Motel Investments – “Why so Hard to Find?”
- Posted By Andrew Morgan
Finding a passive investment motel with a lease in place has for many felt like looking for a needle in a haystack, and there's a good reason for this.
Motels under lease have become popular passive investments and are tightly held for many key reasons:-
1. Predictable Income Stream
When a motel is leased to an operator, the property owner (Lessor) receives a fixed rental income, often with annual increases. This creates a stable and predictable cash flow, which is ideal for passive investors. Motel leases typically require the Lessee to pay all outgoings, including council rates, insurance, utilities and repairs & maintenance. Leased motels are rarely vacant. If a Lessee exits, a mortgagee or the property owner typically steps in to maintain operations until a new operator is found. This ensures continuity of income and protects the asset’s value.
2. Minimal Operational Involvement
The Lessee (operator) is responsible for the day-to-day running of the business, including staffing, maintenance, and marketing. This means the investor is not involved in operations, hence the term passive income.
3. Long-Term Security
Leases are typically long-term (often 10–30 years), providing security of tenure and reducing vacancy risk. Many leases also include options for renewal, further extending the investment horizon.
4. Capital Growth Potential
While the lease provides growing income, the underlying real estate may also appreciate over time. Investors benefit from both rental income growth and capital gains.
5. Tax Benefits
Depending on the jurisdiction, there may be depreciation and other tax advantages associated with owning commercial property such as a motel.
6. Industry Insight
Those already in the industry recognised the benefits early on. They had the “inside running” and were able to secure opportunities before they became more widely understood by the broader investment community. These properties are often snapped up by experienced investors or industry insiders before they hit the open market. This creates a perception of scarcity and drives up competition when one does become available.
7. Strong Demand, Limited Supply, High Liquidity
Passive investment motels offer reliable income with minimal effort, making them highly attractive. Once acquired, they're typically held long-term, which reduces turnover in the market. However, when an owner chooses to sell (and the property is priced correctly) there's rarely a shortage of interested buyers.
8. Attractive Yield vs. Risk Profile
Compared to other commercial real estate, motels under lease often offer competitive (or even higher) yields with relatively low management risk, particularly when leased to reputable operators. Motels have proven to be resilient and consistent performers. They're often located in high traffic areas and benefit from strong land value and steady occupancy rates.
9. Solid Building Construction
Most motels are built with durable materials like brick or block with colourbond, tin or tile roof. This construction style requires minimal ongoing maintenance, reducing capital expenditure and enhancing long-term returns.
The Rise of the “Create-Your-Own” Passive Investment Strategy
Humans are nothing if not resourceful. When we can’t find what we're looking for, we adapt. To overcome the challenge of finding a passive investment motel, savvy investors are now creating their own, following a simple, strategic approach:
• Buy a Freehold Going Concern (FGC): This means purchasing a motel where the buyer owns both the property and the business.
• Sell a Lease to an Operator: This transforms the FGC into a passive investment by separating the business from the property.
• Retain the Freehold: The investor becomes the lessor, collecting the rent while the operator runs the business.
This approach enables investors to manufacture their own passive investment, often with greater control over lease terms and lessee selection.
Why Tenanted Motels Sell Quickly
• Pre-qualified Buyers: Many investors are actively monitoring the market and ready to move quickly when opportunities arise.
• Off-Market Deals: A significant number of transactions occur privately (through brokers or investor networks) never making it to public listings.
• Perceived Value: When a tenanted motel does hit the market, it’s often seen as a rare opportunity, prompting swift interest and action.
Early Adoption: Industry Insiders Only
In the early days of motel leasing, the primary investors were former and current operators. They had firsthand knowledge of how motels functioned, understanding occupancy patterns, seasonal trends, operational costs and guest expectations. They also recognised that accommodation is a necessity not a luxury. Business travellers, contractors, tourists and emergency stays all contribute to steady, reliable demand.
Meanwhile, the wider investor market:
• Lacked familiarity with the motel business model.
• Viewed motels as operationally intensive and potentially risky.
• Favoured more traditional commercial assets like retail, office, or industrial properties.
What Changed Over Time?
• Proven Track Record: as leased motels consistently delivered strong returns, more investors began to take notice.
• Professionalisation of the Sector: the rise of specialist motel brokers, management companies and structured leases made the model more accessible and transparent.
• Yield Compression in Other Sectors: as returns declined in other commercial property classes, motels offered more attractive yields for similar (or lower) levels of risk.
• Education and Awareness: industry publications, seminars and word-of-mouth helped demystify motel investments for a broader audience.
• Interest Rate Environment Driving Demand: persistently low interest rates have made traditional savings options less appealing. In response, many investors have shifted toward passive investment motels to achieve higher returns with manageable risk.
The Broadening Appeal of Motel Investments
1. Recognition of Strong Fundamentals
As the high returns and relatively low risk of motel investments became more widely recognised, the consistent demand for accommodation, driven by business, tourism and essential travel, demonstrated the resilience of the asset class.
2. Entry of Corporate and Institutional Investors
Corporate investors began acquiring motels as part of diversified commercial property portfolios. These entities often own multiple motels, leveraging economies of scale in management and maintenance.
3. Growth of Individual Portfolios
Smaller investors who began with one motel often expanded their holdings, building mini portfolios of leased motels. This trend reflects growing confidence in the repeatability and scalability of the investment model.
4. Rise of Self-Managed Super Funds (SMSFs)
SMSFs have become a popular vehicle for acquiring motel freeholds with leases in place. Investors are drawn to the long-term, stable income and the ability to control their retirement assets. Motels offer a tangible, income producing asset that aligns well with the long-term investment horizon of superannuation funds.