ccpetemParticipant@ccpetemJoin Date: 2013Post Count: 1
After coming across this site, I have been reading through the posts on the forum and finding them very informative. I am now seeking some information from the very knowledgeable among you. Please excuse me if some of my questions/thoughts are a little green….the whole idea of buying a business and being self-employed is all new to me, and becoming a fast and very interesting learning curve.
My wife and I have just started looking into the possibility of purchasing a motel, either leasehold or freehold. We really like the idea of getting into a business and working for ourselves, and the idea of a motel appeals to us. Having been a Sales Rep on the road for many years, I have seen my share of motels, and would like to think I have picked up a few things along the way as to the good and not so good operators out there – knowledge and ideas that we hope we can bring with us into the business.
Firstly, Freehold vs Leasehold – pros and cons? I'm thinking if we can purchase a smaller, cheaper freehold property we would be better off long term. At this stage, we are not thinking of getting into and out of a motel within a short period of time – looking at 8-10 year minimum. With two young boys we are not keen to move them around too much with schooling.
Before we can consider anything further, we will need to look into our borrowing capacity (as I said we have just started looking into all this). We currently have around (conservatively) $160k equity in our family home. Ideally we would like to keep this as a rental property (rent would more than cover current mortgage repayments). In saying this, we know that it severely (if not completely) limits our borrowing. We are quite prepared to sell our home to purchase a business.
Can anyone advise basic figures of borrowing capacity for both leasehold and freehold if we were to sell up, and have around $140k cash to put in?
If we were to purchase Freehold, can I use money from my current Superannuation pool to buy into the motel? Could this be set up as part of a SMSF? Considering the fact that a freehold would enable us to sell off a lease in our retirement and have income from the rent.
I have received property summaries and some basic P&L statements from various brokers on various motels that I have enquired about during the start of my research. Looking into the P&L's is all new to me, having always been an employee with companies. Many of the motels figures show little, and in some cases negative, profit. Would this be a case of very poor management, or great accounting? I have read on this forum where the business vs private use lines are somewhat "blurred" when it comes to operating costs. Is this enough to reflect so heavily on the final net profit numbers?
What are people’s opinions on older and/or mismanaged vs well run, successful properties? All the brokers seem to sell the "upside" to the properties that could be turned around. We are thinking along those lines, where we could, all going well, use our enthusiasm (or perhaps naiveness..lol) to reinvigorate a business.
I hope my post is not too long, and hoping some of you out there can answer or assist with some feedback or information on some or all of my questions.
Look forward to hearing anyone’s thoughts.
Kind Regards, Peter
Welcome to the forum from me as just one of the many forumites.
You've certainly asked a lot on a first post.
There has been a lot of info posted on this forum now about motel investment so I suggest you read all you can and you should find many of your answers there already.
You need to know how much you can spend before anything else, and see if the income from that purchase would be sufficient for your purposes.
Note the different returns on freehold vs leasehold, coastal vs inland, and see if your projected income would be sufficient.
Sort out locations and preferences.
Sort out your SMSF options with your accountant or financial experts on this forum. There are some here with thousands of posts to their credit from helping so many people over a long period of time.
If you have expertise or experience in any area you might like to add some help into the forum yourself, what goes around . . . .
Reading heaps of leases and P & Ls is essential self education. Start creating some benchmarks, KPI, ROI as you go e.g. setup an excel template and express some important expense benchmarks like housekeeping wages, electricity, water, as a % of turnover, enabling you to compare apples to apples. List expenses for the last 3 years side by side and query any fluctuations.
The decision to buy a modern motel, one in good condition or one that's tired or limping will depend on your skills in reno or as a business doctor, and will depend on the bank, who may be reluctant to lend to a first timer on a limping business, or one that has more promise than profit. Cashflow is King, so too position position.
Freehold vs Leasehold. Consider the scenario of comparing buying one of 2 identical motels for say $500K –
one a freehold returning 15% ($75K p.a.), and the other a leasehold returning 30% ($150K p.a.).
