how to sink a ship?

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I think you will find a lot of troubles with the mirrored-model reflections method. Why don't you try cubemap reflections? There are good examples, like Rob's cubedemo. Cubemaps allow reflections deform depending on water mesh, that cannot be done by mirroring the model, where you see always the same reflection.
About the particles, you can make a vertical linepick to calculate where exactly the water is in that axis and put the particle just in the surface (or a little higher).

Suerte con tu proyecto, compañero.