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  • Profile photo of thecrestthecrest
    Participant
    @thecrest
    Join Date: 2004
    Post Count: 989

    Is anyone holding any current investment in motels in any way ?
    There are some interesting options and what appear to be good buys right now.
    ROI's
    Passive investments around 9%.
    Active owner operated freehold 14%-15%
    Owner operated leaseholds 25-30%.
    Leaseholds operated under management 18-20%.
    Anyone got one of these or is looking for one ?

    Cheers
    thecrest
    (  motel owner )

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
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    selling motels in NSW

    Profile photo of Tony ZorzoTony Zorzo
    Member
    @tony-zorzo
    Join Date: 2009
    Post Count: 6

    The Crest
    Hi there. Do you have one for sale? if so what is the the deal worth, return etc?

    Profile photo of thecrestthecrest
    Participant
    @thecrest
    Join Date: 2004
    Post Count: 989

    Tony Zoro.
    Hi – thanks for asking.
    Yes I do have a motel on the market but I'm also looking for a leasehold one to buy.
    I understand that directly marketing your own property on this website is frowned upon so I hesitate to do that.
    As a motel owner and operator and seller and buyer, I am interested in the area of motel investment and hence this post to  encourage contact and interaction with those sharing that interest.

    For owner operators, motels are a lot of hours but a real estate based investment with a strong and reliable return, and provide a free onsite residence as well.
    Lines between personal living expenses and motel expenses become pleasantly blurred. 
    But lenders want higher LVRs than residential so getting started is harder.
    If a freehold owner wants to retire and lease out the motel, it can be a reliable long term passive commercial investment  because the tenants are usually very stable, on 25 year leases,  and pay all outgoings, and defaults are rare but profitable for the owner.

    Quite a flexible form of investment, with rural area returns higher than coastal. 
    It's what I do, but now I want to leverage my time more effectively and operate 3-5 leaseholds under contract management.
    Cheers
    thecrest

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
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    selling motels in NSW

    Profile photo of js2js2
    Member
    @js2
    Join Date: 2003
    Post Count: 758

    What would a 40 unit motel in Echuca in the million dollar mark bring to the table? Interestingly seen one advertised the other month and i thought woow, i must admit have had no experience in motel management and ownership.

    My uncle and aunt has bought owned and managed hotels right there way up through motels from Penshurst and Koroit Vic, to Ballarat then Meblounre then an upmarket location in Melbourne and now going on to specialise in an agentcy in Melbourne planned i heard. His son is solicitor and word has it he will be passed the conveyancing etc.

    Profile photo of thecrestthecrest
    Participant
    @thecrest
    Join Date: 2004
    Post Count: 989

    Hi Jaffasoft
    Echuca is a strong motel town, strategically placed for through traffic plus it has a strong tourism economy, so it's a through town and a destination town in motel terms.
    To guesstimate the income I need to make some provisos.
    So, IF 
    the $1m motel is a freehold
    in reasonable condition
    say 3 1/2 stars
    running strong around 60-65% occupancy,
    with no restaurant,
    then  it should return approx 15% ROI to an owner operator , meaning around $150K after all expenses.
    That's the industry expectation for a NSW or Vic country motel.
    City returns are lower due to increased competition and higher land costs, so same motel in city area returns around 10%.

    25 – 30 year Leaseholds show higher returns than freehold.

    Nice town and area Echuca / Moama, time was when the "Hysterical Society" was locally joked about for " their silly dreams of converting the river area into some kind of touristy thing to do with the boring old history of the place as a river port etc. Like who'd want to go and see something like that "   . . . .. It ended up booming and saving the town financially. They should be naming streets after the hysterical society. 

    Hope your rellies do well, well setup motels are usually very stable and provide a free home as well.
    Ballarat is strong.
    We like big towns above 20,000 population on major country hwy intersections in min 4 directions.
    The location really matters of course and the accommodation "product" needs to be tailored to the local market and then maintained and presented well by very welcoming hosts and marketed strongly by net, RACV/NRMA Accomm Guide and signage. They're complicated in the fine tuning tweaking dept but those are the basics.

