Motel as a passive investment

Hi Philfella
Like any investment building, factory, shop, office, residence, the condition of buildings varies and the rate of deterioration varies.
Not sure what you mean by building upgrades but any alterations of a cosmetic nature are usually the tenant’s cost. Structural repairs are the landlord’s cost.
Haven’t heard about 2 1/2 years turnover with motel lessees, thought it was more like 5 years. Source?
9% ROI does not include buying costs as you mentioned, they vary so factor them in yourself, like any commercial investment.
If you self manage, yes there would be landlord involvement and monitoring compliance same as if you self managed a factory, office or residence.
Capital gain exists unless you buy poorly in whistle stops.
Unlike other investments, if the tenant does a runner, the landlord usually makes a killing.
The landlord involvement is in direct proportion to the quality of the property and tenant.
For most control and least drama, select and buy a freehold in excellent condition, create a carefully planned lease, sell it only to an excellent tenant, and treat it as a partnership.
Good luck
Cheers
thecrest

Any one know budget costs for expanding a motel?
Thinking about expanding an existing 12 unit motel to 17, the leaseholder suggested it, land on both sides are for sale with no takers The lease holder then didn’t want to pay 8-9% of the expansion costs in annual rent, because he is rarely 100% now.
I am thinking, about a rent sweetener maybe 2% rent on the capital costs of the expansion increasing every year by 2% till it reaches 8%.
Any thoughts?

I have invested in motel as a passive investor in the USA motels and get a return on my investment of 12 % every month. I started investing during the GFC in 2009. Currently the LLC I have invested started with 1 motel and today they have grown into 3 motels and in the process of buying the 4th motel and partner is calling me to go and help him to run the business but unfortunately I am on a good income and lifestyle in Melbourne and I don’t want to leave it. Also the wages offer as a Manager was 50k/year. I look investment in Australia and cannot get return similar return. SO my view is look in the USA for motel investment.

Hi thecrest,

Let me see whether I can answer all your query LLC is Limited liability Company. Each motels is on its own LLC. So if one goes bad the others will not fall with the bad property. Currently all the motels are freehold with 25 years loan on the property.
Any investment you make you will get 12% of that investment (so invest 100k you get 12k/year) note income tax is your liability.
My partner does not like to buy distress property he generally buys property where revenue to purchase price is 3 times as a rule. Currently we are looking to buy a motels in Kentucky about 7 millions. So far the property are in the mid west (ohio,WI and IN states).

None of the properties have resturant as standard all motels in US provide breakfast so they do have dining area. conference etc. All the properties are managed and my partner does serves as agenral manager to the 3 motels. He takes a management fees for it a little higher than the usually but it the motels does not make money he gets no fees.

Currently there was distress motel with about 100 rooms in Indiana for sale about 1.8m revwenue about 650K/annum. This is close to car racing area and very good location and I asked by partner whether we can purchse the property. My partner said good location currently the property is missed manager and does not have a good reputation and it will take about 2 years to turn around the property and it is good price but if we buy the property then we need the partner to be onsite Manager to turn around the motel. Onsite Manager get about 50K/annum and it was worth for to leave my job over here.

I hope I answered all you query

Cheers
joe

Hi thecrest,
Yes the motel is freehold under management. When I say passive it means I am a 30% shareholder and the initial amount I invested as shareholder is taken as loan in the business and the business pays 12% per annum paid monthly for the initial investment amount. Just to clarify when you say 13.5% return for local motel is the net operation income (NOI) 13.5% and then you have to pay interest and loan repayment. That’s is about the returns I could find about 5 years ago in Australia. You will be lucky to get an money for the initial investment. amount. Just to give some figures the last 3 years the NOI for the business was 33 to 37 percent annually The profit after interest and loan repayment was about 22 to 25% annually. The shareholders in the last 5 years took 80 to 100 % for their initial investment. Every 6 months the shareholders get back a certain percentage of their initial investment. Shareholders get only get 12% of their initial outstanding investment. Some Shareholders does not like to take the initial investment because the ROI amount will be reduce. This comes to individual risk appetite. In 5 years among 4 shareholder all expect 1 have taken their initial investment. Now the business is paying down the debt and we get about 8% return as shareholder. Now the property have about 40 % equity compare to the 15% at the start. Since the 15% initial equity is taken by most shareholder in actual sense the equity have gone up by almost 55% and some of the value in property appreciation. The appreciation in the US is not as high as Australia. Over 5 years the property app. is about 30%. So don’t expect a lot of appreciation in property in USA it gives a good return.

Regards
Joe

Hi thecrest,
I am not the full owner there is about 5 other partners. Yes the registered LLC paid 15% deposit and 85% loan (50% bank loan and 35% loan paid by former motel owner where the loan rate is about 1% higher than the bank rate).
The return on the money you invest as deposit say 100000 you get 12% every year. All partners have difference investment propostion. Just confirming you don’t get 12 percent on the motel value. Also depending on your initial deposit you own in proposition the motel (example if your deposit 15% of the total deposit amount then your ownership is 15% of the motel).
Currently I am in the process of buying a motel in the US. For this motel the value is USD 2.8M in this case I must invest 30% as deposit because the 2 owners are non US nationals. I am looking another investor if you interested let me know. I can give you more details

regards
joe