- Posted By Andrew Morgan
Why do people keep coming back to motels? Those who have been there before very often return after some time away. There are many reasons for this and the benefits that motel ownership offer are what keep people coming back to the industry. More than ever, current and former motel owners are active within the motel industry today searching for their next challenge or to add to their portfolio. This is nothing new, however different economic and worldwide events bring those who know the industry back for more.
Every business or industry has its pros and cons so let’s consider some of the benefits a motel can offer.
1. Lifestyle – working on your own terms and reporting to no one. The buck stops with the business owner, who makes the decision on what directions the business takes. Making the decisions on the operation of the business to determine its success. You are responsible for how well your business performs. Working in the air-conditioned office when needed and then outside in the sun as required. The mix of both makes for an interesting day as opposed to sitting in an office all day or working hard on the tools. Flexibility is available if desired. Some prefer to be able to get away, others chose not to.
2. Building Customer Relationships – for those who enjoy their work and like to build customer relationships, motels can offer a lot of repeat clientele if the guest is looked after. There can be a lot of satisfaction gained when a customer keeps coming back regularly because they are happy with the service being provided. It is confirmation of a job well done.
3. Return on Investment – the high return on investment available with a motel is there. Factors such as location, economic strength of the region, standard of the property, strength of the business, profitability, clientele, etc, all play a part. The high return achievable allows for additional loan repayments to pay down debt and assists in the initial acquisition process with high loan serviceability being favourable in the eyes of lending institutions.
4. Market Activity – there are always good buying opportunities available. Looking past the exterior façade and drilling down on the business’ operation and current and future opportunities that are available to take the business forward. No business is ever operated at capacity. New owners always see things differently to the incumbent and make those moves to change or better the business.
5. Capital Outlay – consider buying a 4 bedroom 2 bathroom house for $800,000. Then consider buying a motel with 20 units, a residence, a Net Profit of $240,000 per annum and a large percentage of one’s living costs being tax deductible for $1.6m. When compared to other property options motels offer substantial value for money. On top of a high return on investment, they also include a home/residence and the land generally sits on a prominent site with a large traffic volume past the front door. Any downside risk of the investment is generally low as it is underpinned by a strong land and building component. Therefore there is not a lot of “fresh air” in the purchase price, it is predominantly tangible assets one is buying.
6. Financing – financial institutions are historically very comfortable lending for motel acquisitions as they are well regarded as solid and secure businesses. A low 35% deposit is required with the balance of the purchase price (excluding legal fees and stamp duty) able to be financed.
7. Taxation – this is dependent on numerous factors such as how the ownership structure is setup. The tax benefits of living out of the business includes a large amount of the cost one incurs living in their stand-alone home such as insurance, electricity, food, beverages, phone/internet costs, rent/loan repayments, motor vehicle costs, property rates, etc.
8. Cash Flow – upon commencing operating a motel there is a strong cash flow immediately, depending on the level of occupancy. The business will achieve a solid level of cash flow the first day as many guests pay up front by credit card.
9. Stock on Hand – motels carry very low amounts of stock. Those with restaurants will carry more, however the stock levels are generally no more than $10,000 - $15,000, depending on the size of the food and beverage operation.
10. Ready Market – when the time comes to sell there is a competitive market eager to acquire good quality motel businesses and properties. The market may have its highs and lows but over the last 25 years, this has always been the case.
11. Under Management – motels are comfortably managed by a couple or often one person, so if an owner/operator decides they would like to step back from the business short term or more permanently, there are good managers available who can run a motel’s day to day operations.
12. Onsite Residence – includes a home to live in on site allowing more family time together whilst operating a business. Children can also get involved in various roles and start learning a wide range of jobs around the business and property from a young age.