Motel Investment

The motel industry market is busy again, buyers are actively seeking properties.
That should make finance a little easier to get.

We are engaged with one prospective buyer of our motel property who has placed a deposit,
awaiting contracts and agreement on side issues.
Other prospective buyers are also vying for the motel property so we are feeling confident of a sale.
(Yeah like whistling through the graveyard)

For us it's the culmination of nearly 10 years of hard work. 

Now that we know how to do it easier, we will.

Just thought I'd like to add an update for those who have interest(s) in this area of investment.

Cheers
thecrest

Tks W4L
appreciate it. 
cheers
thecrest

Hi LJFZZ
If you can add some basic details it might help me and others to focus and be more helpful.
What aspect of motel investment are you interested in ? i.e. freehold, lease, passive investment.
Do you want to operate the motel yourself or not?
What geographical area interests you?
What price bracket ?
What type of motel – restaurant? stars? market?
It's OK if you don't have all the answers, but what you do have will help.
Very happy to help you, as are others on this forum which is what it's all about.
Cheers
thecrest

Sounds good so far.
Lenders are slightly easier to deal with now GFC wise on motel investment in regional areas like Albury & Wagga.
Don't know the Vic towns well enough but Wagga n Albury are strong motel towns, for different reasons, Albury is a bit disjointed geographically in the motel locations but has become a busy service centre,  and wagga has military, tourism, uni, passing trade, big economy.  
Sounds like you're targeting big strong country towns which is a good move.
Ensure you have an exit strategy when going in. You may want to sell it at some time.
Lease must provide well for you the landlord in defaults, CPI increases, clear inventory, who owns what, who pays for what and when, and provide an answer for the frequent sticking point of landlord's right of entry vs Bank's right of entry/seizure of leasehold in the case of tenant rent default or tenant mortgage payment default, . I would like a lease clause which says it is a default of an essential term of the lease if the tenant is late in any mortgage payment or any other financial obligation to the bank which might be a default of the loan agreement or cause the bank to takeover the lease etc . But I must be general here.

A quality investment of this type needs to be one without drama. This depends on a few items like ensuring the lease is structured correctly with sustainable ratios of turnover : tenant nett income : rent , so that it doesn't become difficult for the tenant to continue paying rent.   It also depends on the ability of the tenant as a motel operator, and the attributes and continued viability of the motel property and business, like location, size, rooms, chain, restaurant, star rating, local economy, etc.
The operator needs to maintain the star rating or equivalent, and upgrade/refurbish at set intervals to maintain market share.

Look at as many leases as possible so you know what the market expects or will tolerate.
e.g. Some landlords own the bathroom tiles, some don't. (pls don't). 
Grey areas are future conflicts waiting to happen. Get rid of any gray areas and what is left should be black n white.

9.0%  – 9.5 % is common right now, 10% is rare and may have problems attached. Some have high depreciation options remaining. Avoid towns in early stages of highway bypass or recovery from bypass.  Plenty of due diligence required.

I have a lease I can send you if you like, need an email address, PM me.

Hope you find a good one.

Cheers
thecrest
     

Hi LJFZZ
PM means private message. You can send one in this forum. Click on my name on top of my last reply next to "355 posts" and find it from there. Or post your email address here and I send you a lease. Either is OK.

There is no body or industry association where you can register your interest, just brokers who are like real estate salesmen.
Buying a motel from a broker is just like buying a house from a Real Estate Agent. The agent / broker represents the vendor who pays a commission to the broker on sale. Broker lists the motel, website, newspapers etc, takes enquiries, sends out info (figures), uses best persuasion and sales techniques, takes well qualified buyers around to show them properties. It's very competitive between brokers for listings and sales. They usually charge 3-4% Freehold or Investment, and 6% Leasehold.
 
The market price for additional years depends on the individual lease and how much it netts the leaseholder p.a.

