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16/11/2009 -
Changing with the times |
We often see many people buy a motel and immediately rush out and make substantial and expensive changes to the property, in accord with their plans at the time of purchase. This may well be the appropriate move where the motel is badly in need of improvement. However, if buyers have purchased a motel to simply operate and don't expect to build it more, it may well pay to view closely any proposed changes.
Often these changes work and the purchasers are able to improve the property, increase the turnover and thus the profits. A handsome capital gain can be the result.
However, not everyone achieves success. They have made a large financial commitment and have worked very hard but the rewards are not commensurate with the input into the property.
A motelier friend of mine made, what I regard as a most profound comment, the other day. He maintained that it was a good idea to operate the motel for 3 to 6 months, after taking possession, before effecting any changes. His reasoning was to gain a clearer picture of what the customers want most of all, and to establish priorities when making improvements and to also smooth the transition to the new ownership. A further important matter was to allow some time, to be able to, assess the strength of the market.
Bear in mind that improvements can be expensive and an increase in tariffs may be needed to cover the costs. Certainly an improved property, will in the main, support increased tariffs.
This increase in tariffs could be critical for those motels that cater to a market that is very price sensitive. As an example, some motels have a strong bias, in their customer base, towards bus tour groups that provide travel and entertainment for pensioner groups and retirees. Most of these bus tour operators are looking to provide budget accommodation for their customers.
A small rise in tariffs may lead to a large fall off in the amount of custom. To lose even one tour operator could be important as that operator could have been filling the motel on many days per year. It may be worthwhile to discuss, with the tour operators, any proposed changes and any proposed increases in tariffs, to ensure that the increases still keep the motel affordable.
Remember that the tour operator has customers that they have to keep happy also.
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