TIPS FOR BUYING MOTELS
Motel ownership:
The best of both worlds “The best of both worlds” is a phrase that is often used to describe the business of owning a motel. The benefits of a lucrative business alongside a flexible lifestyle is what keeps people coming back for more. And while the opportunities and reasons vary from one motel to the next, the overriding reasons include the quality and flexibility of lifestyle available, the high return on capital invested, the potential for substantial capital gain, on site accommodation or a combination of them all. Generally, motels are acquired on the back of a five-year plan to operate, then on sell. Many however, go on to look for another motel, perhaps a larger one, or one with a restaurant, or with a higher turnover and profit. There are a large number of motel owners within the industry who have owned and operated many different types of motels over the years, and they have been very successful whether it be on a full time or part time basis. A few of the benefits of owning and operating a motel include, but are not limited to the following:
Andrew Morgan,
Motel Broker, Qld Tourism & Hospitality Brokers
telephone etc. this feature can help to reduce their living costs substantially. Purchasers must however, be prepared that most motel residences are not built as stand-alone houses and therefore do not offer the space of today’s popular four-bedroom, twobathroom house in the suburbs. Operate under management – the motel industry is ever evolving and a large number of motels today are operated ‘under management’. This is completely opposite to how the industry was 24 years ago, where whoever owned the motel lived on site and operated it themselves. If one doesn’t want to be involved in the day-to-day operation then an ‘under management’ option may be a great way to get involved in the industry on a more passive basis, with the ability to stay involved as much or as little as one wants.
A high return on capital invested – for the capital invested in a motel a high return is achievable. Leasehold, freehold and passive investment tenures offer the investor a very high return on investment. When considering risk versus return, the statistics confirm motels are a solid and secure business to invest in. Onsite residence/home – motels almost always offer an onsite residence for the owner and if one takes into account electricity, council rates, insurance, © Copyright 2019 Resort Publishing • Phone 07 5440 5322
Quality lifestyle/flexibility – those planning to operate a motel need to know that the purchase is not only a business decision but a lifestyle choice as well. Motels offer a good working lifestyle for the operators, with the whole family able to live and work together on site, with the addition of being able to meet new and interesting people each day. The flexibility available to the motel owner is part of the attraction for investors. Active market – in the motel market there is generally a ready market when you wish to sell. Other types of businesses may require more specialised skills or may not be as attractive to business investors, but good quality motels are always in strong demand. Stock on hand – unlike other accom and hospitality-type businesses, there is a small stock holding component within a motel. This goes hand in hand with the next consideration, being cashflow. Cashflow – right from the first day of taking over a motel there is generally a good cash flow. Most guests today pay by credit card or Eftpos, and guests on account are limited to large companies only. In fact, many large companies have taken to providing key employees with credit cards
for their accommodation requirements thereby limiting accounts even further.
Taxation benefits – there are numerous taxation benefits and deductions available to motel owners such as depreciation of plant and property, living cost benefits, family members working within, and so on. Capital gains – there is always an opportunity to increase the value of the motel and make a capital gain upon sale depending on the quality of operation. The trend of motel values over the past 20 years has been a steady and consistent rise; this has resulted in good capital gains. As with any market however, real estate fluctuates so timing is still important. Finance – banks and financial institutions have traditionally been eager to lend money for the purchase of motels. Motels are viewed as a solid and secure investment, whether leasehold or freehold, and this good history gives financiers confidence in lending to purchase motels. Return on investment – the market determines the return on investment of a motel. There are numerous matters that affect the rate of return and the fact that each motel is different means at times it is difficult to compare one to the next. Some of the factors affecting return on investment include: Location – whether a motel is located on the coast or inland is a major factor determining the return on investment. Historically the demand for a coastal motel will be higher therefore pushing the value of the motel higher and the return on investment lower. Location is an important factor to consider when buying a motel, and are generally based on lifestyle or return. It must be considered that motels in desirable locations such as coastal areas will not show returns to the level that an inland motel will. RESORT NEWS - DECEMBER 2019