I have $1.5 million to invest in a motel with a tenant in place and, if I get you right, the best motel would be in a country location on the junction of two main highways. Is that the criteria for a passive investment as well.
.
How much money can I borrow and do you have a motel for sale that fits that description.Incidentally I live in a freehold house in Cairns.
Howard Smith
Hi Howard
Welcome to the Forum.If you owned the freehold of a motel with a tenant in place, it is a passive investment, where the tenant operates the business and pays you rent. Typical rent returns around say 9% – 9.5%.
There are a number of criteria for the selection of an investment, and location is one of them. The strength and stability of the investment is only as good as the strength and stability of the tenant and his business.
While there are highway junctions out there where a motel would not prosper, high traffic flow is usually beneficial.
Assuming your $1.5m is in cash, and a lending body is willing to finance your investment, LVR at say 60%, then you might be able to buy an investment motel around the $3.7m mark. Unfortunately if interest rates rise once or twice, commercial loans will most likely be around 9-9.5%, so while the returns on your own cash input would be 9-9.5%, there would be little or no return on any borrowed funds, and the risk of future negative gearing on those borrowed funds if interest rates increased still further again.
Sorry I don't have a motel for sale, I'm an active buyer seeking a suitable leasehold to operate under management.
Brokers websites may be found by googling this and adding your target state on the end , for example
" motel for sale queensland " . Then sift through all the brokers' websites and motels for sale in the categories you want.Does that help ? Hope you find something you like. Let us know how it goes.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Hi All
Has anyone made any progress on motel investment ?
Just as an update, we have reached an agreement on purchasing one leasehold motel, and a second one under serious consideration. Both are approved in principal for finance subject to final bank analysis.It's still very much a buyer's market out there, very few buyers, inland motels doing great figures.
As soon as we complete our contracts exchanges, we'll post an update on here, might be of some help to somebody.
There's no school or tech course for this so we need to share information.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Well i think you should try to invest in my opinion.. that's because it is better to go for what you are interested in rather than to think about different option..
Hi Brad
Good idea, we're usually best at what we're interested in. And good to keep an open mind as well and never stop learning because something you haven't understood before may suit you when you investigate it.
Lots of homework and a big bin for the rejects.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Update. We withdrew from buying 2 motels in the last 3 months, came close but decided they were just a bit off target because they have a restaurant, where we have little expertise. But, there is so much motel stock for sale everywhere and some of them are prime. The prices are low right now, hope someone else is enjoying this buyers market too. We now have 2 motels of special interest and hope they pan out after due diligence. Will post the result here.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Thanks for the update. Look forward to hearing how you go with the next 2.
I Myself am actually in the process of buying a motel, I found it to be a buyers market for sure. The area I am looking to buy in has a huge tourism market that has risen because of the violence in Mexico, but the property values have dropped. I have secured 3 million in financing I'm just short 150k or so. But I don't plan on leasing the property out I plan on running it myself its in a great location, and has owners residence on premise as well as mangers quarters. Id like to have a partner if anyone is interested in investing.
Hi Carolinaconch
That sounds like a very exciting project at that level.
Can you describe the style of motel ?
So we have some idea of the market in that area, can you describe the type of finance deal with costs and interest
that is available for this type of investment ?
What are the financiers' attitudes to motels ?
What is the expected ROI % ?
How much is your contribution ?
What is the LVR required by those financing it ?
Any information would be of great interest in comparing with Australian conditions.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
It is acctually a Motel/Hostel having 11 Motel units and a 60 bed hostel.
The deal is financed at 6.5% for 30 years with a 2 point fee.
The Lender loves the idea all I had to do was show him the 5 year projections. The key to this property is it was bought to be torn down to build condos in 2004. The plans to build the condos took 3 years to get approved by the local Gov. By that time no one wanted to invest in the condos as property values were droping. The Property was just running, No advertising, Deffered Repair status, and only operating from 9am – 9pm at night. The Motel Part runs great at 80% but the hostel runs at a low 21% rate occupency. The plan for the Hostel would be to go on 2 year marketing campaign to raise occupency. If that fails I will start closing down Hostel rooms and converting them over to Motel rooms. The current owner started to fix the property up and has it starting to raise in profits it currently grosses about 588,000 a year. Neting about 275,000 of that. But as I said before the area which the Motel is located is in PRIME tourist area.Hi Carolina,
Sounds like a good return. Hope you can build up the hostel as well, assuming that means a backpacker style place.
They're quite different as you know and flourish under young management and marketing thru youth channels. Word of mouth is uber strong in that area and can quickly strengthen your business, provided you know what they want and give it to them.
With over 80% occupancy, the motel could handle a tariff increase and also sounds like you could benefit from converting some hostel into about another 10 motel units. 6.5% is great too. Something that size would run well under management when you decide to go easier on yourself.
That's great, pls let us know how it's going as you progress.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
thecrest wrote:Quick reply as requested.