    They can be a good investment and can be run under management, which is our plan.

    Very happy to help anyone considering this area, as many people have helped us on this forum and what goes around . . . .

    Cheers
    thecrest

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
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    selling motels in NSW

    Profile photo of kevroy99kevroy99
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    @kevroy99
    Join Date: 2009
    Post Count: 3

    Hi  thecrest
    We are currently managing a 6 unitholiday complex on qld coast and have experience in aged care rental management also.We would dearly love to buy leasehold in motel or holiday units but only have equity of $160,000 in our home and very little savings any sugestions?

    Profile photo of thecrestthecrest
    Participant
    @thecrest
    Join Date: 2004
    Post Count: 989

    Hi Kevroy99

    Decisions and assumptions to make first.

    I can make comments about motel investment  but not holiday units because I don't have experience there.

    Since country leaseholds are a higher return, decide if you want to live away from the coastal fringe.

    Brokers say buy  "coast for show, inland for dough", comparison will show it's true.

    Low equity imposes income limitations of course.

    Let's assume Banks lend 80% of your $160K residential equity = $128K  and require 50% dep for a leasehold. 

    Then after paying legals etc, you're looking for a leasehold around $240K , range 30%-35% ROI = $72K-$84K  nett income less Bank interest. Makes it hard at that low income rate to get ahead of the fixed costs wave always trying to swamp you. 

    The trick is to buy a big enough income stream to grow and accumulate your wealth and accelerate away from the costs wave.

    To quote the great Peter J. Daniels, who I had the pleasure of hearing speak at the propertyinvesting.com 3 Day MegaConference at Darling Harbour in May this year –  " build reserves " . That deposit or equity is everything, almost.

    Obviously you're already doing this with your existing equity, but it matters even more when assessing motel investment. Owner operated motel lease investment really boils down to receiving income which is the difference between the % cost of finance and the % leasehold ROI, which in this example means 30% minus 8% = 22%. That being the case, you can receive income of around 22% of what you pay for a leasehold, so you ideally want that to be 22% of a very large amount.

    But since that very large amount is limited by your equity ($160K), then you need to source extra funds for security /deposit which will generate more of that 22%  income return.

    There is much information posted on sourcing Joint Venture funds and Other People's Money so you may want to search those options. In the recent past, Banks have been willing to finance motels at residential rates provided the deposit security / equity is residential. 

    By the time they decide to sell, many motel leasehold owner operators are very tired, or have health issues, or want to be somewhere else, or all of those. Bearing that in mind, you have the situation where someone wants to get out and someone wants to get in.  Work on that. 

    Perhaps you could manage a motel for 12 months under contract before settlement, helping the vendor get out quickly, have certainty of sale at a fixed price and date, time to prove and maybe  improve the figures and earn more deposit for yourself, while living in the motel at a dramatically reduced cost of living while earning rent from a tenant in your current PPOR.

    Capital gain – the simplified story is that motels are valued by their bottom line – nett profit.

    For example, IF  :

    you buy a motel leasehold at market price/rate

    and you improve the nett profit  by $10K p.a. over 2-3 years, and

    if the going market rate has not changed, then

    the resale market value of the leasehold has increased by around $60K.

    There are as many options as you can negotiate, this is a very flexible area of investment.

    Finance is vital to motel investment and banks attitudes to motel investment vary.

    Talk to finance brokers as well. The difference between finance deals can create viability. Run everything by your accountant before and during shopping. 

    To check motels for sale either leasehold or freehold, Google "Motel Brokers" and you'll find :

    NSW Motel Brokers

    Tourism Brokers

    Hunter & Associates

    Manenti Quinlan

    Resort Brokers

    Guy Smith Brokers 

    Hope this post is not too long for general interest.

    You're welcome to more info if you need it.

