Steps to Purchasing a Motel - Management Rights - Caravan Park

If you are thinking of purchasing a Property or Investment this may be of interest to you.  Variations do exist for leases, but the majority of the information is the same.  Tourism Brokers are happy to explain any part of the process or assist you in any way.

1.  Determining your price limit

It is important to be realistic with the prices of property and businesses you can afford. The general rule of thumb for Tourism Property as a going concern on a freehold basis is 35% equity and 65% debt with the additional purchase cost of Stamp Duty, Solicitor etc covered with additional funds. For a lease the normal borrowing is 50% of the banks valuation.

2.  What to look for at a property showing

  • Always consider the condition of the property because your final acquisition cost will be the price of the property plus any repairs or alterations you may wish to make.
  • Consider the franchise fees and benefits if one is in place or you are contemplating joining one. For the first time operator they can add significant support.
  • Put yourself in the motel customer's shoes and judge the property from that perspective. 
  • Check out the competition by looking at other motels in area.
  • Ask owner to identify room-night demand opportunities or existing generators so these can have some additional focus placed upon them.

3.  Courtesy and ethics when looking at properties

Please consider the owners and staff when looking at properties as not all the staff may know a property is on the market. Some sellers are concerned some staff will leave or suppliers may alter supply an arrangement if they find out a property is on the market.

Please schedule appointments to inspect with a reasonable notice. Where ever possible, Tourism Brokers will meet you at the property, often with the owner to show you rooms and answer technical questions.

Caution: It is almost never appropriate or in your interest to discuss price with the owner during any showing. Always work through the agent when it comes to negotiations and be very certain and clear.

4.  Determining the value of the property to you

Often factors such as the residence, the presentation and state of repair of the property are important as well as the potential to increase / grow the business.

5.  Determining what price to offer

As a rule, first determine what you can afford, what the property is worth to you, and be prepared to pay that amount if necessary. The seller's profit is completely irrelevant to your purchase decision and success with the property.  It will be important to advise any conditions for a potential purchase so all factors can be considered with any offer. Often a written offer has more power than a verbal offer

6.  Verifying the financial data and other property details

The financial information should include a couple of years revenue history and expense history for one year. With the availability of BAS Statements a reasonably accurate assessment of turnover can be made in a short period after reviewing these documents.  Most lenders will require access to all income and expense information for the past three years to gain an indication of how well the property will perform well in the future.

7.  Forms of Offers

Offers are typically made in one of two formats:
  1. Verbally, but this does not have a great deal of power with it;
  2. An “Offer and acceptance” that assists with the documentation subsequently prepared by the solicitors for the transaction. The power of this document to formalise an agreement cannot be understated.

8.  Protection for the Buyer

The buyer usually asks the seller to grant a "Due Diligence Period" of approximately 15 days before the buyer makes the final commitment to buy the property and is established in writing in the offer and acceptance or Contract Agreement of Sale.

9.  The Deposit

The deposit accompanying a Letter of offer of Sale is a show of good faith on the part of the buyer that the buyer is serious about the purchase. The deposit is typically held by Tourism Brokers in the Statutory Trust Account or it can be invested if requested to do so.

10.  Making the most of the Due Diligence period

Verification of the past financial performance of the property Contracts, if any, with key customer groups should be reviewed with the seller.   Study of the current employee situation including current pay scales and length of employment can help you with early decisions about your future staffing.  Obtaining a copy of the current franchise agreement from the seller can provide an important tool for you when negotiating the re-license terms.  Compliance with basic governmental requirements should also be investigated.

11.  Preparing for Settlement

Tourism Brokers are happy to provide a checklist to assist in this area. Between the agreement to purchase and final settlement, there are a number of steps to meet depending upon the financial institution you are using if any and your requirements. Some of the more common are:

  • Valuation of the property
  • Finalising the franchise agreement if applicable
  • Obtaining insurance
  • Surveying the property if not already done so
  • Licenses and permits application transfers
  • Setting up a bank accounts
  • Credit card accounts
  • Corporation documents
  • Taking inventory

12.  Training

It is common for some training to explain the systems, operational requirements and property / business needs as part of the process either prior or after settlement for a period of between 3–7 days, depending upon the experience of the purchaser and their needs that are negotiated at the time of offer to purchase

13.  Settlement day

At settlement the bank makes the loan to you, the purchaser. You then use the loan plus your contribution to buy the property. The seller via your solicitor gives you a deed for the property. The seller via your solicitor then gives you a bill of sale for the furniture, fixtures and equipment and you take over operation of the property.

14.  Adjustments for Stock

Where possible, Tourism Brokers will have a representative at the property to assist with settlement and make the transaction as smooth as possible. If the property is considerable, a professional may be employed for Stock take, but if the property is modest, Tourism Brokers will often assist with the final stocktake to facilitate settlement.