Suggest you check out all the existing info and post here again with any further questions.
Hi To All Forum Members.
With the kind permission of the Administrators/Moderators here’s my coming out post.
Family, friends, contacts and acquaintances in the hospitality industry have been suggesting for a long time that I should take up the profession of motel broking, so I have.
As a result, Statewide Motel Brokers has been launched as our new family owned and operated business to sell motels in NSW.
I’ll still continue to assist forum members with information about motel investment and help buyers in finding a motel to suit their needs. However I will advise any interested parties if I have any vested interest in any property or would benefit from a sale.
Our website is new and will need at least 6 months of assistance by web developers to gain some ranking with the major search engines. Any recommendations of expert SEO specialists welcome.
Thanks again to the Administrators/Moderators and wishing you all great investing success in 2014 and beyond.
thecrestvagirl2012Participant@vagirl2012Join Date: 2012Post Count: 47
Congrats crest! Now I know who to come to if I ever want to realise that long-held dream of mine of owning and running my own motel
Good on you, keep the dream alive, happy to help anytime and I keep pinching myself as my own dreams materialise.
It's such a buzz planning one and making it happen.
All the books are right on the money, like Rich Dad Poor Dad, Think & Grow Rich, all the book lists are on this Forum in various posts.
The power of a dream hitched to a plan is enormous.
2013 Calendar year was a mixed bag for regional moteliers with political unrest and coal prices the culprits.
Hoping the next 12 months will be better for them all while some just cruised right through without any changes, depending on
the strength of their location and their market. RBA has helped, another cut would be great but the consensus seems to side with
holding not cutting.
Pauses are good times for upgrades and refurbs while a few rooms are empty.
We're painting too before the cold weather. Painters tell me it won't stick below 10c temperature so winter no good for painting.
Just a reminder for those thinking of passively investing, landlords typically get 9% returns,
Freehold owner operators get about 15%,
and operator lessees get about 30% and a free home,
not sure where else that's available but I'd be interested to know.
Still in Wagga operating our own motel and enjoying the milder weather after the heatwaves.
Managed to save most of the gardens but not all, planting grass again.
Update. Finally managed to replace lawn areas burnt by January’s heatwave conditions, never knew new lawn took so long to grow. We have a change of plans and have placed our motel on the market at about 26% ROI and will be looking to replace it with one closer to the Port Stephens / Hunter region where our new Statewide Motel Brokers business is based. There are some excellent motels on offer right now, even noticed a passive investment one returning 10% ROI, there are some good deals out there and some good motel stock on the market and interest rates are low, and I suspect that after the initial media budget bashing frenzy which does consumer confidence and the economy no favours, we should see some confidence returning and our economy improve. Motels have taken a small slump in turnover over the last 12 months but now rebounding as resilient as always. Hope those considering motel investment can find something to suit while it’s a buyers’ market. Good luck.
thecrestEricaJParticipant@ericajJoin Date: 2014Post Count: 5
What sort of LVRs are banks demanding right now and is this affecting the market ?
There seem to be lots for sale except the investment landlord type ones.
I’m seeing lots of leaseholds, so what’s the situation ?
Any info would be helpful. It’s confusing for newbies like me.
Hard Works Beats Talent
Banks have tightened up on lending for motels right now and are demanding up to 2/3 deposit, so it’s a buyer’s market if you can buy within that scenario. Motels are not selling as fast as they should so stock is building up a bit. The last 12-18 months has been less than bright for accommodation providers and some are trying to sell based on a 3-4 year average figures, probably not a bad idea really. Sure buyers would like to buy at a price based on the worst year they could find but it does not reflect what their investment will return over the longer term.
The bargain hunters are picking off the bargains. As soon as the lenders ease their LVRs better market conditions will return and sales will increase.
The passive investments are hard to find right now, which shows them to be tightly held and hence a good investment in lean years, but when they’re scarce they can be created by buying a freehold and selling off a lease.