    There are some very helpful finance brokers on this forum who have helped a lot of investors and earned their place in the market.

    All the usual provisos apply here of course, so I have to say these things to CYA and mine –  this does not mean that motel investment suits your financial situation, and this is not financial advice because I'm not qualified to give it, and you must satisfy yourself from your own due diligence and personal financial information together with professional advice from your accountant or financial planner that any course of action is adviseable. Bless all the lawyers.

    Cheers

    thecrest 

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
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    selling motels in NSW

    Profile photo of Josh1942Josh1942
    Member
    @josh1942
    Join Date: 2007
    Post Count: 3

    What commissions are yopu paying to brokers to sell a motel?

    Profile photo of aofaof
    Participant
    @aof
    Join Date: 2009
    Post Count: 1

    We are looking to purchase the freehold (building only) as our first investment any ideas on where to look we could not borrow more than $1m.  We live on the sunshine coast.  If anyone can give us any tips on where to look or knows of any oppertunities we would greatly appreciate it
    thankyou Simon

    Profile photo of sonyasalsonyasal
    Member
    @sonyasal
    Join Date: 2008
    Post Count: 421

    Simon, I have been looking at property in general on Real estate.com.au and I occasionally see hotel/motel properties for sale. Often, if you choose to narrow the search to 'blocks of units' they will be listed in this area. cheersSonya

    Profile photo of thecrestthecrest
    Participant
    @thecrest
    Join Date: 2004
    Post Count: 989

    Hi Josh
    Brokers typically charge 3% to sell a freehold and 6% to sell a leasehold, negotiable as the commssion gets too big.

    Hi aof
    What are you going to do with the building ?
    If you are buying an existing operating motel as a going concern you pay no GST.
    Much due diligence required before buying a building for conversion into an accommodation provider, council regs, local market, star rating, lots to do before choosing which type of accomm product to provide in that location.
    ABS have stats by local area called " Tourist Accommodation Data By Small Area QLD " and other states, shows markets like "more than 15 rooms" or by star rating, shows month by month released as quarters, very detailed showing room $ yield, occupancy rates, bed nights, arrivals etc.
    These brokers handle the bulk of NSW motels for sale, Qld will have it's own bunch. Ring a few motel owners and they will tell you who are the active frequently calling brokers in your target area.

    To check NSW motels for sale either leasehold or freehold, Google "Motel Brokers" and you'll find :
    NSW Motel Brokers
    Tourism Brokers
    Hunter & Associates
    Manenti Quinlan
    Resort Brokers
    Guy Smith Brokers 

    Cheers
    thecrest

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
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    selling motels in NSW

    Profile photo of marx3bullmarx3bull
    Member
    @marx3bull
    Join Date: 2009
    Post Count: 86
    thecrest wrote:
    Hi Josh
    Brokers typically charge 3% to sell a freehold and 6% to sell a leasehold, negotiable as the commssion gets too big.

    Hi aof
    What are you going to do with the building ?
    If you are buying an existing operating motel as a going concern you pay no GST.
    Much due diligence required before buying a building for conversion into an accommodation provider, council regs, local market, star rating, lots to do before choosing which type of accomm product to provide in that location.
    ABS have stats by local area called " Tourist Accommodation Data By Small Area QLD " and other states, shows markets like "more than 15 rooms" or by star rating, shows month by month released as quarters, very detailed showing room $ yield, occupancy rates, bed nights, arrivals etc.
    These brokers handle the bulk of NSW motels for sale, Qld will have it's own bunch. Ring a few motel owners and they will tell you who are the active frequently calling brokers in your target area.

    To check NSW motels for sale either leasehold or freehold, Google "Motel Brokers" and you'll find :
    NSW Motel Brokers
    Tourism Brokers
    Hunter & Associates
    Manenti Quinlan
    Resort Brokers
    Guy Smith Brokers 

    Cheers
    thecrest

    Your informations about Motel Brokers was very helpful for me. Thank you. before buying a building many things are necessary to remember first.

