Motel Investment

Tony Zoro.
Hi – thanks for asking.
Yes I do have a motel on the market but I'm also looking for a leasehold one to buy.
I understand that directly marketing your own property on this website is frowned upon so I hesitate to do that.
As a motel owner and operator and seller and buyer, I am interested in the area of motel investment and hence this post to  encourage contact and interaction with those sharing that interest.

For owner operators, motels are a lot of hours but a real estate based investment with a strong and reliable return, and provide a free onsite residence as well.
Lines between personal living expenses and motel expenses become pleasantly blurred. 
But lenders want higher LVRs than residential so getting started is harder.
If a freehold owner wants to retire and lease out the motel, it can be a reliable long term passive commercial investment  because the tenants are usually very stable, on 25 year leases,  and pay all outgoings, and defaults are rare but profitable for the owner.

Quite a flexible form of investment, with rural area returns higher than coastal. 
It's what I do, but now I want to leverage my time more effectively and operate 3-5 leaseholds under contract management.
Cheers
thecrest

Hi Jaffasoft
Echuca is a strong motel town, strategically placed for through traffic plus it has a strong tourism economy, so it's a through town and a destination town in motel terms.
To guesstimate the income I need to make some provisos.
So, IF 
the $1m motel is a freehold
in reasonable condition
say 3 1/2 stars
running strong around 60-65% occupancy,
with no restaurant,
then  it should return approx 15% ROI to an owner operator , meaning around $150K after all expenses.
That's the industry expectation for a NSW or Vic country motel.
City returns are lower due to increased competition and higher land costs, so same motel in city area returns around 10%.

25 – 30 year Leaseholds show higher returns than freehold.

Nice town and area Echuca / Moama, time was when the "Hysterical Society" was locally joked about for " their silly dreams of converting the river area into some kind of touristy thing to do with the boring old history of the place as a river port etc. Like who'd want to go and see something like that "   . . . .. It ended up booming and saving the town financially. They should be naming streets after the hysterical society. 

Hope your rellies do well, well setup motels are usually very stable and provide a free home as well.
Ballarat is strong.
We like big towns above 20,000 population on major country hwy intersections in min 4 directions.
The location really matters of course and the accommodation "product" needs to be tailored to the local market and then maintained and presented well by very welcoming hosts and marketed strongly by net, RACV/NRMA Accomm Guide and signage. They're complicated in the fine tuning tweaking dept but those are the basics.

They can be a good investment and can be run under management, which is our plan.

Very happy to help anyone considering this area, as many people have helped us on this forum and what goes around . . . .

Cheers
thecrest

Hi Kevroy99

Decisions and assumptions to make first.

I can make comments about motel investment  but not holiday units because I don't have experience there.

Since country leaseholds are a higher return, decide if you want to live away from the coastal fringe.

Brokers say buy  "coast for show, inland for dough", comparison will show it's true.

Low equity imposes income limitations of course.

Let's assume Banks lend 80% of your $160K residential equity = $128K  and require 50% dep for a leasehold. 

Then after paying legals etc, you're looking for a leasehold around $240K , range 30%-35% ROI = $72K-$84K  nett income less Bank interest. Makes it hard at that low income rate to get ahead of the fixed costs wave always trying to swamp you. 

The trick is to buy a big enough income stream to grow and accumulate your wealth and accelerate away from the costs wave.

To quote the great Peter J. Daniels, who I had the pleasure of hearing speak at the propertyinvesting.com 3 Day MegaConference at Darling Harbour in May this year –  " build reserves " . That deposit or equity is everything, almost.

Obviously you're already doing this with your existing equity, but it matters even more when assessing motel investment. Owner operated motel lease investment really boils down to receiving income which is the difference between the % cost of finance and the % leasehold ROI, which in this example means 30% minus 8% = 22%. That being the case, you can receive income of around 22% of what you pay for a leasehold, so you ideally want that to be 22% of a very large amount.

But since that very large amount is limited by your equity ($160K), then you need to source extra funds for security /deposit which will generate more of that 22%  income return.

There is much information posted on sourcing Joint Venture funds and Other People's Money so you may want to search those options. In the recent past, Banks have been willing to finance motels at residential rates provided the deposit security / equity is residential. 

By the time they decide to sell, many motel leasehold owner operators are very tired, or have health issues, or want to be somewhere else, or all of those. Bearing that in mind, you have the situation where someone wants to get out and someone wants to get in.  Work on that. 

Perhaps you could manage a motel for 12 months under contract before settlement, helping the vendor get out quickly, have certainty of sale at a fixed price and date, time to prove and maybe  improve the figures and earn more deposit for yourself, while living in the motel at a dramatically reduced cost of living while earning rent from a tenant in your current PPOR.

Capital gain – the simplified story is that motels are valued by their bottom line – nett profit.

For example, IF  :

you buy a motel leasehold at market price/rate

and you improve the nett profit  by $10K p.a. over 2-3 years, and

if the going market rate has not changed, then

the resale market value of the leasehold has increased by around $60K.

There are as many options as you can negotiate, this is a very flexible area of investment.

Finance is vital to motel investment and banks attitudes to motel investment vary.

Talk to finance brokers as well. The difference between finance deals can create viability. Run everything by your accountant before and during shopping. 

To check motels for sale either leasehold or freehold, Google "Motel Brokers" and you'll find :

NSW Motel Brokers

Tourism Brokers

Hunter & Associates

Manenti Quinlan

Resort Brokers

Guy Smith Brokers 

Hope this post is not too long for general interest.

You're welcome to more info if you need it.

There are some very helpful finance brokers on this forum who have helped a lot of investors and earned their place in the market.

All the usual provisos apply here of course, so I have to say these things to CYA and mine –  this does not mean that motel investment suits your financial situation, and this is not financial advice because I'm not qualified to give it, and you must satisfy yourself from your own due diligence and personal financial information together with professional advice from your accountant or financial planner that any course of action is adviseable. Bless all the lawyers.

Cheers

thecrest 

Hi Josh
Brokers typically charge 3% to sell a freehold and 6% to sell a leasehold, negotiable as the commssion gets too big.

Hi aof
What are you going to do with the building ?
If you are buying an existing operating motel as a going concern you pay no GST.
Much due diligence required before buying a building for conversion into an accommodation provider, council regs, local market, star rating, lots to do before choosing which type of accomm product to provide in that location.
ABS have stats by local area called " Tourist Accommodation Data By Small Area QLD " and other states, shows markets like "more than 15 rooms" or by star rating, shows month by month released as quarters, very detailed showing room $ yield, occupancy rates, bed nights, arrivals etc.
These brokers handle the bulk of NSW motels for sale, Qld will have it's own bunch. Ring a few motel owners and they will tell you who are the active frequently calling brokers in your target area.

To check NSW motels for sale either leasehold or freehold, Google "Motel Brokers" and you'll find :
NSW Motel Brokers
Tourism Brokers
Hunter & Associates
Manenti Quinlan
Resort Brokers
Guy Smith Brokers 

Cheers
thecrest

Hi Simon / Aof
Pls  PM me as I have some great opportunities for you.
Cheers
thecrest