Motel leases

Hi,
My husband and I are interested in running a motel.  Can anyone share their experiences/opinions in this area with us?  We would want to run the place ourselves as much as possible.  Since our personal accommodation would be on site, I would imagine that personal cash outgoings would be minimal which is a big incentive. 

What sorts of loan terms do banks offer for purchasing motel leases?  We have about $1million in residential assests with about $400,000 in equity.  Would this be enough security for a lease of up to $400,000?

Any general advice, comments would be much appreciated.

Hi Debski
Banks usually want 50% deposit for leaseholds, using cash or equity, reduced interest rates if using residential equity as security.
CV/Resume showing ability to operate such a business is of interest to lenders especially in the current lending climate.
The line blurs between personal outgoings and business in a motel so ATO deems an amount if you overdo it. Better to keep under the radar.  Your equity should be sufficient for your target but depends on how the Bank views and values your equity.
Do massive homework until you understand this area of investment before considering buying.
 I own and operate one, it's a good investment.
Cheers
thecrest

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Hi Crest,

Thanks for that info.  I am trying to research as much as I can, as this would be a very big lifestyle change.  So it is great to hear from someone like you who has actually been there done that. 

There are so many things to consider, where to buy, number of rooms, lease length and terms, restuarant or not, competition in the area, occupancy etc.  My head is spinning............

Hi Debski
Yes it's confusing because It's such a versatile and flexible area of investment, enjoy the options.
There are enough important considerations in this area of investment for someone to write a book on it. 
The topic is too long for a post here but this is an info sharing area so I'll cover a little of it but be brief.

Location.
Outside cities, as usual, town selection is important. A good motel in a poor location will underperform because at least 25% of occupancy is from passing traffic.  Within the town, location is important and proximity to clubs cafes and food, and negatively speaking, noise and odour.
Restaurant.
Regarded by the industry as an inducement to stay and a means of filling beds. Usually they require an extra 40 hours per week and break even at best.   
Size.
Depends on target market. Buses require a restaurant and min 26 rooms. Otherwise for general market, average country town demands 15-22 rooms.
Lease.
Min 25 years, 30 better, so there is plenty to on-sell after 5 years of operation. Terms vary, some leases are onerous and need to be adjusted for fairness. Some have rent increase formulas which ensure rent increases too quickly and the lease crashes into court a few years down the track.
Occupancy.
Check ABS figures - Tourist Accommodation Small Area Data NSW - shows occupancy by town and region plus heaps of other info. Bottom line is more important than occupancy rate.
Leasehold Price.
The nett profit is generally regarded as 30% of the value. So a $400K leasehold should nett after rent is paid $120K, + free home.
Exit Strategy.
Need one of these before entry.
Finance.
Talk to the long standing Finance Brokers on this website who have solid reputations for helping investors.

I sent you a PM invite  for a phone chat, please check your message inbox, most welcome to call.

Cheers
thecrest

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Hi Debski
I've got a motel for you to run if you're serious  -  contact me.

Cheers
thecrest

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Hi Crest - happy to hear what the details are.

Hi Debski
Please send me a private message incl your email address and check your private messages for the last one I sent you as well
so I can send you some info.
Cheers
thecrest

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Yay, finally found good managers for my motel, who will run it till it sells.
It's on the market with a number of brokers so if anyone is interested in buying a commercial property returning 10% rent from a long term tenant, or a motel leasehold to buy and operate returning 30% with a free home thrown in,  please contact me.
This is a solid reliable investment either way.
Here's the link to the broker  ads for the leasehold and freehold :
Leasehold -  http://motelsales.net.au/index.php?page=properties.php&session=2012624130&id=1099

Commercial  Passive Investment -  http://motelsales.net.au/index.php?page=properties.php&session=2012624130&id=1100

Hope Admin don't mind me putting this in.

As always, if anyone needs help sussing out motel investment elsewhere, I'm always happy to help any way I can.

Happy and prosperous 2010 to you all, and plenty of successful investing. 

Cheers
thecrest

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Hi Debski
Can you post an update of your progress here, let us know how you went looking for a motel ?
Cheers
thecrest

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Here's an update.
The Passive Commercial Investment part of the motel sold.
The leasehold looks like it's sold if the exchange takes place this week.
Woo hoo, now we can continue with our plan to buy bigger motel leaseholds and run them under management.
No thanks to snuff the tragic dragon who did a reverse of their LVR saying they now need 70% deposit for
a motel leasehold instead of 30%.  NAB to the rescue, thanks NAB.

Anyone in motel investment need a hand, let me know.

Cheers
thecrest

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I am seeing a crazy themed hotel. The possibilities are very endless. You could also do something with a mobitel. That is a mobile hotel. You could move all across the country to open lots with your themed containers. I am pretty sure there would have to be another way out of the container, though. That is a million dollar idea.

Commercial property in chennai | Ooty

There's nothing like a good idea . . . . 

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Hi Debski
Any update on your plan and its progress ?
There are some great buys out there at the moment and we have been finding them by doorknocking motels in the central west NSW. 

Some of these towns are going just great in the motels, some not so good in retail stores, but as you know, with country town retail they depend substantially on locals spending, whereas 99.9% of motel guests don't live locally because locals already have accommodation. 

Anyone got more info on motel leases or motel investment for this post and forum ?  
Cheers
thecrest

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Hi Crest,

all i can add is the lifestyle is good, it can be trering but also rewarding we look forward to our time off and love to get back to our motel refreshed and ready to go.

we have done a little over 5 years in Wagga and are in the process of selling our lease now. The market is a little slower for sales than it has been so playing a waiting game now.

Business is booming at the moment even with the floods affecting the area.

cheers

Tim

Hi Tim
We're looking for a leasehold in Wagga.
Please send me your details.
email to - the.neales2@bigpond.com
Cheers
thecrest

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Hi Tim
This is a genuine enquiry, we are seeking a motel leasehold in Wagga.
Please contact me if you are selling.
Cheers
thecrest

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Is Debski still interested in running a motel ?
Cheers
thecrest

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Here's an update for anyone following this thread.
Current offering by NAB is 60% LVR on a strong motel business, (leasehold), and can be improved to 70% if there is sufficient experience in the CV's of those operating the business.

Leaseholds selling for above $700K and returning 30% ROI should show at least a 20% return ROI under management even.
Assuming you know how and are prepared to operate the motel yourself in hard times, you can replace the managers and save about $60K, a nice buffer for the bank.  Very few businesses out there can pare back expenses in hard times and still maintain all services to customers as well as a motel can do it.

So right now, with commercial loans around 81/2 - 9% , a business returning 20%-30% with a 25-30 year lease incl a free home is a good investment for some.

It set us up for life. 

Cheers
thecrest

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Hi All
Just reading a contract re a deal we have done to buy one leasehold motel, and finalising our DD on another which looks great.
Still a buyer's market out there, banks are becoming more co-operative.

As soon as we exchange on a contract we'll post the details here in case the info helps someone.

Cheers
thecrest

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Hi all
Anyone interested in motel leasing, and needs a plain english lease, PM send me your email address and I'll send you one. Make sure your email system can handle one attachment of about 35 pages of text.
Cheers
thecrest

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Hi Forwardthinking3.
Hope you're still in Wagga and enjoying success.
As I mentioned, we were seeking a motel leasehold in Wagga and
we have now purchased the Best Western Ambassador in Wagga so pls give us a call.
Cheers
thecrest

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