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Here’s a link to an article written by a broker.
He says opinions vary, then gives his.
Rules of thumb must allow for various thumbs.http://accomnews.com.au/management/150-motel-matters/844-splitting-up-a-lease-and-freehold
cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Hi Jacko10
Thanks for the KPI info. Good phrase to have.17 years is shorter than ideal, so cause for a lower offer.
30% cap rate for a leasehold is based on an absence of a range of negative factors which if present may detract from the desireability of the business and property, several of which factors are major or higher than normal expenditure pending, or less than 21 years remaining on the lease. Buyers think …. ” hmmm 21 years on the lease less a few for me to operate it, then I sell with say 17 years remaining, hmmm, not long before it runs out, so let’s estimate the annual cost of amortisation of that lease by dividing the cost price by 21, and deduct that from the annual profit, because when I sell it with 17 years remaining, the annual cost will appear higher to a buyer (lower profit) and the end of lease will appear closer, negatives. “But with a lease of 25 or 30 years, buyers tend to regard it as a life sentence and don’t bother to amortise it as a cost. Just human nature.
So, provided all other things are equal in a comparison, a 17 year lease is worth less than a 25 year lease.
Fixes are : (a) lower the sale price to compensate, or (b) vendor secures agreement with the landlord and buys more years from the landlord, and the lease document expiry date changes.What other methods of valuing ?
Wow, big selection, but trying to put it in a nutshell :Consider that you are buying a commercial income stream (leasehold) with a limited lifetime of say 5-7 years, before you sell. Then it is clearly about purchase price including purchasing costs, nett income after expenses and value of benefits during that holding period, and nett re-sale price after selling costs. Compare that as a ROI % and you have a rough basis for comparing various leases as apples to apples. Assuming you got your money back ( incl buy n sell costs) on re-sale, then % ROI is simply income divided by cost x 100.
Very simplistically it looks like :
COST PRICE
INCOME + BENEFITS
SELLING PRICE(value of benefits ? up to you = cash, depreciation, free home, tax benefits, inclusions like internet, austar, pool, commercial food “wastage”, phone, utilities, no commute, self employment, high cash flow, low debtors, priceless kids business & hospitality training by osmosis, etc etc. )
Prepare for CGT triggered by re-sale.
Get expert qualified accountant opinions on this and anything else here, usual disclaimers apply because I’m not a financial planner, accountant or expert. Long live all the lawyers.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Can anyone tell me about Real Estate Investar as a search tool and is it worth the asking price?
I’ve seen it promoted and a small demo which was interesting but it was a sales pitch and I’m a sceptic.
Anyone out there using it or has used it ?
OR Nathan Birch’s “Deal Finder ” search tool ?
Any info appreciated.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Hi Teabag.
Sorry I don’t understand the term “KPI” .
Don’t do bonsai but admire them, it was a meaningful logo for us though (plant a tree, eat the fruit, not the tree).
Haven’t been to Como for years, but loved Blue Heelers.There are a few other ways of motel investment and some typical returns are listed :
Tenant/Leasehold owner – operate under management,(pay rent to Landlord freehold owner) 22-30%
Tenant/Leasehold owner – owner operator,(pay rent to Landlord freehold owner) 30%
Landlord freehold owner – lease property to Tenant/Leasehold Owner. 9-9.5%
Landlord freehold owner – owner operated 15%We used to avoid considering investment in mining towns because if mining slows or closes, investment stalls, exit strategy gone.
Preferred a more diversified customer base to spread risk. However, a 5 – 7 year in & out plan would be an acceptable risk in a strong area like Singleton or Muswellbrook NSW. Bob Brown is not encouraging us at all.Comparison of the value of one motel to another is a valuer’s job, but we use a few different measurements.
To compare apples to apples, one must make them all apples.
