Welcome to the forum from me as one of the many forum members.
Several questions would help clarify what you’re seeking .
What price bracket are you thinking of ?
Coastal or inland ?
Are you seeking a :
Freehold operated under management, or
Leasehold operated under management, or
Passive investment Freehold leased out to a tenant ?
thecrestlayaboutMember@layaboutJoin Date: 2012Post Count: 2
We are looking for passive investment of somewhere around the million mark, and are open to both coastal or inland depending on where the situation is. We are still learning and views may change as our knowledge level increases.
Suggest a relatively young motel, besides more depreciation benefits, they are less hassle than the older ones, which are more likely to have larger maintenance or repair events which may become grey area issues between landlord & tenant, which you can do without during the first couple of years of the learning process.
The inland town locations tend to provide higher ROI scenarios than seasonal coastal locations, and with country towns it tends to be further to the next town than in coastal areas, which helps guests decide to stay.
Enjoy the search and happy to help if you need it.
Update on our motel leasehold purchase of December 2011.
6 months figures are in and above projections.
P & L’s provided by vendor have been exceeded, so we’re very happy with the purchase.
Now to realising the upside potential and increasing nett.
Hope all those searching or purchasing are going well.
thecrestthr1lledMember@thr1lledJoin Date: 2010Post Count: 5
Congratulations to thecrest, your results are going against what the doom and gloom mob out there are telling us about the economy. Woohoooo!
Motels in some areas seem to buck the trends, and apart from some slight ups n downs, just steam along the same.
We've experienced this before with our previous motel during the last GFC, local retailers were suffering badly while for our motel in the same area it was business as usual. Made it difficult dodging the usual "how's business" questions at Chamber of Commerce meetings when retailers tell of suffering $10 days and then ask how's your motel going. Awkward.
But, some businesses are resilient.
thecrestabcd1Participant@abcd1Join Date: 2011Post Count: 36
Hey Crest I am looking at a leasehold motel coastal no food
11 units pool etc, returning $140.000 new 25 year lease
I have read all your posts and I see you mentioning banks lending on 30% for leaseholds is this still the case?
I have around $200,000 equity they are asking $480,000 for the motel that we are interested in.harvMember@harvJoin Date: 2012Post Count: 1
I am looking at selling a motel lease with 14 years left.
Initial discussions suggest it may be difficult due to the length of lease.
Do I have to buy more years and how many?
How would I calculate the cost of buying more years?
Is there other options?
ThanksEphraem1Member@ephraem1Join Date: 2012Post Count: 17
congrats the crest! good on you!
Thought I'd answered you but can't see it here. Sorry if I missed it.
I assume you mean you're the buyer not seller.
More years is a negotiated deal, and benchmarks are very dubious.
Anything can be negotiated, especially this one.
Read the lease thoroughly, examine exactly everything the lessor is obliged to do, like repairs, maintenence, replacements, and check the motel condition so you have some idea what that will mean for the lessor's costs.
You may be able to trade some of his future costs for more lease years, so you take the costs, he gives the years..
If not, at least pay as you go so you don't have all the costs up front.
Could be in the form of extra rent (might save on stamp duty) but reducing back to normal rent after payment completed.
Some landlords seem to think $5K per year is a popular figure.
You could purchase or otherwise negotiate a written option to have more years, without actually taking them until you decide to sell.
Hope that helps.
thecrestBrisbane 04Participant@brisbane-04Join Date: 2004Post Count: 215
Sent you a PM let me know what you think.
Sorry i seem to have overlooked your post too, maybe my email alerts aren't always working.
30% would be the smallest deposit I've heard of, and you'd need to have a lot to offer the bank or lender.
A lot has to be just right before you can operate on the extreme edge of anything, especially borrowing.
You'd need to get an expert in finance to help you on this one.
There are a few on the forum who have many posts to their credit showing long standing assistance to forum members.
Perhaps you should be asking them about finance in this instance.
Too close to the edge for me to know.
Technology For Motels.
Looking at the recent developments in technology, I suggest to anyone considering buying a motel to engage the services of an IT expert to assess the business from that perspective in order to estimate the costs of making any necessary improvements and gaining some upside for the business e.g.
reservation system with backup & UPS
wireless internet access for guests with gateway & control system
office wireless internet access
optimum business phone/internet/mobiles bundled plan from Telstra
Change lights to LED to reduce elec bill by about 35%. (just changed our own motel lights).
Anyone else changed to all LED ?
They make awesome LED floodlights too.
Reduction in costs adds to nett profit which adds to
asset value of the business and
repeat nett income and
thecrestScott No MatesParticipant@scott-no-matesJoin Date: 2005Post Count: 3,856Jacob MartinMember@jacob-martinJoin Date: 2012Post Count: 13
Make sure that the motel you plan on investing in is one that is still fully functional and has no bad history eventually ROI will follow if it is handled well…rusty05Member@rusty05Join Date: 2011Post Count: 94
I've just finished reading this thread start to finish and have to say I have learnt a lot from your posts. Thank you. I've been considering buying a freehold motel as a passive investment hoping for a 9-10% return for around $1000000 not too ancient, probably no restaurant. I'd be looking in regional areas, Riverina or Central West NSW, Cowra, Orange, Bathurst, Wagga…. Or South Coast but as you've said the returns would be lower on the coast. Something with a long lease attached.
Am I right in saying that when buying freehold you can buy one with a lease in place, or one without a lease. If you buy one without a lease you can create one and then on-sell the lease?
I believe the second option if you are buying freehold is to put a manager in and have someone work it for you. What does it cost to have someone manage? I'm assuming if done correctly it would be more profitable than leasing would it, but more hands on = more effort!
The thing I guess I have to consider is that a freehold motel would eat up a lot of my equity. Are you still working on around 35% deposit? If so I'd have to work out if the return on the $350000 equity would be higher in a motel than it would be by purchasing $1750000 of residential (unit blocks etc) at 80%. I'd love to do a combo of motels and residential and build a substantial portfolio.
I look forward to hearing your thoughts.
Rustyrusty05Member@rusty05Join Date: 2011Post Count: 94
Oh, one other thing… when brokers list under the categories of Freehold, Leasehold or Investment Motels does it typically mean Freehold is with no lease in place and Investment is Freehold with a lease in place (as in a passive investment)?
You’re on the right track Rusty. Lets get the terminology listed first.
Freehold Motel – no lease exists. Could be owner operated or under management.
Motel Investment – the landlord’s interest in the lease (land, building). Income is the rent from a lessee/tenant, who operates the motel or employs a manager.
You can buy a freehold motel and draft up a lease and sell it, leaving you with the investment, so you’re the landlord receiving rent from the tenant/lessee operating the motel.
If you buy a “freehold” with a lease in place, you’re actually buying an investment, and the tenant is already in place and the lease is already operating. You are buying the lease as is.
As an example, take an average country motel around 20 units no restaurant, linen outsourced. Managers cost say $65K.
Freehold ROI – 15% less $65K for managers.
Leasehold ROI – 30% less $65K for managers.
Combo – Purchase freehold 2 brm units nearby, furnish and provide them to motel guests. The $ tariff charged p.w. is about triple what you get from a permanent tenant. Your combo idea is good.
Remember to factor in your interest costs.
The towns you mentioned are strong. I have motel ownership experience in 2 of them.