All Topics / Help Needed! / motel units/rooms?? what do you think?

Viewing 7 posts - 1 through 7 (of 7 total)
  • Profile photo of suburbiasuburbia
    Member
    @suburbia
    Join Date: 2010
    Post Count: 2

    Hello everyone,

    I am looking to add to my property portfolio and came across these listings for rooms or units to buy in motels. Has anyone invested in them before? What are the pros and cons of motel room investing? They come much cheaper than an apartment/unit ………..but are they easy to rent or sell ?
    Any info would be appreciated.
    Thanks in advance.

    Profile photo of GeraldineMGeraldineM
    Member
    @geraldinem
    Join Date: 2010
    Post Count: 81

    Hi suburbia.

    I've been looking into this too.  Basically, banks don't like to loan on things that are under 50 squ. of floorspace, I assume as they feel it is more like a model room and more likely to be purpose specific, hence not easy to sell and limiting re. growth.

    Also, if the property is 'managed' e.g. by the Breakaway group or another business, banks see it as a commercial property and will lend a lower proportion than for other real estate.  This means you must put in more of your own equity which affects your borrowing capacity.

    I also discovered that a lot of these properties have been hit by hard times lately so their occupancy rates are much lower.  Unless you are confident that this will change soon or you can afford the shortfall, they will not be paying for themselves as they usually have very high management fees.  Lastly, you have no control over what goes on with them, so you can't do much to change any problems.

    I hope this helps.

    G

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Not quiet right Geraldine banks don't like to loan on things that are under 50 sq but admitedly the lvrs are reduced.

    Richard Taylor | Australia's leading private lender

    Profile photo of thecrestthecrest
    Participant
    @thecrest
    Join Date: 2004
    Post Count: 992

    Usually a motelier has to buy all the rooms with a big 50% deposit, then at his own expense run the infrastructure of marketing, booking, maintaining and cleaning, and do it with commercial loan rates usually 1 – 1.5% above housing loan rates.

    However it gets better when someone else , the investor, buys the rooms for him, and motelier is now a complex manager and he manages the rooms and hands over certain costs plus overides to the investor. Room cleaning costing $20 hr takes an hour is charged out at $75. Admin fees charged out, maintenance charged out, refurbish or repair or replacement charged out, leftover income after all is deducted is sent to the investor next month, operation runs well on OPM. Sounds great depending on who you are in the story. But it's still worth crunching numbers on and might suit your personal financial goals.
    cheers
    thecrest (motelier)
      

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
    Email Me | Phone Me

    selling motels in NSW

    Profile photo of GeraldineMGeraldineM
    Member
    @geraldinem
    Join Date: 2010
    Post Count: 81

    Hi Richard.

    That's interesting re. borrowing.  Both banker and mortgage broker told us this.  I guess its only their preference.

    Regards,

    G

    Profile photo of suburbiasuburbia
    Member
    @suburbia
    Join Date: 2010
    Post Count: 2

    Thanks everyone for their comments

    Profile photo of Ryan McLeanRyan McLean
    Participant
    @ryan-mclean
    Join Date: 2010
    Post Count: 547

    You need to be careful with these types of investments, as often your property is rented out by the motel managers. If the crap hits the fan (and sometimes it does) you want to make sure you have an exit strategy.

    These types of properties can be hard to sell if the motel isn’t making any money. And if the motel shuts down you might want to make sure the room you buy can then be turned into a one bedroom or study apartment.

    Motels are a niche market, to minimise your downside you can make sure you can convert the motel room into an apartment if need be. If you can’t convert it then it could be risky

    Ryan McLean | On Property
    http://onproperty.com.au
    Email Me

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