Can anyone shed some light on why the Banks have tightened up ?
thecrestPhilfellaParticipant@whitefella22Join Date: 2014Post Count: 4
I’m am having difficulty in tracking down an experienced motel legal firm and an accountant specifically in NSW, to assist me in my proposed motel acquisition. Specialist’s who know the motel industry well I am finding to be rather allusive, and don’t seem to promote there services widely, especially in NSW.
Can any forum members pass on any recommendations here?
Email MeDavidParticipant@dlin21Join Date: 2015Post Count: 1
I am new to this forum and it took me 4 hours to reading all the posts. Thanks for your valuable time to provide this valuable information about motel investment, it is really helpful.
I am currently considering a Passasive Investment motel in Central NSW, would like to talk to you privately. Thanks.
Any progress David ?
There are some good buys out there at the moment provided you can get finance.
Obviously our new PM has improved business confidence which quickly affects reps visitation to regional areas.
You’re welcome to call me.
Unfortunately in some areas inexperienced moteliers are falling into the trap of discounting , encouraged by the OTAs (online travel agents like Booking.com and Expedia etc) and causing themselves and the industry profit damage. Hopefully regional markets will be able to work together to rectify this unnecessary practice and return to a fair price for their product, and most moteliers look forward to a world without the unnecessary 3rd parties siphoning off guests funds while providing a service which is really unnecessary.
Suggestion : if anyone wants to book accommodation, ring or email the property direct and make your booking with the owner. You’ll always get a better price than using 3rd parties.
Otherwise it’s been a great year with strong demand and challenging online marketing conundrums. Never dull.
thecrestPicky1Participant@picky1Join Date: 2016Post Count: 1
I am wondering if you are able to offer some advice to my wife, myself and our family. We recently purchased the “Free-Hold” of a Motel property in Northern NSW. The property is not in a great state at present but it is our intention to run the business as it exists until we get a real understanding of the area, our “punters” and general demographics….before we do a complete re-furbishment of the property. Of course it is of paramount importance that our money is spent responsibly, and with a full understand of the needs of the community in which the property will sit, both as it is now and eventually in it’s transformation.
I am wondering if you might have any leads, or even input, as to who we might start to approach in relation to the re-furbishment of the property. We are not a member of any Hotel / Motel chain or brand and therefore we feel a little isolated in the information we receive. Any direction you might point us in would be gratefully considered.
Welcome to the forum.
Fortunately you have time to plan ahead while running the motel and assessing the market in your area to find your niche.
ABS stats may show the averages in occupancy, revenue and star ratings.
SRA (Star Ratings Australia) can assist with design planning to ensure the final refurbished product reaches the desired star level.
Depending on your skillset, you can design, choose items to buy yourself, import in bulk or source locally.
The greater your skillset the lower the cost.
However, best to have the planning done professionally and then work it from there.
Depending on the number of rooms and scope of the work, , you could work on half the motel at a time or just a few rooms.
I’ll PM you some companies who specialise in motel refurbishment, and some motel IT specialists, for a start.
If a refurbished motel will dominate the locality, and no existing chains, and you can dominate online, you probably won’t need a chain.
With a comprehensive market assessment, you’ll have a clear plan.
Let the forum know how you’re progressing.
Motel industry has sure changed over the last 2 years.
Online success now decides the business outcome unless its a motel next door to a people magnet like Rod Laver Stadium or some other major attraction. Definitely going to the AO there in Jan 2019, it’s on the bucket list.
If you’re considering an investment in this area, there is upside in motels which are under-performing online. Experts in “Revenue Management” with proven success who optimise motel performance using online techniques like dynamic pricing and market positioning, social media promotion, SEO, etc are in high demand and competition in the online arena requires expertise.
Essential services are IT, Reputation Management, Social Media, SEO and Revenue Management, to be brief.
