Buying a Motel or Caravan Park

Overview

The first steps revolve around researching the industry to get a feel for what is required. Operating a Motel or Caravan Park is not rocket science but you need to be aware of its operations, warts and all. You need a healthy work ethic, and effective operational systems based on cleanliness and friendliness.

Set your criteria for what you are looking for but don’t expect to get everything. If you get 80% of what you’re looking for you will be doing very well. Too much research can be counter-productive. We call it paralysis by analysis. To a large degree you should go with your gut feeling. In the Motel/Caravan Park industry we regularly talk about industry averages and expected ratios. Use these as a basis for your analysis but don’t rely 100% on them. There are always good opportunities that lie outside the general industry averages.

The motel industry has 24/7 commitment but if you put the right operational systems in place you can organise reasonable time away from the business. There is quite a deal of downtime in operating a motel or caravan park. The accommodation industry can be a very profitable one for you as an operator and one of the greatest advantages is that you can add significant value within a short time.

Buying a motel or caravan park need not be complicated, but the pitfalls are many if you’re not properly advised. Using an inexperienced advisor will often result in nothing but a waste of time and money and even more seriously an avoidable bad investment. It is vital that you engage industry specialists and get the right advice.

It’s most important that you determine your buying capacity very early. Banks these days are very restrictive in their lending policies and you need to speak to an industry specialist. Your borrowing capacity when purchasing a Motel or Caravan Park is very different to purchasing residential property. In addition to the equity you personally have to invest, financiers will take into account your experience and the serviceability of your debt. A discussion with a specialist accommodation industry finance broker is highly recommended. Getting an early indication of your buying capacity and an idea of your projected purchasing costs will set you up in the right direction.

Banks will typically loan 50% of the value of an operational business. They will generally use the following criteria to assess your financial position:

• your current financial position with regard to assets and liabilities,
  
• the amount of cash you have to contribute to the purchase,
  
• the level of equity you have in other Investments,
  
• any previous experience within the industry
  
• and the financial wellbeing of the property you were looking at. In general, they will require three years of accountant financials from the property they are assessing. Owners can be very protective and private regarding their finances, and you will be required to sign a confidentiality agreement before receiving business financials. They will generally expect that you will be prequalified with your own finances before they issue theirs.

First Buyers Information Booklet