    Profile photo of carpe_diemcarpe_diem
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    @carpe_diem
    Join Date: 2006
    Post Count: 76

    Hi "The Crest"….you have given me some useful advice on another posting to do with my buying shops and factory.  I note you are experienced in motels and wondering if I might be better off investing in this area.  I'd be happier to have a single leaseholder and receive a good return for my investment.  I think I noted somewhere you said the capital gains are perhaps relative to the profits the business makes…..do you mean for selling the business ie the lease of selling the freehold.
    Thanks
    Carpe

    Profile photo of thecrestthecrest
    Participant
    @thecrest
    Join Date: 2004
    Post Count: 989

    Hi Carpe
    Motel leases are usually owner operated and bought and sold through Brokers, and are usually priced according to the current market conditions and nett profit after rent is paid.
    At the moment, a motel leasehold in good condition trading well in a good NSW country  town should sell at around 30% nett meaning a leasehold which netts $120K after rent should sell for around $400K.
    Landlords are buying freeholds which are leased out already with a tenant / lessee / operator in place paying rent at a level which shows an  8.5% – 9% ROI.
    Why do I think these are a good investment ?
    Vacancy rate is nigh on nil, because the tenant has paid $400K to buy in, is liable for the monthly rent or in default, walks out and leaves the motel in operating condition and does his dough. Landlord re-sells for another $400K.
    Business & leasehold when bought cannot be moved elsewhere (unlike a shop, office or factory).
    It's the lessee's home as well.
    Motels make money and can afford the rent.
    Leases typically are 25 – 30 years.
    Rent is CPI adjusted.
    Tenant pays all outgoings.

    Example.
    Freehold value of motel $1.4m
    Netts 15% if freehold owner operated =  $210K.
    F/H owner sells a lease for $400K, F/H equity remaining $1m x 9% rent = $90K rent.
    L/H buyer buys lease for $400K, gets $210K nett, pays $90K rent = $120K nett after rent paid.
    So,
    Passive Investment Freehold / Lessor /  Landlord  – gets 9% return on $1m.
    Lessee motel operator gets 30% return on $400K (plus a free home).

    If the leaseholder operator  increases the nett return of the business in a sustainable way, the value of the leasehold  increases and can be on-sold at a higher price. It does not alter the rent. 

    Real Example. Initially we purchased a leasehold ourselves with an option to buy the freehold for a pre-set amount within 3 years. So it was like the above example with us having the option to buy the remaining freehold part of the motel for $1m because we had already paid $400K for the leasehold. We operated the leasehold for nearly 3 years and during that time we increased the nett profit hence the value of our leasehold, which provided enough equity for the Bank to approve finance for us to buy the freehold.  The cap gain belongs to us.
      
    It's a flexible investment area. Hope this post is not too long.

    Cheers
    thecrest

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
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    selling motels in NSW

    Profile photo of thecrestthecrest
    Participant
    @thecrest
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    Post Count: 989

    Hi Simon / Aof
    Pls  PM me as I have some great opportunities for you.
    Cheers
    thecrest

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
    Email Me | Phone Me

    selling motels in NSW

    Profile photo of thecrestthecrest
    Participant
    @thecrest
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    Post Count: 989

    If anyone is genuinely and seriously looking to buy a motel in NSW contact me now as I have an excellent one for sale with genuine reasons for selling.
    cheers
    thecrest

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
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    selling motels in NSW

    Profile photo of carpe_diemcarpe_diem
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    Join Date: 2006
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    HI "the Crest"
    The returns seem good for a freehold but I get the feeling that it might be difficult to sell down the track…..I think you yourself might be experiencing this.  Have the capital gains for a freehold motel been on a par with other commercial or indeed residential gains?  Whilst the cash flow for a rock solid residential investment in a prime location might be low initially (5%) they do tend to increase steadily.  But the big returns on residentials in good locations are on capital gains which seem to multiply well over a short time frame.  So while I'm thinking of entering into commercial I keep going back to my thoughts on residential investments with large plot of land in the best locations.  The motel in the country returns the dough for leaseholders but I'm not sure that the capital gains are there for the freeholder.  Do I want an investment for 25 years that brings in 9% rent pa but does not grow in terms of capital gains as say a good residential in a prime location?
    Cheers
    Carpe

