We continually see a large number of motels and holiday unit complexes changing hands throughout Australia. As specialist Resort Brokers, Tourism Brokers continually assess and sell Motel Leases, Motel Freeholds, Motel Investments, Management Rights, Caravan Parks, B&B Facilities and other specialist Tourism Brokers Australia wide opportunities.
Initially starting as as specialist motel business brokers, the business has grown to allow additional service for caravan parks for sale and management rights for sale.
We have seen a slight increase in the number of enquiries especially in our role as NSW Motel Brokers and this has allowed us to better service the Management Rights and Caravan Parks for sale markets.
Motel leases for sale followed by Management Rights for sale are the two most popular segments Certainly well positioned and well priced properties will always sell .
We are currently in a very busy time for buyers and sellers .
As we continue to grow, a number of enquiries are coming from Victoria QLDand throughout New South Wales, with the occasional enquiries from Overseas and other states.
Market Reviews – Leaseholds, Freeholds, Investments, Management Rights, Caravan Parks
Leasehold Motel Market
A large number of enquiries for leasehold motels, preferably Bed and Breakfast (B&B) have been received for price levels from $150,000 to $1.5 Million Leases that had been available with little interest shown in them , are now seeing some movement with a number inspected by potential purchasers.
Freehold Motel Market
This market has continued to strengthen since with a genuine shortage of good stock with strong returns. Price is still a main factor for demand with the demand for smaller freeholds remaining strong, and this has now spread to the larger motel market. There has been excellent activity with many sales being successfully negotiated on freehold motels in the past 6 months by Tourism Brokers. Price ranges from $500,000 to $2.5 Million have been achieved with increasing levels of demand for properties in the higher price brackets.
Investment Motel Market
Continually a shortage, we have sold a number of properties with Net returns less than 10% with some (few) exceeding. Demand keeps growing and growing for motels that are leased. Supply cannot keep up with demand at present, which has been the case for some time. Long leases with 10% - 11% net returns are proving to be most popular with investors. Good tenants, long leases with good net returns are the investment properties much sought after.
Management Rights
Demand has increased for Management Rights, and this is very much a growing segment in the Tourism Market. Lifestyle for operators is proving to be the motivation for many, particularly those new to the industry. Some larger complexes with price ranges over $2 Mil have been moving.
The Management Rights sector in Queensland, like many others has slowed over the last 18 months with properties that are well positioned still being in demand and the more marginal property sales rates are slowing.
Recent sales results indicate a wide variation in the sales price multiplier achieved on different properties. Now more than ever the purchaser is looking for value and potential when choosing their next business. High earning properties are still sort after by institutional investors and the multipliers on these properties is still over 5.5 and some sales in excess of 6 times have been reported.
For mid size properties where all the variables such as size of residence, time left to run on agreements, workload, location etc. are favorable, the multiplier is in the range of 4.5 to 5.
Owners of smaller properties are finding their businesses are on the market for a longer period than may have been the case in the past. Most of these properties are listed at around 5 times so supply and demand tells us that 5 times is now at the high end of expectations.
We are seeing some resistance from buyers to the higher valuations most residences are now attracting. Purchasers are now looking at the total cost of the business and the residence and the resultant lower yield as the residence price increases.
We would predict that whilst ever interest rates remain firm, demand will continue to be strong for well positioned properties for some time in the medium to long term future.
Caravan Parks
The season for most Caravan Park owners is well underway . As parks combat the continuing hike in fuel prices, that appears to be with us for some time in the future, we are seeing a number install ensuite cabin style accommodation and enhanced services.
As the number of Coastal Motel diminish for redevelopment and management Rights increase, we are seeing a strengthening of some parks as they are re-vitalised with new amenities blocks, upgraded cabins and better facilities.
Enquiry levels and sales of Caravan Parks over the last 12 months has been extremely buoyant. Most buyers have been from New South Wales, Victoria, Tasmania, New Zealand etc and have been chasing a lifestyle change, are generally over 50 years of age. We are seeing a lot of first time operators enter the market.
In addition to the starter market, the Corporate purchasers are also looking as we have been working very closely with a few major Groups that are looking to buy a number of Caravan Parks. The most common request has been for parks located on or near the coast and showing reasonable returns under management.
Yields have been strong for the larger parks over the last 12 months with a number selling in the 13% -14% net return range. The simple fact is there are many more Buyers wanting to buy than there are Sellers wanting to sell at the moment.
Often when we sell businesses, we as agents or preferably through Accountants are required to quantify a number of “Add Backs” for a property to bring the accounts back to a format that can be qualified and measured against comparable property.
