Anybody invested in motels ?

[crest133]

Is anyone holding any investment in the motel industry?
What sort of return is currently available and what kind of investment ?
Care to share ?

This is partly to do with our recently changed status after launching our new motel brokerage business, but we're also moteliers and still managing our own motel property in Wagga and seriously looking to sell it after getting too worn out, and needing to re-invest in a more passive way in the motel industry, and closer to Nelson Bay.

So I'm very interested in anyone's story of motel investment and just as a motelier, happy to assist anyone who might need help in this area.

cheers
crest133

 

[Sidney]

Is anyone holding any investment in the motel industry?
What sort of return is currently available and what kind of investment ?
Care to share ?

Not currently holding, but we're looking at buying the motel (freehold) next to our hotel. The valuation we've had done works on a (projected) yield of 16%. "Projected" because the motel is not operating at the moment. The current owner bought it about a year back with the view to develop the excess land to the side and closed the business, but has since run out of funds to proceed.

Not sure if we're doing the right thing, but the main advantage to us is that we can easily absorb the new business it into our existing one. Also, currently the motel is on a not-so-busy road with no highway frontage, as our car park sits between it and the highway - so another upside for us is that we can put a sign on the highway and allow access to the motel through our hotel car park.

All up, though, not sure if we're doing the right thing here. We could just as easily put our capital into residential property in a suburb closer to the city with good CG potential. But then the yield would not be anywhere near as good,( assuming we reach our projected 16% on the motel?).

...happy to assist anyone who might need help in this area.

Any tips, hints, warnings or encouragement would be appreciated.

Thanks for starting the thread.

Sid

 

[crest133]

Hi Sid.
Good plan, usually a healthy complementary business, enabling the hotel to capture the lion's share of the F & B sales by doing meals & accommodation packages for breakfast & dinner. It's the reason RSL Clubs buy or build motels next door. The "onsite" availability of food, drink and entertainment(?) & lounge atmosphere attracts motel guests. Also, provided you have enough rooms, like about 25, then bus groups are possible. Loud pub or nightclub music bouncing guests in their beds till late kills it though. Ask your accountant about "buying a business that's not a going concern", in case you have to pay irretrievable GST. Motels change hands as a going concern to avoid this cost. Some staff can be shared between both businesses. PM me the location if you like so I can be more specific. How many rooms? Residence? Rating? Reno cost to open ? Best run by an onsite couple usually, and most motels already have a residence onsite for them. The main rd signage is vital as at least 25% of accomm sales don't book ahead (walk-ins), and could see an adjoining hotel + motel as a complete package, provided they are of the right standard. The travelling public's perception of the quality of motel accommodation is higher if it's not a "hotel motel". It's not universally true, just a perception. Signage could take care of that. They could be run separately but linked. However, if the motel is best setup as a 3 star then it's not a problem. You could also sell a lease on the motel later with cash back in hand plus a passive 9-10% ROI for you, and F & B agreements in place. Bulk intricate details here might not benefit the Forum, PM me if u like.
The idea definitely has good potential. The devil is often in the detail though.
Good luck
Cheers
crest133

 

[crest133]

Hi Sidney.
How's the motel project going? Any news or update or info re location you can post here or PM ?
Good luck
Cheers
crest133

 

[Paul@PFI]

There are a few models for this and some serious problems with many. GST is one of them. The investor loses out by the factor of 9.09% GST stripped off the income.

Investors may be paid a rental. However you are at the mercy of the managing agent which is a motel business. You share in the vacancy rates and losses...Your room may be full all the time but tough luck. Also they go down the tubes you and your other co-investors are without any income or anyone who will run it. Its a shell. You have no say over anything and you would have the most illiquid investment. Who wants to buy one motel room ?

I had clients with a large motel on NSW north coast in great location (seemingly). I'm surprised it wasn't classified a charity for 11 months a year. It didn't make money and they couldn't sell it. They spent a million and a half to reno that and it still lost (more) money. Its a 18hr a day labour intensive industry that doesn't reward the owners. The owners work themselves to death to avoid paying others $50 a hour. The maintenance costs are horrific. Location, location, location is everything. Some do well with solid restaurant or other facilities. All are seasonal and differ. Its not a true property investment for the owners either. Its like owning a petrol station. Its the volume in and out that makes the $$. Not the property.

If a risk premium had to be added to yield to cater for the vagaries of the motel business you would have to be up in the 15% area. That's far higher than lending rates so why would a operator want a panel of investors ?? They would rather have one bank on their back.

 

[crest133]

Hi Paul,
Motel businesses don't decline by themselves, in fact very few decline at all. Not sure what your former client did wrong but hope they recover. No doubt they'll do better planning and be better advised for their next venture.
Cheers
crest133

 

[Paul@PFI]

Tony - I thought they were out of their depth from start. They then seemed to go all in" and threw more $ into a bad mix. I suspected they were trying to compete with a large operator (family resort !!). They werent high end enough to compete with the resort and were too expensive to compete with the H/M market and family holiday market.