Motel Investment

Sounds like you've got it Keily.
Somewhat like anything else in commercial property,(and residential too)  stability depends on the quality of the tenant.
However, the quality of the tenant depends on the qualities of the property, and it's ability to attract a quality tenant.
Chicken and the egg thing, depends where you start, meaning if you buy a tenanted property or a vacant one.
My strategy is to buy an operating quality motel leasehold . 
I become the tenant, and  I employ a manager to operate the business.
ROI is 20% under management.
LVR is 70%, ideally, finance permitting.
Investment motels where you're the landlord, ROI is around 9%. (it's gonna be tight for these investors if the interest rates rise).

Reason I post this info is so someone else who's wondering how to move forward may find it useful.

Hope you're all doing well, whatever your investment path.

Any comments or questions most welcome, I just love this country and it's opportunities for wealth creation.
Try not to make the wheels fall off it all, Ms Gillard.

Cheers
thecrest

Thank you for that Auguries, and yes it's going well for us.
There are some great opportunities out there for the finding. We're in search mode for leaseholds to operate under management.
As you know, Passive income motel opportunities can be found by buying the Landlord side of an existing motel lease with a tenant in place who operates the motel and pays rent.
Or, you can also buy a freehold, needs to be earning around 16% ROI to split, employ short term management who know the plan, create a lease and sell it, that way you can write the lease yourself and to a large extent you can dictate the terms of the lease in your favour.
For example, clauses like  :
25 years only, so you can sell some more years when it hits about 19 or 20, when lessees want to enhance it for on-selling. 
Rent increases, how and when.
Periodic Maintenance, painting inside n out every 5 years, maintain star rating or equivalent, refurbish date.
Tenant owns all the replacement refurbish items like tiles, furniture, carpet, bathroom and other fittings hence tenant pays to replace.
Probably telling you what you already know.

The market is quiet right now, very few buyers, great time to be one.

Hope you find something suitable.
Cheers
thecrest
 

Hi Earlstongardens
Ok, happy to help.
PM me your email address on this forum's private messages .  
Cheers
thecrest

Hi Athman
You're quite right.

Opinions vary on the benefits of a restaurant in a motel. 
Some say it's great, puts bums in beds, attracts groups and corporates.
Others say they only break even and who'd want a business add-on that demands an extra 40 hours a week and only breaks even, or it's a constant source of problems – staff, costs, extra 40 hours per week, low profit, scarce erratic chefs. 

We are not experienced with Food & Bev ourselves so we avoid investing in motels with restaurants. We prefer a motel surrounded by eateries so we can concentrate on accommodation and leave F & B to those who love it and are good at it.

However, Motels with restaurants attract more corporate guests –  who want to book in, relax in a 3 1/2 – 4 star room, update the day's business or reports on the laptop, freshen up, few drinks, eat in-house, not have to wander a strange town at night to and  from a restaurant or club, or worse still drive after a drink. They like it all on one bill, breakfast same place or delivered to the room. These motels also attract bus groups provided there are 26 rooms min.

Some motel restaurants also attract local business, which is a bonus.

There are many ads for motels for sale which mention that the restaurant part is closed, so there may be opportunities right there, if the local area's market conditions are suitable. 

Motels are mostly valued on nett profit, all other things being more or less equal, unless there are significant other factors like for example  it's sitting on 5 acres instead of 3000m2.  So a motel with a closed restaurant is usually underperforming its potential. Opening the restaurant should increase the accommodation figures and add F & B profit as well. In a freehold motel, assuming typical cap rate is 15%, then an increase in nett proifit increases the valuation  x7  – therefore every $1  extra nett profit adds approx $7  to the valuation.  The restaurant of a 25 unit motel could add $50K to the nett hence $350K to the val.  Nice CG so be ready to cope with CGT.

So, blessing for the experienced F & B operators, mixed blessing for the others.

Cheers
thecrest 

My opinion only.
If you can think of it as a partnership with the lessee, and you ensure you have a lessee who has a reputation for being reasonable, it should run smooth.
Usually rent is not more than 25% of turnover. Rent can compound out of hand if it starts too high, ends up in court eventually.
Reviews are grey areas. Placing a 5 yearly rent review in a lease defeats the purpose of a lease, which is to eliminate any grey areas. I prefer to use CPI.
Brokers say "coast for show, inland for dough", it's true, so compare yourself, higher return=stronger biz & tenant.
Can't advise on Qld law relating to leases.

Ideal would be motel under 20 yrs old because usually the lessor is responsible for pipes and wires in walls & underground, drainage,  structure, so that if a problem requires digging or removing bricks or structural repairs, lessor pays. Lessee is responsible for superficial stuff like furnishings, fixtures & fittings, re-paint, carpets, tiles, repairs, bathroom reno, HWS, A/conds, and internal / external superficial maintenance. So lessor is better off if the structure and things inside walls and ground are not 50 years old and hence likely to require replacement or repair. F/H owners have few costs with a newer motel.
Downfalls of motel vs commercial buildings ? More complicated leases; more components than an empty factory;

Leases vary considerably. The older ones are weighted in favour of the lessor. In legal terms, there is no superior position in the lessor/lessee relationship, however, some leases read like the lessee is an inferior being, and certainly is disadvantaged by some leases. No way to run a partnership. 

When I sold the investment freehold, I rearranged a plain English lease on more even terms than the norm. I offered the F/H at a 10% ROI didn't have to listen to any requests to change the lease clauses.
The commonly occurring onerous lease clauses  I dislike are :
Lessee gives the Lessor Power of Attorney over the lessee in the event of lessee default. ( POA is too much power).
Lessee pays the lessor's building insurance, (and yet no compulsion for the lessor to rebuild if destroyed by fire.) Unfair.
Lessee selling lease becomes held over as guarantor for new lessee until end of current 5 year lease period. Unbelievable.
Complying with any recommendations of AAA.  (we found AAA very unreasonable sometimes, even demanding we render).
Lessee pays all lessor legal costs. (Lessors act faster when paying their own legals).
Rent review every 5th year according to value of business,  (which is improved by lessee's hard work & expertise). Unfair.
 If motel is destroyed by fire, Lessor is not obliged to rebuild motel or compensate lessee (how much did lessee pay ?) 
Refurbishing and repainting every 5 years or whenever the lessor deems appropriate (might not need it yet).

PM me your email address and I'll email you a lease. Include your landline phone number if you want a chat.
Cheers
thecrest

Here's a little Xmas cheer with mixed feelings.
There are some excellent motel leaseholds on the market right now for those seeking a motel.
And the buyers market continues.
We've found a great motel leasehold in good condition at the right price and in a strong location.  
Now we're trying to move the purchasing process forward.  However ….

In the market of motel leases and freeholds, we have entered the end of calendar year blank spot, where you can't get help on crunching numbers from an accountant, or find an active solicitor, or a broker who wants to work, so it means that making progress in the process of buying a motel leasehold or freehold very difficult.  Naturally there's no sense from a Bank either at this time of the year.  Feeling slightly frustrated by the Xmas blank spot, while at the same time enjoying the time with family and friends.  Ho ho     hmmm.

So guess I'll just go back and crunch the same numbers again in a different order and use the time to plan further.
A definition of "mixed feelings' could be the arrival of Xmas when you're trying to progress a property deal.

Hope you all have a very prosperous 2011.

Cheers
thecrest

Hi Alec
Welcome to the forum, enjoy yourself, it’s a powerhouse of info and help from members, it’s been a big help to me.
Like any Forum, add your help and input and members will help you in return.
Hope it’s as profitable and enjoyable for you as it has been for me (and many others).
Cheers
thecrest