TIPS FOR BUYING MOTELS
Essential Matters There are always a lot of questions that need to be answered when considering buying a business. The answers are generally revealed throughout the process of looking for, and finding the right business to suit one’s circumstances.
The search for the right motel includes considering the positives and negatives for each from a personal point of view and includes the list of items below in helping to make a decision on what suits the individual’s buying motives, based on financial, family, lifestyle and other requirements. The benefits of a high return business with a flexible lifestyle is part of what keeps people coming back for more within the accommodation industry. The opportunities available include but are not limited to: •
Quality and flexibility of a work and lifestyle balance
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High return on funds invested
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Potential for substantial capital gain
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The personal satisfaction of building relationships with customers
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Living on site and the benefits that are included
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Or a combination of all of the above.
A good place to start the search is to talk with those who have been there and done that, or perhaps still do it. There are many motel owners within the industry who own more than one motel. Once they started in the industry one became two, then three and so on. It may be a location decision, economies of scale, additional units, higher revenue and profits or seeking freehold ownership that creates the desire for additional acquisitions. There is a large number of motel owners within the industry who have owned and operated many different motels over the years. They have been
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Andrew Morgan,
Motel Broker, Qld Tourism & Hospitality Brokers
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very successful in the motel industry and enjoy a good working lifestyle whether it be on a full time, part time or very limited basis. A few of the characteristics and benefits of owning and operating a motel include, but are not limited to the following: •
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Onsite residence/home: Motels generally offer an onsite residence for the owner, which helps to reduce their living costs substantially, including food, electricity, council rates, insurance and telephone. One must be prepared that motel residences were never built to be standalone houses and therefore do not have the space of today’s popular fourbedroom, two-bathroom house in the suburbs Active market: There is a ready market when you wish to sell, as there is always a market for people seeking to buy good motel businesses and properties. Other types of businesses may require more specialised skills or may not be as attractive to business investors, however good quality motels are always in strong demand High return on capital invested: For the capital invested in a motel a high return is achievable. When considering risk versus return, the statistics confirm motels are a solid and secure business to invest in
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Cash flow: 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. Many large companies have now taken to providing employees with credit cards for their accommodation requirements limiting accounts even further
Under management/passive ownership: The motel industry is ever evolving, and a large number of motels today are operated under management. This is the opposite to where the industry was 20 years ago where whoever owned the motel lived on site and operated it themselves. If the day-to-day operation is not desirable then this can be a great way to get involved in the industry on a more passive basis, yet still offers the ability to stay involved as much or as little as one wants Quality lifestyle and flexibility: If planning to operate a motel, the actual purchase is not only a business decision but a lifestyle choice also. Motels offer a good working lifestyle for the operators, with the whole family able to live and work together on site, and the meeting of new and interesting people each day. The flexibility available to the motel owner is part of the attraction for investors Finance: Banks and financial institutions are generally eager to lend money for the purchase of motels. Traditionally motels have been a solid and secure investment, whether leasehold or freehold, and this good history gives financiers confidence in lending to purchase motels. Current low interest rates are a real bonus to take advantage of
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Low stock on hand levels: There is a small stock component within a motel, whereas in other business types a large amount of stock is required to be carried at all times
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Taxation benefits: There are numerous taxation benefits and deductions available to motel owners such as depreciation of plant and property or alternatively more immediate write-offs expensing certain items, living cost benefits and so on…
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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, that has generally resulted in good capital gains. As with any market it does fluctuate so timing is still very important.
Return on investment One of the first questions potential investors to the industry ask is, “what return on investment (ROI) can we expect to achieve”? The market determines the ROI of each individual motel. There are numerous factors that affect this rate of return. The fact that each motel is different in various ways means at times, it is difficult to compare one to the next, however the market does apply its general guidance.
Some of the factors affecting the ROI 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 ROI lower. Location is an important factor to consider when buying a RESORT NEWS - DECEMBER 2021