on this particular boat is a 5800kv brushless motor, is simply hotglued onto mounting plate of the jet housing and a short spring from a brocken pen is slotted over both the motor shaft and the prop. shaft and coated in epoxy resin.
the spring is used like a universal joint so that no stress is put on any of the spinning shafts if they were to move slightely out of alignment.
the completed jet drive can now be installed into the boat. If the holes in the boat hull line up it can simply be sat in place and silicone used to seal all edges, inside the boat, round the nozzle at the back of the boat and around the water inlet on the bottom. 
you may notice that the motor is positioned quite far forward in the boat, this is because in a real boat you would normally have the weight of the driver in the front, so an rc boat needs to have some weight positioned in the front to compensate for this missing weight and to help it skim on the surface of the water.

 

Step 6: R/c Gear

As seen in the previous step, the servo can now also be mounted onto its tray.  A small hole is drilled into the transom of the boat to take a steering linkage made from a paperclip which connects the servo to the steering nozzle, this linkage also has a balloon neck attached to it, this is to stop water from entering through the hole while still allowing the linkage to move freely. here is demonstration video.
http://youtu.be/2HY8zxktuLg

Also the rest of the electronic components can be mounted. I used a 2.4 ghz reciever and transmittor along with a 25 amp esc for the motor and ofcourse the hxt900 servo motor.  All these items were found in an unused r/c car except for the lightweight 2cell lipo battery which is not shown in the pictures.
All parts are mounted on trays as protection against water if i happened to leak in.
Another method (which can be seen in the picture) of protecting the motor is to add tissue paper around the jet drive, this is so that if water makes its way through the prop. shaft hole, the tissue will soak it up before the it reaches the motor.

Step 7: Finishing Off

There are two methods of sealing the top piece on the boat hull. The first and most reliable way is to put the lid on and cut a couple of holes just behaind the windshield for the disconnecting/connecting the battery to the esc. Then a bead of silicone is run all the wa around the edge of the lid and on the battery and esc wires to permenantly seal everything inside. The battery can still be charged and the boat turned on and off easily.

The other way is to run a silicone bead around the edge of the lid as before and when its fully cured, to carefully slice the silicone with a good craft knife so as to make the lid  removeable but still have a reasonably good seal when its put back on. No holes in the lid are neccesary with this option, all wires can be kept inside.
I also decided to add an aerial tube for better transmission, it is simply glued into a small hole in the windshield and the aerial from the reciever is slid inside.
<p>i like the spring for a coupler very ingenious. </p>

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