Most people in business minimise through their accountants the operational profits of a business and optimise the costs of operating the business to have amend result of minimal taxation.
Addbacks take a property back the true profit / loss position of the business, with personal costs such as borrowings interest, depreciation, financing costs etc that are not related to the business removed.
Once we have a confidentiality agreement in place, we are happy to provide the financial details and addbacks schedule for any property that we may have available for the market unless particular circumstances prevail.
Victoria:Duties Act(Stamps) Rates Tax Rate information according to the Duties Act 2000 The Victorian stamp duty legislation has been re-written and the new Duties Act 2000 came into the effect on 1 july 2001
1. Transfer of Real Property rates
Dutiable value range
Rate
$0 - $20,000
1.4 per cent of the dutiable value of the property
$20,001 - $115,000
$280 plus 2.4 per cent of the dutiable value in excess of $20,000
$115,001 - $870,000
$2,560 plus 6 per cent of the dutiable value in excess of $115,000
More than $870,000
5.5 per cent of the dutiable value
Transfer of land use entitlement after 16 June 2004, see above rates.
A motel lease is seen as an excellent option for new operators to get into the motel industry or for established operators to concentrate on what they do best, promoting, managing and optimising a business. For a number of reasons, some of which include high returns, saleability, low capital outlay and secure tenure some prefer leasehold properties rather than freeholds. Through leases, operators who may not be able to afford a freehold, but can manage a property extremely well, are able to secure and manage a number of properties, spreading market profile. This allows a specialist to lease the business with a high return and for the freehold of the property to be owned and retained by a static investor who may not necessarily wish to operate a business but has confidence in the property and or the Industry.
A large number of motel buyers are now looking at motels for sale on a lease basis, not as a stepping stone to get into a freehold, but as an opportunity to make high profits and returns, over a shorter period of time.
As professional Motel Brokers, we are growing the market for motel leases with demand growing, from first time motel operators looking to get into the industry, to experienced operators who have owned and operated both freehold motels and leasehold motels in the past.
Motel sales continue to rise as more and more people discover the benefits that a motel lease can offer. Leases were historically thought of as, not as secure as freeholds, which is correct from a bricks and mortar point of view, however motel leases today are seen by many as having just as good tenure as freehold. Even some of the major banks treat a long term lease as being as good as freehold tenure, and then finance motel leases accordingly.
For more details on motel leases contact any of the Tourism Brokers Team.
If this is your first motel purchase or if you have not purchased a motel in a long time, 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 with information on who to use, where to go and what information you may require. Through “Working Together”. We offer a comprehensive service to all involved in the Tourism / Hospitality and Real Estate Industry
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.
a. 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.
b. 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.
c. Put yourself in the motel customer's shoes and judge the property from that perspective.
d. Check out the competition by looking at other motels in area.
e. 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.
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
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.
a. Verbally, but this does not have a great deal of power with it
b. 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 can not be understated.
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.
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.
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 a important tool for you when negotiating the re-license terms. Compliance with basic governmental requirements should also be investigated.
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:
a. Valuation of the property. b. Finalising the franchise agreement if applicable. c. Obtaining insurance. d. Surveying the property if not already done so. e. Licenses and permits application transfers. f. Setting up a bank accounts. g. Credit card accounts. h. Corporation documents. i. Taking inventory.
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.
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.
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.
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 and larger 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 a 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.
1. All information relating to the property
and/or business conducted therein, whether given orally and/or
in documents, including plans, agreements, income and expenses
projected or actual, profit and loss, occupancy rates and the
like is provided by the vendor. All intending purchasers are
to make their own inquiries and assessments as to the accuracy
or otherwise of the information supplied by the vendor.
2. It must be noted that Tourism Brokers Pty Ltd and its servants
and agents have made no enquiries as to the accuracy of the
information supplied by the vendor. No liability for the information
will be accepted by Tourism Brokers Pty Ltd.
Disclaimer:
Purchasing a business can involve risk where there is a chance
that the amount invested could be lost. Always consult a professional
for advice before embarking on a business purchase. Tourism
Brokers Pty Ltd is retained as the vendor’s agent.
The information we provide in good faith has been furnished
to us by the Vendors in the majority of instances. We have not
verified whether or not the information is accurate and do not
have any belief one way of the other in its accuracy. We do
not accept any responsibility to any person for its accuracy
and do no more than pass it on. All interested parties should
make their own inquiries in order to determine whether or not
this information is in fact accurate.
