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TIPS FOR BUYING MOTELS

Motels: Considerations & decisions Flexibility in the workplace has changed over recent years and may well change again over the next couple of years. Whether the “workplace” (in general terms) tightens or loosens its stance on flexibility, either with flexible hours or a flexible location to work from, motels have always offered the owners/ operators a level flexibility. How the owner/operator chooses to run their motel business is entirely up to them. Either living onsite and working the business full time, or living offsite and having some involvement here and there. There are all manner of operational methods we have witnessed over the years that work for each individual situation. You make your own decisions to suit your structure and purpose. Motels offer this flexibility to suit your lifestyle. More than ever, there is a greater desire to find flexibility in the workplace, so look no further. Motels are a great business option for those wanting flexibility. Your work hours can be tailored to suit and having the family living onsite allows for more family time whilst still allowing one to operate their business. No driving half an hour or more each way every day to get to work and losing an hour of your day. Financially motels have been a very lucrative business option for a huge number of people over the long term. They have also been very rewarding and satisfying on a personal level, making them the ideal business type for many.

Starting the Process Researching the web is a great place to start for any initial enquiries. As with a search on any topic, sorting good information from bad requires further investigation and patience. Talking to friends or relatives who are or have been in the industry. Speak also to experts, not those who “dabble a bit” and want to try to sell anything and

most motel owners were also the operators living on site. This is not always the case today with many operated on a more passive basis, either under management or under lease. Motels are an excellent business in this respect as they can be operated successfully without the owner needing to be onsite all the time.

Andrew Morgan,

Motel Broker, Qld Tourism & Hospitality Brokers

everything. Speak to those who specialise in the motel industry and have a proven longevity, not just those who come and go. The options available are many and varied. Although a very common ideology, where one wants to live is generally not the best place to start. Instead, looking at the regions that offer the best motel opportunities is a better option. Can those areas fit in with the family or lifestyle requirements one has is probably the next consideration? Consider the preferred tenure of ownership that may suit best. The main three types of ownership available for motel acquisitions are Freehold, Freehold Passive Investment and Leasehold. Each offers different benefits and burdens to the owner and one must determine what is most suitable. Weighing up the facts and comparisons between them will help determine what is suitable for each investor. Achieving finance “pre approval” before going too far can save a lot of wasted time and money. This can only go so far of course as each lending situation will be different. Guidance on what you can and cannot purchase based on your financial capacity will be invaluable. Other factors such as serviceability will need to be dealt with on each individual business. Another major decision required to be made early on, is whether one is going to operate the business themselves or not. This may affect the type of tenure that should be considered. It was the case 20 years ago that

Building and Property Considerations 1. Units – For some the number of units is all important, others not so. Many look at the offering in its entirety, of which the number of units forms only one part. The budget available will also affect this decision as the more units, generally the higher the price. 2. Restaurant/Dining – Some enjoy working the restaurant side of a business as this is the more social side, where operators can get to know and build relationships with their customers, thereby making the decision easier for the guest, as to where they will stay next time they travel to the locality. 3. Presentation – The standard of the presentation of a motel will affect the return on investment expected by the market. If hundreds of thousands of dollars are required to rectify poor standards or years of neglect, it will affect the price that is paid for the property in its current state. Motels that are not presented in the best manner can offer excellent opportunities to add value to the business/property by rectifying areas in need of work. 4. Location – the main positions motels tend to be focused are major highways, main roads, waterfronts and city centres. These areas tend to be places where demand for accommodation is at its highest. Location does play a role in determining the value of a motel as the demand for a coastal motel has historically been higher therefore pushing the value of the motel higher and the return on investment lower.

5. Residence – Motels usually offer an onsite residence. One must be aware however that although they are comfortable and large enough, they are generally not the size of a stand-alone house. There are substantial benefits to living onsite that include the lifestyle of a family living and working together, and the tax benefits that are available. The costs of living in a home in the suburbs are largely absorbed by the business in the case of a motel, such as food, electricity, council rates, rent, loan repayments, water, insurance, telephone, and much more.

Business Considerations 1. Lifestyle – The benefits of a family working together and the opportunities to grow with the business can be very rewarding. Delegating certain areas of the business to key staff members where one is comfortable to, allows more time to get out of the property and take time out for family, schooling or other social or sporting activities. 2. Return on Investment – This depends on many of the items included within such as location, standard of presentation, number of units, lease document, land area, etc. Outside the business/ property itself, the strength of the market and demand at that time plays a major role. Motels do offer very strong returns when compared to many other business opportunities. 3. Potential/Opportunity – The old saying is “no one buys a business unless they see potential”. There is generally potential in every motel business of some kind. Often investors fall into the trap where a motel operates on a very high occupancy rate, they think there is no upside potential. This is sometimes the best potential as the room rates allow for increase resulting in a lower occupancy rate, but higher profit margin, less wear and tear, etc. A new broom always sweeps clean and a new perspective, RESORT NEWS - DECEMBER 2021