Motel First Time Prospecting Buying & Operating Lease or Freehold Questions

All the best with the venture…

Hi Rechargelife
It's a long path from where you are now to the front door of a motel of your own.
But it can be done.
I suggest you read all the posts on this forum about motels, talk to the Chains and ask them about the benefits of membership vs fees. You usually don't inherit previous owners' chain agreements, usually free to make your own decisions. Chains are popular and usually helpful for  newcomers.   
I've sent you a message on FB.
Borrowing criteria for motels is complicated, there are good finance brokers on this site, suggest you talk to them. Choose the ones with lots of posts to their credit, they've been here helping forum members for a long time.
Start analysing P & Ls from those 2 motels and any others of interest until you understand them. You need an accountant to help you.
Keep learning until you have enough knowledge that buying is a well informed decision. 
Cheers
thecrest 

Hi Rechargelife
What was the outcome, any progress in your project ?
Cheers
thecrest

Hi Riviana
You're blessed having parents in the business because you know their info is accurate. Vendors info requires due diligence.
Add backs are sometimes a contentious issue and opinion varies on the validity of some categories of addbacks, so when you say the motel netts an extra $50K after addbacks, you would no doubt be looking very carefully to see if the motel would operate under your management in that manner and without those expenses. The true nett under your management depends entirely on how you would operate the motel, so remember to spreadsheet the motel scenario under your management and see what it earns, then you'll know what it's worth to you. Tell me the addbacks and $ and I can venture an opinion if you like.
The figures you have mentioned can be checked by your accountant, and also utilities costs can be checked by getting a history dump from the gas & elec & water suppliers. Same with any suppliers, with the vendor's approval naturally.
Monthly costs of utilities, labour costs, wotif commission and chain costs, occupancy and sales should follow each other very closely across an annual graph to help to verify income claims.
Large regional Vic city / town, good choice, remembering you will do best with a place which is a "destination" town as well as a "through" town, not just one or the other, so don't buy where a town bypass is imminent until about 3 years after, when the damage has passed and the figures have recovered to an assessable level.
Motel B & B (no restaurant) near 2 restaurants, ideal. Restaurants in motels are usually poor performers, extra 40 hrs per week work, useful for selling rooms of course but the same can be done by actively selling the proximity of one or several restaurants nearby in the same way, but without the hassle of staffing, funding and operating them. But your continued good fortune depends on ensuring the restaurant continues to operate, so pump your people through it. 

Recently refurbished ? – Excellent, someone else has done the work for you and their sales graph should show the time frame when it was done by showing a slump while the rooms were off line being refurbished. Also gives some extra depreciation.
Lease period. The industry's opinion is it's easier to sell a motel leasehold with 25-30 years on the lease than 22.  Your parents are right. So it would help if the vendor could confirm in writing the landlord's agreement to alter the lease accordingly and at what cost, payable when, but better as an option that you can action later, or pay annually or when you sell, so you have the benefit of the funds in the meantime, and can sell with 24 or 25 years on it. You need to consider your exit strategy before entry.
Business structure – see your accountant, too many personal situation type variables. Ensure that your financier will lend to the same extent to whatever structure you favour. Some financiers deals vary with the structure. Also please note, there are
Finance Brokers on this website with thousands of postings to their credit who have been helping people and this forum for years and can assist with finance and structure information.

Long winded, sorry, but the points you asked are very important and you're obviously tracking very well.
If you want to send (email through PM page on this site) me some nameless but detailed info on the motel you're welcome. I bet my opinion won't vary from your parents opinion, the figures will tell them the same story because they're in the business and they'll know.

Let me know if I can be of more assistance.
Cheers
thecrest

Hi Riviana

Looking at figures and leases on a few reasonably comparable properties will give you the experience you need when the right one comes along.
 
It also helps you fine tune your search criteria, and keep up with changing market conditions.
 
You can discuss your chosen scenario with your financier to obtain "pre-approval" if you purchase within agreed guidlines. 

The best motels don't last long on the market and when doing due diligence on those, expertise = speed = no gazump. 

There is no such thing as doing too much homework when choosing the location of the motel. 

Let us know your progress, and if you need any assistance.

Cheers
thecrest

When considering location, think of towns that are not only a "through"  town, but a "destination" town as well. That means guests stay longer, and you get those passing through as well. Wagga, Cootamundra, Young, Cowra, Parkes, Orange, all strong  motel towns.
Life is tough enough, why buy in a marginal area, struggle for years, and then wonder why there are no buyers when you want to exit ?
A great position in a weak town is not a great position.
Buy in strong "sponge" towns, not the weaker ones being drained by stronger ones nearby. (google town growth stats by Bernard Salt of KPMG).
Choose carefully.
Cheers
thecrest

Hi Kindren
Welcome to the Forum.
The type of motel is very important in giving an opinion on "motels in Coffs Harbour".
Are you seeking a motel ?
If so, then if you clearly explain what style of motel you're seeking
 I can be more specific with Coffs, because it all matters.
Include your preferences with
 price bracket,
stars,
age & condition,
 leasehold or freehold,
 restaurant or B&B, 
number of rooms,
chain or not, 
any other preferences. 
Cheers
thecrest

Hi Kindren
Coffs.
Positives.
Strong motel town,
Plenty of through and destination traffic.
It's one of the few places where the Pac Hwy goes through a town on the water, rather than having to leave the hwy and travel 7-10 kms to reach the town. Makes a difference.
No bypass.
Strong town infrastructure, beach, marina, CBD, strong local economy.
High tourist activity.
Decreasing travelling time from Sydney or Brisbane.
Road improving.
Some tired competitors in need of refurb.
Negatives.
Excessive discounting by some (priceboards)e.g. group between Toreador and hwy lights.
Competitive.
Some motels flooded (e.g. ground floor Bentley in town opposite RSL, Council reckons nearby stormwater creek thru park now cleared).
Periodic refurbishment essential.
Some seasonality in sales.

BTW. Country Comfort should do better, don't know why it isnt, check traffic noise, net mktg or refurb situation.
Hope that helps, all only an opinion, usual disclaimers apply, exhaustive homework DD is your best friend.

Here to help if you need it or want to discuss specifics, PM me / email.
Cheers
thecrest

I suggest you ask those who professionally value motels that excellent question.

Hopefully their method of valuation should not differ too much from yours as a buyer.
e.g. leasehold – period remaining, lessee's lease conditions, nett profit, condition of goods n chattels, current and future security of business.
freehold – land value, nett profit, condition of building and other improvements, condition of goods n chattels, current and future security of business.

Land values change according to local market conditions.

Cheers
thecrest

Hi All
Have any of the posters here got an update of their progress in this area of investment ?
Info shared is a blessing for all concerned and part of our education process,
always appreciated.
Cheers
thecrest