    Profile photo of thecrestthecrest
    Participant
    @thecrest
    Join Date: 2004
    Post Count: 989

    Fair comments in some places. However ….
    Usually ,commercial returns with very secure tenants and zip vacancy are selling between 6 1/2 – 8% max.
    As you know, commercial returns are nett, tenant pays all outgoings, CG is low, vacancy is a worry and when it hits it lasts longer than res. However, tenant turnover is much less, hence occupancy lasts longer. It's a trade off.
    Plus commercial leases have teeth (lockout options) unlike res leases. (don't you wish).

    Passive motel investment with rent returns are seriously overlooked , usually returning 8-9% with zip vacancy but also, they enjoy an extra factor which other commefcial investments don't have – the bonus is – if the tenant defaults and walks, the lease can be sold again. Tenants pay hundreds of $Ks to buy a motel lease, they move in and live there and operate it, and defaulting means moving home and losing big money. Big incentive to pay the rent and not breach the lease.

    CG for a freehold motel is dependant on increasing the nett profit,
    unless the land becomes more valuable than the business.
     
    Last 12 months, sales of motels has been so quiet that some brokers have stopped trying and bought motels themselves and started operating them because "strangely enough" for those who don't know,  many of us motel operators are saying "what GFC are you talking about ?"
    This has been a record year for us, no crisis here. None know the market better than the brokers and for them to buy the product they are selling is a full endorsement.
    We are now selling our freehold in 2 parts which might make it easier –  the leasehold for $365K which returns 30% owner operated, and the freehold passive rent collecting investment at $850K which returns 10%.
    Any genuine interested parties are welcome to PM me.

    You asked – " Do I want an investment for 25 years that brings in 9% rent pa but does not grow in terms of capital gains as say a good residential in a prime location?" 

    Personal choice according to your strategy. First, you can sell it, you don't have to keep it for 25 years. Remember it is nett.  Well many investors are looking for exactly that when they retire and don't want the hassle of residential leases, and anything sitting on land has some CG, but less hassle and immediate return in retirement is often more highly regarded than CG. Commercial nett return is now, nett cash flow now, in full, use it as you will. You speak of 5% now, ok, and CG comes eventually, usually, except for the last 2 years.  It's a different strategy I suppose. It suggests a balanced portfolio might do well and be complementary.

    I like motel investment, I understand it, it's a real estate based business with a free home thrown in, reliable tenants who can afford the rent, and it has flexibility. I'm expanding further into it.  Some residential property is also on the list for our portfolio but the motel income pays for it.

    Apologies for long post, but trying to be informative.

    Cheers
    thecrest 

     

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
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    selling motels in NSW

    Profile photo of minichickminichick
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    @minichick
    Join Date: 2009
    Post Count: 54

    hey crest just a quick question with $229000 equity how much could you lend in theory to buy a leasehold or freehold motel?

    Profile photo of thecrestthecrest
    Participant
    @thecrest
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    Post Count: 989

    Quick reply as requested.

    In theory $229K equity, mortgaged to 80% of its value, ( $183K) will enable you to borrow enough to buy a :

    Leasehold for $366K ( assuming LVR of 50% ) or a

    Freehold    for  $457   ( assuming LVR of 40% ).

    That does not include costs for stamp duty, loan establishment fee, valuation on equity,  and legals etc.

    If that equity is residential, then Banks used to lend at res rates to buy some types of commercial property.

    Best to talk to one of the experienced Finance Brokers on this Forum to find out what the going rate is,in case it's not 80%.

    cheers

    thecrest

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
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    selling motels in NSW

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