That means levelling the playing field so that you are comparing motels on an equal basis, and this requires
considering a number of factors such as :
Cost required for renovation or repairs to bring each motel up to a standard where it’s operational without further unreasonable expense.
Running costs above normal.
Risk factors pending such as town by-pass, new construction of competitor, strength of local economy, etc.
Cost of periodic refurbishment – that time when you’re glad you have only 30 rooms not 75.
% ROI. – $ Nett profit divided by cost price x 100.
NPAR. – $ Nett profit after paying rent and expenses.
Annual average occupancy rate %.
RevPar – Revenue per average room available, calculated as total annual revenue divided by average number of available rooms, which excludes periods for rooms off-line for repairs.
Rent to Sales %.
Any upside opportunity such as expansion, upgrade or increase in tariff.
How much will rent be in 5-7 years time according to the lease formula ?
Quality of Lease clauses – friendly or onerous? Term remaining etc.You could summarise by asking how strong and reliable is the nett income over the next 5-7 years ?
And all things considered, how much will that nett profit be ?
And how much did I have to pay to buy that income stream?
Ease of operation ? (nobody wants daily operational headaches from something with square wheels)
And will the motel be a desireable property to buyers when I sell?
And can I get my money back or better?We’re not developers. But there are opportunities for those with reno experience
who could reno a motel suffering from low figures due to tired rooms,
operate under management for about 2 years to develop credible figures,
then sell or lease it out. (CGT)Hope that sheds some light.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Sounds like it would make a good “car bra” and look better than those typical black mat type car bras.
If a complementary colour or signwriting was used on that car bra area, that would look good and minimise stone chips.
Guess you only get stone chips in rural areas though, where we spend a lot of time.cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Here’s someone who’d know – this guy helps people and deserves a plug. Anthony Daintith in Orange.
http://www.adtp.com.au/
cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Does that stuff come off and does the paint survive the removal ?
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
It’s usually a good policy not to pay the ferryman til you get to the other side.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Hi shellanddaniel.
What is the agent doing exactly?
If the house is “fully renovated” we assume the agent is trying to list it too cheaply.
Use another agent, and ensure the property is presented in it’s best state.
Let the agents know that if you move quickly, you can make more money on another opportunity and can share some of that
as extra commission or a slight reduction in price if you like it that way.
Don’t tell agents you are desperate but perhaps allow a higher commission for a quick sale.
Offer a cash bonus to the successful salesperson like $1K. You’d knock that much off the price
in a heartbeat anyway during a negotiation.
Ensure you know the local market so you know the value and can speak with authority.
What’s the address ? Any more info ?
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Hi All
Have any of the posters here got an update of their progress in this area of investment ?
Info shared is a blessing for all concerned and part of our education process,
always appreciated.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Re Finance for motels, I’d be very interested also if any brokers could shed some light on current lenders in this area.
Any info would be most appreciated.
NAB appears to be crying increased risk since last week’s economic shakeup. Any excuse.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Hi JJMB.
You’ve mentioned some good ways to get started already.
Talking to moteliers is prime networking and essential.
Searching this forum for postings about motels will help.
There is definately a lack of information and no advisors
except those selling you something.
I’ve spent a long time posting as much motel material as I could on this forum
because I found it hard to find information for myself when i was searching.
Helping out at a motel is worthwhile. There is no other way unless you
attend one of the hospitality colleges for 3-4 years.
Talk to brokers, get some figures from some motels to look at, burn midnight oil.
It’s a slog but there’s no other way.Yes your equity can be used to buy a leasehold.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Hi Jacko10.
Without knowing other details of the leasehold, on face value it is overpriced at ROI 24% ( Nett $170K is only 24% return on cost price of $720K ).
30% is more like the market rate, so price should be more like $570K, provided it is in good condition, minimal maintenance, reliable income etc. (remember school groups are low tariff but high wear n tear, sorry kids). Hope the rent is low. Economic downturn on spending and reduced consumer confidence will impact immediately on school groups and on parents’ excursion spending decisions except compulsory curriculum trips. Periods of tight lending reduces buyer numbers so that should reduce sale prices if it continues long enough.
