Latest News

Resort News Magazine - Issue July 2010

Monday, 12 July 2010 11:49

This is one of those questions where a lot of people think to themselves, well I should know but I'm not really sure. The same goes for any industry and it is one of those difficult to pin down, but very useful tools of measurement or key performance indicators (KPI's). How can a motel operator know how much they can afford to rent a motel unit for and still make a profit?

In the mid nineties the average cost to rent a motel unit overnight (excluding rent, food and beverage purchases, owners wages and extraordinary items) was approximately $22. By the early 2000's that average cost had risen to around $28. Today the cost to rent a motel unit generally ranges from $25 - $38 with an average of $32 - $33. Most motels will come up with different results to each other. The reason why can be due to several factors that will affect this figure, and can be looked under three different headings - physical proprty, method of operation and utilities.

• Size of units - the square metre area that the room occupies. A standard studio unit ill cost less to rent than a 2 bedroom unit. 

• Self Contained - the cost to rent a self contained unit can be substantially higher than a studio unit. 

•  Age of Property - how old the property is may determine how much upkeep is required to the building. What state of repair are the bathrooms in it?. 

• Standard of Property - if the property is in disrepair it will require more upkeep to maintain. What condition is the paintwork?

• Location - sea air may increase corrosion of buildings such as metal staircase hand rails etc. Movement of black soil in inland areas may cause brick cracking. 

• Room fit out - what condition are the fittings in? Are the floor covering carpet or tiles? Are the window coverings curtains or blinds?  

• Restaurant -  use of a restaurant will substantially increase costs, however there is a corresponding income earned. A restaurant blurs the line of the cost to rent a motel unit as some corporate motels may be dependent on a restaurant to attract the type of clientele they require. 

  Method of Operation

• Lease/Freehold - Is the tenure leasehold with a rental to be paid each month, or is it freehold where mortgage repayments are due. Interest rate will rise and fall changing these repayment amounts. Interest payments will be applicable with leasing as well however the level of borrowing will be generally lower.

•  Type of Clientele - the motel's business could be corporate customers or tourist, families, etc

•  Laundry - is the linen cleaned onsite or offsite at a commercial laundry?

• Staff Levels - are staffing levels correct or is the business over or under staff?

• Owner/operator or under management - the cost of management wages will increase the cost to rent a motel unit.

• Consumables - what type of soaps, tissues, shampoos, etc are included within the unit?

• Cleaning - are the cleaning products the most cost effective? How long are the cleaners allocated to clean each room, eg 20 minutes, 30 minutes, or unlimited?

•  Eftpos Fees - the fees charged by some credit card operators are higher than others.

• Member of a Chain - is the motel a member of a chain? The fees paid to a motel chain form part of the cost to rent a motel room.

Utilities

•  Property Rates - coastal motels may include much higher property rates than an inland motel whose land value may not be as high as a beachfront motel.

•  Electricity/ Gas - the costs of electricity have risen substantially in the past 18 months, thereby increasing the cost to rent a room.

•  Telephone - what type of phone system does the motel have? Is it reliable in its charging of customers?

•  Land Tax - Is land tax paid by the owner of the motel?

The costs involved in renting a motel unit are many and varied with other costs incurred that are not listed above. Some are obvious and others less so. Knowing what it costs to rent a motel unit in a particular motel property and keeping the costs as low as possible can help to maximise your profits.

Andrew Morgan

Director/ Motel Broker

Qld Tourism and Hospitality Brokers