Hi Rusty.

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.

Cheers

thecrest

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.

current website

booking engines

channel manager

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

borrowing power.

Cheers

thecrest

Thanks Ephraem1.

Cheers

thecrest

Hi Harv.

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.

Cheers

thecrest