But these comments are only based on very limited info you have provided and the whole picture of the leasehold may provide compensations.What a difference a week makes in banking attitudes. Lending for motels has tightened since last week when the USA ‘s credit rating slipped. Banks spook like gazelles, or make a good show of it at any excuse. More reasons to use finance brokers, like the ones who regularly post their help on this forum and have thousands of posts to their credit showing how long they have been on the forum helping us. They’re the ones who deserve our business enquiries. Had exactly this problem with NAB this week and I’m fuming at NAB. Customer service from banks is really about the smile on the face of the tiger. And they serenade us about building relationships….? .
So when finance is tight, you need to structure a quality deal through your accountant showing cash flow projections, with a quality property and supporting valuation, and submit it through an experienced broker thereby surrounding yourself with a strong team.Post more details if you want more info.
Good luck
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
I dealt with Elders Breust, cnr Edwards & Fitzhardinge Sts. Mary Fitzgerald was an excellent PM – then she moved over to sales, but should be able to introduce you to the right person.
Good luck
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Have a go at the REA, nothing to lose, might get lucky. At least it brings the REA to the notice of the authorities.
You never know what else they might find.Last time in tribunal, I defended my tenant daughter against a totally unscrupulous landlord and a worse REA.
Didn’t get a fair shake in Tribunal but reduced their claim from $3K to about $400.
Can’t win ’em all but it feels good to make ’em sweat for it.Good luck
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Hi Shellanddaniel.
Nice area Windradyne, had family living in Ribbon Gum Place. Moved into CBD, handy but noisy.
PM me a link to your property if you can. I visit Bathurst regularly.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Hi Henry
Suggest you look in the right hand column on this page, click on “1 on 1 Property Mentoring”.
Worked wonders for us.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Contact Dept Fair Trading NSW and request info on “how to select a strata manager” , they might have something.
Get quotes. Interview, engage on trial period and renew for short periods only maybe, if pos.
Good luck.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
One book is a good start.
But which one though depends on where you’re up to in your journey.
In suggesting books to a stranger, best to start with good foundations.
I believe attitude comes first, so I like Rich Dad Poor Dad and Dolf De Roos book Real Estate Riches
because they’re basic, and they handle basic real estate investing strategies and attitude adjustment simultaneously.
Good luck on your journey.
cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Hi Kindren
Just an update for you.
Last week we received a valuation on a leasehold property.
The valuer considered everything about the building condition, future expenses, business turnover, nett, security of business, rent, lease length & terms, rent, tariffs, competition situation. He finally found all those conditions were positive, and therefore valued it highly, using a cap rate of 25%, meaning the value figure is nett x 4, or the nett profit is 25% of the value figure. This is only possible where there are no negatives in any areas examined.
If there were negatives, for instance, the motel required some repairs due to ageing, or it was highly seasonal, bypass pending, stiff competition, town or location not strong, up goes the risk factor and the valuer would most likely move the cap rate figure (capitalisation) upwards from 25% to somewhere near 30%.
For example, if nett is $200K, then valuation by different cap rates as follows : 25%=$800K, 27%=$740K, 30%=$666K.Obviously as buyers, we prefer to apply cap rates around 30% to buy cheaper, but a top quality motel commands 25% cap rate because it’s like a blue chip investment.
Capital gain can come from a few areas with leasehold, but the main ones are nett, then security of income, which relates to how strong the business is and how secure it’s position is in the market, then lease length and quality of terms n conditions, rent level, condition of premises. Obviously all those factors relate to as assessment of how much the business netts and is likely to continue to nett, and how strong and secure that income is now and later on.
Valuation quotes were between $2,500 and $5K.How is the search going ? Hope you’re finding it easier and less confusing.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
