Strata titled motel units

I have experience in this type of structure.

“pretty safe bet”

Firstly, you should do your homework before acquiring property based on someones “guarantee” that the investment will generate XYZ income over a defined period. And employ a very good contract lawyer.

There is always a catch or clause to protect the seller/lessor.

“the resident managers guaranteeing your rent for the term of the lease”

I assume you mean they will guarantee an annual return [in percentage terms], or a portion of the projected income based on periodic occupancy adjustments – I have used these sales strategies in the past to ensure the buyer does in fact generate a percentage of their cost over a defined period.

If they are “guaranteeing” income sufficient to cover your lease payments, then this is enough of a red flag to walk away and not waste your time.

WHEN A DEAL SOUNDS TOO GOOD TO BE TRUE, IT USUALLY IS.

Furthermore, in a lease arrangement [specifically motels] you have to ensure your investment is protected if the owner sells the property. In many cases, if the owner wishes to sell the property to a developer, for example, the lease is terminated with little or no remuneration for the lessee – unless it is clearly stated in the lease agreement.

Hotels, motels – any accommodation business is more reliant on “location” than any other type of real estate investment. This extends beyond close to the beach, for example, to understanding the effects of adjacent properties; future development; access points – i.e. is there easy access to and from the property from a main road; “quiet enjoyment”; attractions – reasons people visit the location; seasonal adjustments; economic factors.

The location you are referring too may be perfect on the surface, but you need to account for the above and more when considering an investment in an accommodation property, especially if reliant upon guaranteed income.

You may find with enough research that the deal is a diamond in the rough – there are reasonable reasons why the income is guaranteed. Don’t be afraid to ask questions.

Talk to business/home owners in close proximity – who will generally have a good idea how the motel performs and the type of clientele it attracts.

Most importantly, look at the historic occupancy figures and request a copy. If you cannot retain a copy, then this should be a reason alone to look elsewhere.

— Michael