making a waterline model from a full-hull.

You may need to assemble the hull and decks and/or add some strengthening parts (cross-wise pieces of plastic above the intended cut area before proceeding).   For the deck use water soluable glue to make it removeable

Measure and mark where you want the waterline to be.   Connect the marks with a waterline tool - a tool which holds a pencil or scribe a fixed level above the baseline.

Apply masking tape several mm below the desired marked waterline.

If you have a Dremel - chuck a sawblade in and cut slowly along the bottom of the masking tape. Work slowly.    No Dremel, do the same with a razor saw.  No razor saw,  use the back of the point of a new #11 xacto blade.   Draw it along the masking tape.   It will plow out a furrow of plastic.   Repeat adding pressure - it will dig deeper. 

Once the bottom is cut off,  remove the masking tape.  Cement a piece of sandpaper to a flat board or piece of glass.  Run the hull bottom over the sandpaper until the desired waterline is reached.   Switch sanding directions, switch hands, sand in circles, sand in figure 8s,  do this to sand evenly and not allow the bottom to get cock-eyed.

There are several ways to do this.  One of the simplest - and safest - requires several sheets of medium- to extra-fine-grit sandpaper ("wet-and-dry," with water for a lubricant, works best) and a fairly large, smooth flat surface.  A piece of glass works best, but a good flat tabletop will work.

Start by cutting off the bottom of the hull a comfortable distance - say, 1/16" to 1/8" - below the waterline.  For that job you can use whatever tool makes you feel most comfortable - a cutting tip in a Dremel tool, a razor saw, or even a hacksaw.  Don't worry about locating the cut precisely or making it straight; just be sure it doesn't wander above the waterline.  Then fasten the coarsest grit of sandpaper down to the flat surface, using double-sided tape.  For a relatively large model like a 1/350 Bismarck, it's best to tape down two or three sheets adjacent to each other.  (You want the total area covered by the sandpaper to be considerably bigger than the model.)  Lay the hull down on the sandpaper and start rubbing.  Keep a close eye on how close you're getting to the waterline.  As you get closer to it, switch to a finer grit of sandpaper.

This method takes a little while, but the beauty of it is that it's hard to screw up. 

I once saw the same principle applied to a more practical project.  Quite a few years ago I made a trip to Arizona in my 1982 Dodge 024 - a tiny little econocar that got 50 miles to the gallon.  Unfortunately the weather in Phoenix was a little too much for it.  One night I got caught in a flash flood and, demonstrating incredible stupidity, drove into an intersection where the water was up to the door handles.  The engine, understandably, died - but miraculously restarted.  Next day the temperature climbed to 110 and I got caught in a dust storm.  At that point the car started to protest.  The engine died every time I stopped at a traffic light.  I took it to the local Chrysler dealership, and the mechanic concluded that the carburetor had warped.  The basic structure of the carb consisted of two halves, top and bottom - and air was leaking between them.  (I'd never heard of such a thing.  Nowadays, though, I suspect many people have never heard of a carburetor.)   The mechanic took the carb apart and rubbed the mating surfaces of the top and bottom halves on a sheet of carborundum paper attached to a flat surface plate.  The engine worked fine after that; during the next few weeks I drove that little car back from Phoenix to North Carolina - via San Diego, LA, San Francisco, Salt Lake City, Denver, Kansas City, and St. Louis.  Those were the days....

Please forgive the irrelevant interjection.  "Waterlining" a plastic hull isn't really hard.  Give it a shot.