Motel Investment

Hi Crest and others,

I have not logged on to this site for some time. Last time I was here, I was looking at motels in both Goulburn and Lithgow, however I am pleased to say we finally took the plunge and purchased  a leasehold  at Warrnambool Vic last year. It is a reasonable size 80 odd rooms with function rooms, restaurant and day spa attached. It also has a geo thermal hot springs bore going down some 900 metres. The website is http://www.qsdb.com.au We run it under full management, it has sure been some work from take over to now. We have rebranded the property-it was a "Sebel", and have been busy re-establishing ourselves in the market place. What do people think of our new website? It came out around 28 December…

I would like to thank thecrest for his positive remarks and assistance he provided helping us to stay positive during a scary time (making the decision), I had the pleasure of meeting thecrest prior to him moving to Wagga and he is indeed a knowledgeable chap, with a lovely partner. I am pleased to hear they are doing well in Wagga.

Our plan is similar to his, we would like to purchase again, eventually ending up with 3 good leaseholds, but first we need to steady the ship down south. Mind you I have found it can take a really good (and long) 18 months or better to find the right hotel, so may as well start looking again.

Cheers and best luck to everyone, particularly thecrest

Regards

Kindren

Hi Tony Zorro and All

What a great name you have Tony,

My interest is through property structuring  with heavy emphasis on SMSF involvement and been establishing/advising on them since 1978.

As you know Tony there is a view that leasehold is an inferior product, whether its motels, hotels or Child care many prefer the freehold but that's not my view.

My reasoning  is repaying debt is after tax which crushes your cash flow from acquisition date when debt reduction should be the major goal.

My view is that leasehold and freehold are best tackled separately like this.

1. When doing your due diligence do get the accounts BUT ASK for Bank Statements for 3 years.

If they don't want to supply them there is a reason so go to the next business..

2. Make sure you do lots of calc's on the business cash flows and your cost estimates before you take the plunge

Remember Its the business which makes the money and you can lease the premises fro say 3+3+3 or 5+5 with an option to buy the freehold when your leasehold debt is paid out or reduced.

We a have a special structure call a TEBL (Tax Effective Business Loan) Trust which can retain more after tax profit so you can reduce debt faster and pay less interest. The higher the profit the more you save, 15% to 25% extra cash after tax.

Then you can tackle the freehold with a clean slate and better cash flow.

I would welcome some discussion on this idea.

Regards to All

Anthony K

thanks, that is pretty much what I have read elsewhere. With regard to working hours, are you talking about an 80 to 100 hour week for a single person? Or are you assuming that a couple has bought the lease and both would work at least an 80 hour week? This would effectively double the required man-hours in any salary comparisons with the wage slave world. I will post some other questions separately if you don't mind to keep the thought processes for me clearer. At this point I am thinking, why on earth wouldn't I want to work for myself!! I am just afraid that the income seems too good to be true.

Hi Crest,

Thank you so much for all the great information and sharing of experience.

I stumbled across this forum yesterday after someone had told me about the the general concept of motel investment.

When I heard about the higher ROI when compared to traditional assets (shares, residential property, etc) I decided to do my research (GOOGLE) and I found your impressive thread. A thread which has lasted many years!!!

Admittedly I have very little knowledge but I just wanted to confirm a few things I had learnt from your comments;

1. ROI is highest on leasehold. (LH 30% annually vs FH 9% annually)

2. If you purchase a leasehold you can either operate the business yourself or pay someone to run the motel for you (under management)

3. You will need a 30% deposit minimum to buy a leasehold

4. If you increase the turnover and nett profit whilst you own the leasehold you can then sell later at a higher price (Capital Gain)

5. The nett profit = turnover – rent paid – business expenses.

6. The nett profit is your income as business owner of which you then need to pay loan repayments, income protection, wages, super payments and tax, etc?

Maybe I have some details wrong above and if you could correct me that would be great.

If possible are you able to run through a sample scenario to highlight the numbers and cash flow from purchase to sale? Would be good to see how you can make money from purchase to sale and the income/expenditure throughout the years?

If we use a $500,000 leasehold with a 30% ROI, could you show the cash flow if it was under management and also explain how you sell a leasehold if you have used 10-15 years of a 25 year term?

Sorry for all the questions just very keen to learn and understand everything?