Motel Investment

Hi Peter.

Welcome to the forum from me as just one of the many forumites.

You've certainly asked a lot on a first post.

There has been a lot of info posted on this forum now about motel investment so I suggest you read all you can and you should find many of your answers there already.

You need to know how much you can spend before anything else, and see if the income from that purchase would be sufficient for your purposes.

Note the different  returns on freehold vs leasehold, coastal vs inland,  and see if your projected income would be sufficient.

Sort out locations and preferences.

Sort out your SMSF options with your accountant or financial experts on this forum. There are some here with thousands of posts to their credit from helping so many people over a long period of time.

If you have expertise or experience in any area you might like to add some help into the forum yourself, what goes around . . . .

Reading heaps of leases and P & Ls  is essential self education. Start creating some benchmarks, KPI, ROI  as you go e.g. setup an excel template and express some important expense benchmarks like housekeeping wages, electricity, water, as a % of turnover, enabling you to compare apples to apples. List expenses for the last 3 years side by side and query any fluctuations.

The decision to buy a modern motel, one in good condition or one that's tired or limping will depend on your skills in reno or as a business doctor, and will depend on the bank, who may be reluctant to lend to a first timer on a limping business, or one that has more promise than profit. Cashflow is King, so too position position.

Freehold vs Leasehold.   Consider the scenario of comparing buying one of 2 identical motels for say $500K  –

one a freehold returning 15% ($75K p.a.), and the other a leasehold returning 30% ($150K p.a.).

Suggest you check out all the existing  info and post here again with any further questions.

Cheers

thecrest

2013 Calendar year was a mixed bag for regional moteliers with political unrest and coal prices the culprits.

Hoping the next 12 months will be better for them all while some just cruised right through without any changes, depending on

the strength of their location and their market. RBA has helped, another cut would be great but the consensus seems to side with

holding not cutting. 

Pauses are good times for upgrades and refurbs while a few rooms are empty.

We're painting too before the cold weather. Painters tell me it won't stick below 10c temperature so winter no good for painting.

Just a reminder for those thinking of passively investing, landlords typically get 9% returns,

Freehold owner operators get about 15%,

and operator lessees get about 30% and a free home,

not sure where else that's available but I'd be interested to know.

Still in Wagga operating our own motel and enjoying the milder weather after the heatwaves.

Managed to save most of the gardens but not all, planting grass again.

Cheers

thecrest

Any progress David ?
There are some good buys out there at the moment provided you can get finance.
Obviously our new PM has improved business confidence which quickly affects reps visitation to regional areas.
You’re welcome to call me.

Unfortunately in some areas inexperienced moteliers are falling into the trap of discounting , encouraged by the OTAs (online travel agents like Booking.com and Expedia etc) and causing themselves and the industry profit damage. Hopefully regional markets will be able to work together to rectify this unnecessary practice and return to a fair price for their product, and most moteliers look forward to a world without the unnecessary 3rd parties siphoning off guests funds while providing a service which is really unnecessary.
Suggestion : if anyone wants to book accommodation, ring or email the property direct and make your booking with the owner. You’ll always get a better price than using 3rd parties.

Otherwise it’s been a great year with strong demand and challenging online marketing conundrums. Never dull.

Cheers
thecrest

Hi Picky1.
Welcome to the forum.
Fortunately you have time to plan ahead while running the motel and assessing the market in your area to find your niche.
ABS stats may show the averages in occupancy, revenue and star ratings.
SRA (Star Ratings Australia) can assist with design planning to ensure the final refurbished product reaches the desired star level.
Depending on your skillset, you can design, choose items to buy yourself, import in bulk or source locally.
The greater your skillset the lower the cost.
However, best to have the planning done professionally and then work it from there.
Depending on the number of rooms and scope of the work, , you could work on half the motel at a time or just a few rooms.
I’ll PM you some companies who specialise in motel refurbishment, and some motel IT specialists, for a start.
If a refurbished motel will dominate the locality, and no existing chains, and you can dominate online, you probably won’t need a chain.
With a comprehensive market assessment, you’ll have a clear plan.
Let the forum know how you’re progressing.
Good luck.
Cheers
thecrest

Motel industry has sure changed over the last 2 years.
Online success now decides the business outcome unless its a motel next door to a people magnet like Rod Laver Stadium or some other major attraction. Definitely going to the AO there in Jan 2019, it’s on the bucket list.
If you’re considering an investment in this area, there is upside in motels which are under-performing online. Experts in “Revenue Management” with proven success who optimise motel performance using online techniques like dynamic pricing and market positioning, social media promotion, SEO, etc are in high demand and competition in the online arena requires expertise.
Essential services are IT, Reputation Management, Social Media, SEO and Revenue Management, to be brief.

Quality properties are available however the importance of location location location is increasingly moving more towards positioning online rather than geographical, because that’s where guests find a motel first.

Disrupters and others who blitz the TV with ads are being a thorough nuisance and advertise services and prices incorrectly. We frequently compare a few simultaneously and note the differences, including prices for our own rooms which don’t exist.
Suggestion to any traveller – book everything direct and save – accommodation, car, transport, dining. No prizes for guessing who ends up paying for commissions of agents and middlemen.

Own own motel is still listed for sale and should sell soon, always fingers crossed like all vendors of property or business. With lots of luck, Govt might do what they’re saying and abolish stamp duty on sale of businesses and leases but not holding the breath.

Hope you’re all enjoying success and 2018 is great.

Cheers

thecrest

Hi jt.
If you own the leasehold, then you can sell it to the landlord or anyone else, provided you comply with the terms of the lease. Usually the lease terms say the landlord must approve of the purchaser as a prospective tenant, and also the landlord must be given the first opportunity to buy it at the agreed settlement price, (first right of refusal) . Always good to plan your exit strategy before entry. Compare values of 19-20 year leases with 25-30 year leases.
What area and type of motel are you interested in ?
Cheers
thecrest

Hi @au43.
Welcome to the Forum. Yes it’s full of very helpful and experienced people for which I’m grateful.
$300-$400K could buy a good leasehold around $700-$800K mark at 30% ROI. Banks usually want 50% dep but check with finance brokers on this forum for current accurate info on finance. Check lenders LVR re property to see what % of your equity in your property they will lend against. Used to be 80% so if you have $400K equity they will consider $320K as a deposit. Used to be if you used residential real estate as security you could borrow at residential rates, but again, use the finance expertise of brokers on this forum who have notched up huge numbers of posts helping heaps of people on this forum, because they are awesome. A scenario could be : buying a motel leasehold with a “free” residence included, and rent out your home so you stay in the real estate market back home, and your home becomes an investment property and rent helps offset the loan. Lack of industry experience can be offset by buying something rock solid. Your CV will be taken into consideration by lenders no doubt. Also favorably considered and desirable for you as well is a (rock solid) simple motel with enduring reasons why it would continue to provide the quoted returns, which would give you time to gain experience. As an example, that could be a country motel (no restaurant) next door or across the road from a financially sound RSL or Bowling Club, in a stable and growing town not overpopulated by competitor motels, not scheduled to be bypassed,and with little likelihood of the Club building its own.
Other ways to offset lack of experience could be buying a branded motel, like Best Western or Golden Chain, and using outsourced “revenue management” and social media/ online reputation management expertise and I.T., (as we do). Unless you have expertise in any of those areas yourself.
A coastal motel would also work, income is seasonal and average annual return ROI is 3-5% lower than inland, (due to land value).
There are some motel industry trainers but not sure what they’re like.
That’s a very brief overview.
Cheers
thecrest