In theory $229K equity, mortgaged to 80% of its value, ( $183K) will enable you to borrow enough to buy a :
Leasehold for $366K ( assuming LVR of 50% ) or a
Freehold for $457 ( assuming LVR of 40% ).
That does not include costs for stamp duty, loan establishment fee, valuation on equity, and legals etc.
If that equity is residential, then Banks used to lend at res rates to buy some types of commercial property.Best to talk to one of the experienced Finance Brokers on this Forum to find out what the going rate is,
in case it's not 80%.cheers
thecrestGday thecrest,
I know this is an old post to which I reply, but can you clarify the "equity" component here. As I understand it, the 80% lend is based on the total value of the property, ie; home value $500K, owing $271K = equity of $229k.
You say a lend of $183K is possible, but I believe it should be calculated thus, (or at least this is what I am told by brokers)
House value $500k @ 80% equity = $400k, debt $271k = $129k available to use against the $500k home value (80%).Is this accurate, or am I way out? Looking to buy as well into the motel scene, but need to sell properties because it frees up the cash, as opposed to leaving 20% in the banks hands.
Appreciate your response, have followed your posts and signed up today to pick your brain. You certainly seem to know the business and your advice to people on this forum is valued I'm sure by those asking.
Regards,
Paco.Hi Paco
Just happy to help, doesn't matter if it's old post or new.
The banks lending criteria vary depending on a number of factors like – whether you're buying freehold or leasehold, your business experience, your banking history, credit history, assets, ability to repay, ability of the motel business to repay, bank valuation of motel, etc.
The banks think of the default scenario where if the $500K property must be sold to pay your debt, how much will you have in your hand after the sale when your debt is fully paid out.
So, using a simple sale scenario, it sells for $500K, then you pay out bank debt of $271K = $229K left in your hand. When it's $229K cash in your hand, it's $229K cash, but before the sale it's $229K tied up in the property, so it's $229K equity.Now while you own the property and the property is not sold, the Bank will decide what percentage of $229K equity they are willing to lend you for your purpose. I haven't checked all the banks this month, but I do know one which will finance me to buy a motel leasehold on 30% cash deposit. If I used equity instead of cash, they will regard say 80% of that equity amount, $183,200 as a deposit, not the whole $229K, just in case the property did not fetch market price at a forced sale.
But you're not out of the woods yet.
Often bank valuers will value your $500K property "conservatively" and value it slightly lower than what you think is "market value", so they may value it at say $480K. Then the bank maths says $480K-$271K=$209K x 80%=$167,200 deposit.
The banks will cover themselves those 3 times given the opportunity.
Once by only lending 70% of the cost of the motel lease, once by only lending to 80% of your equity, and once by conservatively valuing your property.
Banks may have a different criteria for freehold, and may require more deposit, or not.Hope that helps. Happy to assist with any more onfo you may require, if I can.
Are you aiming for a freehold or leasehold ?
Size & star rating?
What area ?
Restaurant?
Price bracket ?
Any info would be appreciated.Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Thanks thecrest,,
Looking for motel leasehold, any area NSW country, 3.5 star to 20 rooms?, no restaurant, unable to determine price range until I can determine availability of funds thru either equity, cash thru sale of investment properties, super funds (if possible or required) and any severance monies acquired once leaving job after 16yrs.
I have to go to that job right now for the weekend, so will probably not get back on here until Monday. Appreciate your thoughts and will definitely pick your brain some more soon.
Regards,
Paco.Hi Paco
Click on "thecrest 547 posts" located just above my struggling bonsai logo, then public profile, then contact, and email me your email address, and I'll send you some links to good motel properties I've come across. Not appropriate to post them here.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Ta,
Have done that, thanks again.
Paco
Hello
I'm a newbee.
I have been looking in to investing in a freehold motel.
I have also been looking at the post on this forum.
The freeholds I have seen do not appear to be returning anywhere near 15%, they seem to be more like 10%. Does this mean that they are overpirced or under performing?
I do like the attraction of the motel being on the costal fringe.
Where I have been looking are more destinations than passing trade.
I look forward to some comments.
Thank you.
Dave
Hi Dave
Good questions.
Coastal freehold motels usually return lower than inland.
The catchphrase in our industry is “coast for show, inland for dough”.
The inland motels usually sell for around 15%Return.
As you know the return is calculated on the nett profit divided by cost price x100.
So it matters what price you can negotiate.
But for a set nett return, you must pay more for it on the coast than inland.
Decide if you want top income or “coastal” lifestyle.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Thanks thecrest
I understand that the will be a difference of returns from inland to coastal,I am assuming that is because the value of the land is greater by the coast.
My question is should it be as much as a 50% better return between them, if its 10% for coastal.Put in another way should coastal be better than 10%?
I think the catchphrase should be "coast for dough and inland for more dough!!
One of the properties I have looked at only has 35% occupancy. My concern is that the other players would have capitalized on that and it would be hard to lift substantial,would you agree?
Thanks
Dave
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