Quality properties are available however the importance of location location location is increasingly moving more towards positioning online rather than geographical, because that’s where guests find a motel first.
Disrupters and others who blitz the TV with ads are being a thorough nuisance and advertise services and prices incorrectly. We frequently compare a few simultaneously and note the differences, including prices for our own rooms which don’t exist.
Suggestion to any traveller – book everything direct and save – accommodation, car, transport, dining. No prizes for guessing who ends up paying for commissions of agents and middlemen.
Own own motel is still listed for sale and should sell soon, always fingers crossed like all vendors of property or business. With lots of luck, Govt might do what they’re saying and abolish stamp duty on sale of businesses and leases but not holding the breath.
Hope you’re all enjoying success and 2018 is great.
thecrestjtParticipant@nakaharasanzouyahoo-com-auJoin Date: 2018Post Count: 1
I have been investigating motel purchase for a while. I have learn so much just reading your posts.
Before I decide to purchase I would like to know how to sell ;)
Say if I purchase the leasehold motel for $400,000 with 25 year lease and after 5 year I would like to be out, do i sell the lease to someone else? or the landlord buy back the lease?
- This reply was modified 1 year, 9 months ago by jt. Reason: my bad english
If you own the leasehold, then you can sell it to the landlord or anyone else, provided you comply with the terms of the lease. Usually the lease terms say the landlord must approve of the purchaser as a prospective tenant, and also the landlord must be given the first opportunity to buy it at the agreed settlement price, (first right of refusal) . Always good to plan your exit strategy before entry. Compare values of 19-20 year leases with 25-30 year leases.
What area and type of motel are you interested in ?
thecrestAUParticipant@au43Join Date: 2018Post Count: 1
New user and before I get in to the question I’d like to say thank you to those who have posted here, especially thecrest, there is some invaluable information posted.
My question relates to industry experience; my wife and I have no experience in running a motel or hospitality but we’re looking for that mid life sea / work change. Is that typically a firm requirement from lenders?
We have $300-400K of equity in our house, with around 3-4 years to go until its paid off. We’re still in our early 40’s so I think plenty of ‘work life’ left in us so I’m confident we can get a reasonable level of funds, but I’m not sure how much a lack of industry experience will hurt us.
I ask this because from what I have read lenders often require a business case and industry experience is a consideration. Is this true, and if so how would we address this?
Welcome to the Forum. Yes it’s full of very helpful and experienced people for which I’m grateful.
$300-$400K could buy a good leasehold around $700-$800K mark at 30% ROI. Banks usually want 50% dep but check with finance brokers on this forum for current accurate info on finance. Check lenders LVR re property to see what % of your equity in your property they will lend against. Used to be 80% so if you have $400K equity they will consider $320K as a deposit. Used to be if you used residential real estate as security you could borrow at residential rates, but again, use the finance expertise of brokers on this forum who have notched up huge numbers of posts helping heaps of people on this forum, because they are awesome. A scenario could be : buying a motel leasehold with a “free” residence included, and rent out your home so you stay in the real estate market back home, and your home becomes an investment property and rent helps offset the loan. Lack of industry experience can be offset by buying something rock solid. Your CV will be taken into consideration by lenders no doubt. Also favorably considered and desirable for you as well is a (rock solid) simple motel with enduring reasons why it would continue to provide the quoted returns, which would give you time to gain experience. As an example, that could be a country motel (no restaurant) next door or across the road from a financially sound RSL or Bowling Club, in a stable and growing town not overpopulated by competitor motels, not scheduled to be bypassed,and with little likelihood of the Club building its own.
Other ways to offset lack of experience could be buying a branded motel, like Best Western or Golden Chain, and using outsourced “revenue management” and social media/ online reputation management expertise and I.T., (as we do). Unless you have expertise in any of those areas yourself.
A coastal motel would also work, income is seasonal and average annual return ROI is 3-5% lower than inland, (due to land value).
There are some motel industry trainers but not sure what they’re like.
That’s a very brief overview.