It's always good to have the option to add extra years to the lease, usually suits both parties and they come in handy as part of your exit strategy.  A lease from your point of view as a landlord, looks better with 25 years on it rather than say 5. Banks will see a 5 year lease coming to an end soon, but not so much a 25 year one. Also it's worth more as an asset with more years on it.
Human nature looks at a 25 year lease and says " life sentence", don't worry about it, but looks at a 15 year lease and starts amortising it, working out how much it's worth per remaining year. For a landlord to sell extra years is really money for jam.
For the tenant, it's unnecessary expenditure with no return until those extra years either commence, or unless you're selling and want the lease to look its best and longest.  It's peace of mind of course for a tenant to keep the lease years as long as possible so it is easier to re-sell. A typical ball park figure would be around $3-5K p.a. though, but some landlords don't even charge for them. They're just happy to have a tenant stay there.

No probs with questions, happy to help. Email ?
Cheers
thecrest

Hi Sstrache

Questions.
Which part of the lease are you intending buying –  the tenant  or landlord ?
Are you going to operate the motel yourself, or under management ?
What price bracket ?
Location or town  – Where ?
How old is the building ?
How many rooms ?
Star rating ?
With or without restaurant ?
What's the nett after rent, turnover, and rent ?
How many years remaining on the lease ?

Answers to your questions.
1. If you amortise the lease cost per year for the remaining years of the term, then it should be a cost attributable to each year, but tax deductablilty is a question for an accountant familiar with your particular circumstances.
Most new leases are 25 – 30 years, which if on-sold before they reach 23 years will still be regarded by most potential purchasers as more then enough and rather like a double life sentence and unfortunately more than most offenders get for 1st degree murder these days.
2. Finance beyond 50% is rare to my knowledge, and getting finance at all depends on the lender and on you satisfying them that you can competently operate such a  business and service the loan. Suggest you talk to one of the finance brokers on this forum who have thousands of posts to their credit helping others with finance.
3. Haven't heard of commercial loan terms beyond 15 years with motels. Whether they provide you  (interest only) IO or P&I  loans depends on the lender, your circumstances and the property etc.  At 50% LVR, which is onerous really, I personally don't feel like funnelling any more money back to them other than interest each month than I have to. 

Happy to give you any help I can.

Cheers
thecrest (motelier)

Hey Jaffasoft
There's a good upbringing and education, hard work fresh air good values and knowing where the food really comes from.
That'd be a buzz running a guesthouse farm with city kids, very rewarding.
Knew a guy just past Dandenong in Vic who gave up slogging with the farming and turned his acres into a western style horse ranch for girls only, boys not allowed, just girls and horses, and they flocked to it, many kept their horses there full time, parents happy to keep writing the cheques, the parents were like " hey, did you say no boys ? OK how much do you want ?"  western style, bunkhouse, ring the triangle for meals, trail rides, in house events, campfires, good horse fencing, big tack room, all totally horse and girl focussed, chockers every holidays. It saved the farm and their backs. 

Good time for a new broker to enter the market, last year they starved. They market is going very well now. 
We split our freehold motel into a lease, and as soon as we did, the first looker bought the landlord side of our lease, and the tenant part is being looked at closely right now, and should sell next week.
As you and your uncle probably know, the successful brokers have high ranking (Google ranking / SEO ) websites to attract buyer enquiry, live on the road to find the listings, with first  class communications and fast callback times, good rapport with finance, and the good listeners win. Good luck to your uncle and family, we wish him well and with a god team around him and their runs on the board in hospitality they should do very well. 
Our plan is now well under way to own 3 leaseholds run under management, ROI typically 20%.  Good brokers make the searching, buying and selling possible, we value their services.  
Don't remember Big Brother except the Qld rubbish, do remember Blue Heelers with a young heart throb blond guy cop called Ben, is that the one ? It was filmed at the beautiful old pub at Como, NSW,  which unfortunately burnt down later.

When your uncle is operational, put his details on here and we'll give him our listing of our leasehold, if it's not yet sold.
Anyone wanting a good earning motel leasehold in Central western NSW call me, $365K with ROI 30% and free 3 brm home thrown in, genuine 8 years of figures, we're upscaling.
Cheers
thecrest