I currently own a freehold motel in rural victoria in a popular costal town. I now wish to move on and stop running the motel as it has all become a bit too all-life-consuming. Ideally I would like to get full time manager, but realistically, managers will come and go, and don’t want to end back at the motel having to run it again myself. After having run the motel with no experience at all, I feel it has been a success and a lifetime achievement.
The motel freehold was purchased for 800k, the business for 200k, with no loan required. I am 35 years of age. The motel is all I have in regards to investment. It returns 300k per year turnover (only open for 9 months) but we can push this to 375 if run all year round and open in the low season (winter). 9 bedrooms, 3.5 star rated. 1-2 cleaners are required when we are open. (40k wages). Net profit is currently 100k after add backs and wages.
The idea was to mortgage the motel and lease it out for 30 years. That way, I can get the property back later in life, or hopefully before if I get a chance to buy back the lease a bit sooner. I will lease for 25-30 years, 70k per year and purchase price of 300k. Does this seem about the right? I thought it a better idea to lease the motel and my investment paid off by someone else, rather than selling it altogether.
I plan to realise the cash to buy an apartment (cash only, no loan) and work a low paid part time job 40 k per year so I can also commit myself to more voluntary charity work that I used to be involved with.
Does this plan sound ok? Would you do anything differently? Is there some kind of independent advisor that I can go to to plan ahead how I will lease the motel. I currently have been asking questions to various motel brokers about how I should plan for leasing in 2 years time.
Thanks you :)crjParticipant@crjJoin Date: 2004Post Count: 618
If current net profit is $100,000 is the rent to come out of that. If you mortgage the motel and use the cash to buy a unit to live in, the interest on the mortgage will not be tax deductible. Have you talked to Tony Neyle of statewide motel brokers. You are going to have to consider in the lease about who will pay for improvements to the units as after 30 years they are going to be outdated.
Hi cry, thanks for your response. Yes the rent has been taken out of the 100k. The 100k is just pure profit after wages, motel expenses etc.
I don’t quite understand why if I mortgage the motel, it won’t be tax deductible. The initial money I used to buy the motel (1 mil) was personal savings. This money is just going to be paid back to me. So technically, the money I get back from the motel sale (it will be transferred back as a director loan repayment) will have no affiliation with the personal apartment that I buy in the future?
Thanks for recommending tony. Do you think even if I find another broker (CRE or resort brokers) he will still be able to help. I am happy to pay for the service. I just want to avoid the person giving me advice to be the one who lists my property. I need complete unbiased advice. To find someone without any vested interests in the motel sale would be the best bet, hence why I started on this website first.
Thanks again for your help :) I am at the start of my journey and I know I still have a lot to learn. I hope to get there in the end!crjParticipant@crjJoin Date: 2004Post Count: 618
If you are repaying a loan the interest might be tax deductible but you didn’t provide that information earlier. Ask Tony and see.
Any space to build extra units ? as you already own the land and infrastructure, extra units would be more profitable than the existing ones and would increase the sale price and income for you and the lessee. Small income limits available funds for vital R & M which might create the risk of a tenant running the place down. What have brokers said who have seen the property ? Happy to help without acting as a broker. Feel free to make contact.
thecrestJoParticipant@jodytJoin Date: 2015Post Count: 23
I am in a very similar position as you with a small block of freehold holiday units in a coastal area of NSW and looking at the possibility of leasing out in a few years time.
Will be most interested in your progress
Hi Jo, sorry I don’t get on here much!! Too busy running round after guests. So I have just secured a mortgage. Thought best to set that up now before I lease the motel. I have put off leasing the motel for another 2 years so I can use that time to improve the figures. Given I have no current mortgage on the motel I have been running in a very relaxed fashion…..but that is not a very good way to run a business that you want to sell!!! I have had one agent down in person. They were very helpful indeed and helped me work out a pathway to leasing the place. I will prob lease with them as they have been the only ones to bother returning my messages etc. what about yourself? Any more thoughts? How long have you had your place?
Hi tony, sorry I don’t use the Internet much. I hate it in Fact!! Still plugging away at the idea of leasing. I have had 1 agent down in person who was very helpful. All other agents have failed to return emails and voice messages – very disappointing to be honest. I’m looking to lease start advertise in 12 months time, with a view to sell in 24 months time. What would say is the average length of time a motel is listed for leasehold. I know some motel ores want to get rid of ASAP, and some will sit and wait for the highest price, but there must be an average? I had an offer from a Chinese investor, but trouble is, I would like the motel back eventually, and all they wanted to use it for is bus tours.mso decided that it wouldn’t work. I assume you don’t cover Victoria?JoParticipant@jodytJoin Date: 2015Post Count: 23
Thanks for update.
We’re still just in the idea stage of that’s what we will probably try to do.
Have only had these units 2 years and still want to pay down some more of the mortgage and get maybe 3 years of reliable figures.
Haven’t had a holiday yet so will this year probably find a quiet couple of weeks to just shut down and disappear.
Not really big enough to justify putting relief managers inr
Keep us updated on your progress
Making any progress ?
Motels sell quickly if listed at market price, with clear clean figures over min 2 years.
Great pics essential.
Buyers usually check all the major brokers’ websites plus realcommercial and a few others, so biggest not necessarily best.Happy just to help on the Forum, or contact me, no fee, busy selling my own leasehold right now as well.