Tips for buying motels in 2024 When considering any business acquisition there are always buying motives that are particular to each individual, with different matters and items more important to one person over another. When the most suitable motel is being considered, it will be a combination of many factors that will come together to make it the right motel to purchase. The items below offer guidance when making decisions on what suits an individual’s buying motives, based on financial, family, lifestyle, and other requirements. The benefits of a high-return business with a flexible lifestyle are what attracts investors to the motel and accommodation industry initially, and why others continue to buy, sell, and accumulate motels as part of their investment portfolio and lifestyle. Some of the benefits of the accommodation industry that result in those investing within includes, but are not limited to: •
The personal satisfaction of building relationships with customers, and in particular with continually returning customers.
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Living onsite and the benefits that are included.
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Quality and flexibility of a work and lifestyle balance.
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A high return on funds invested.
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Potential for substantial capital gain.
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The constant and consistent demand for a product offered.
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Not being required to hold large amounts of stock; or
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a combination of all of the above.
Those experienced within the industry are a wealth of knowledge and are a good place to start the search. There are many motel owners within the industry who own more than one motel. Once they started in the industry one motel became two, then three, © 2023-2024 Resort Publishing Phone 07 5440 5322
the motel lived onsite and operated it themselves. If the day-to-day operation is not desirable for whatever reason, 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. Retired owners of motels that are no longer in the workforce often enjoy still being involved and acting as relief managers for their onsite full-time managers.
Andrew Morgan, Motel Broker, Qld Tourism & Hospitality Brokers 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 - buying motives. 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 very successful and enjoy a good working lifestyle whether it be on a full-time, part-time, or limited basis. A few of the characteristics and positives of owning and/ or operating a motel include but are not limited to: •
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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. Returns vary based on tenure of ownership. Cash flow: On 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 more motels than ever before are being operated under management. This is the opposite of where the industry was 25 years ago where whoever owned
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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, telephone, and so on. However, one must be prepared that motel residences were generally never built to be stand-alone houses and therefore do not have the space of popular four-bedroom, two-bathroom houses in the suburbs. Active market: There is a ready market when you wish to sell, as there are always 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. 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, etc. 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
TIPS FOR BUYING MOTELS
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Quality lifestyle and flexibility: If planning to operate a motel, the actual purchase is not only a business decision but also a lifestyle choice. Motels offer a good working lifestyle for the operators, with the whole family able to live and work together onsite, and the meeting of new and interesting people each day. The flexibility available to the motel owner is part of the attraction for investors.
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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.
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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.
Return on investment One of the first questions potential investors in 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. Demand for a coastal motel is always higher, therefore pushing the value of the motel higher and the ROI lower. Location is an important factor to consider when buying a motel, decisions on where to buy a motel can be heavily based on lifestyle RESORT NEWS DECEMBER 2023
