Tips for Purchasing a Motel, Caravan Park or Management Rights

Buying a motel for most people is a major decision in life, often facilitating a change of careers for Management Rights, Motels and Caravan Parks.  People purchase motels for many different reasons which may be profit driven, lifestyle driven, potential driven, or a combination of all three.

Some people starting out in the industry will buy a motel, operate it for a few years, then sell, often upgrading to a bigger operation, often with a restaurant or one with a higher turnover and profit, as they obtain the skills required. There are many people within the motel industry who have owned and operated a number of different motels over the years who say they should have done it earlier.  These people have made very good money in the motel industry and enjoy a good working lifestyle.  Some of the benefits of owning and operating a motel include:

 

High Returns on specific to Motels - for the capital invested in a motel a high return is attainable.  Often a leasehold business will sell showing a return from 23% for prime locations to 30%+ for Country locations, depending on the lease term etc.

Lifestyle - motels offer a good working lifestyle for the operators, with the whole family able to live on site, and the meeting of new and interesting people each day.

Residence & Living - motels offer an onsite residence for the owners which reduces living costs substantially, including food, electricity, council rates, insurance, telephone, travel costs, etc.

Market - there is a ready market when you wish to sell as there is always a market for people wishing to buy motels as they are cash flow businesses and are sold on returns.

Stock - there is a small stock component within a motel, whereas in other businesses a large amount of stock is required to be carried at all times.

Cash Flow - The first day of taking over a motel there is a good cash flow.  Most guests today pay by credit card or Eftpos, and in most motels guests on account are limited to medium to large companies only, to minimise risks and provide service.

Capital Gains - There is an opportunity to increase the value of the motel and make a capital gain upon sale through increasing the turnover (The business) and through doing so the net return.  The trend of motel values over the past 10 years has been steady and consistent.

Finance -  Banks and Financial Institutions are 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 on motels.

 

Finding the most suitable motel for your needs involves considering the above benefits and which ones dictate what you are looking for.  Often the expression is the City is for show and the country is for dollars ($).  Ask yourself the following:

  1. What level of return are we looking for?

  2. What locality do we want to own a motel in?

  3. Is a Leasehold Motel or Freehold Motel most suitable?

  4. How much finance will we require?

  5. Do we want potential that we can build upon?

  6. Are we prepared to buy a lease and with the increased returns buy property at other locations like along the coast, where you may retire to and or holiday/visit etc

  7. How about a "renovators special", where you can add some labour and physical improvements and benefit the business and the capital return.

Victoria:  Duties Act (Stamps) Rates