There’s no business like motel business: four ways to profit

If you’re looking to enter the tourism business, purchasing a motel is an excellent place to start. Running a motel conveys plenty of lifestyle and working benefits. With the option to determine your own hours, family-friendly onsite accommodation, and the bonus of socialising with people from around the world, running a motel is difficult to beat.

Before you dive straight in and purchase a motel, it’s worth understanding the options available. From freeholds and leaseholds through to freehold going concern and investment motels, understanding the benefits of each option allows you to make a decision that’s right for your business plans.

Investing in a leasehold motel

When you choose a leasehold motel, you’re essentially renting the building and owning the business. Depending on the motel’s location and purchase price, you can make a very healthy profit; after rent. Typically you’d expect to make an initial investment starting from about $300,000, but this amount can vary according to location and size of the business too.

If you choose a leasehold, great! You’re going to make a tidy profit but there are a few things to consider as you craft out your business plan. First, what is the annual rent and how can you maximise your profits despite it? Next, what are your lease terms? Are you restricted in any way and do you need to meet certain obligations?

One of the biggest benefits to choosing a leasehold is that, if you find out that the motel business isn’t for you, you may have an easier time backing out. However, this is entirely dependent on your agreed leasehold period. As a non-business-related benefit, some find that a leasehold proves more cost-effective than buying a family home in a large city.

Opting for a freehold investment motel

When you invest in a motel freehold, you’re buying the land that the property is on but not the business itself. Thanks to the flexibility and profit margins leaseholds confer, they’re more popular than freeholds. Your income is, therefore, purely the rent being paid to you by your tenant.

With motel freeholds starting at $650,000 and profits coming in at around an 8 – 10% return, it’s certainly a financially-sound business model. Before taking the plunge, you should consider the size of the land, room for expansion, and the value of the motel. Consider whether you’ll need to invest in any refurbishments. As the owner, some costs fall on you.

Choosing a freehold going concern motel

If you would like the best of both worlds, a freehold going concern motel is ideal. With a freehold going concern motel, you own both the land and the business. The key benefits include investing in land which is also your home while enjoying a profit from the business that rests on it.

While a freehold going concern is potentially one of the pricier Motel businesses to invest in, it could also convey the greatest benefits.

How the business is run is up to you. You neither work under a lease agreement nor negotiate how the property is modified with a leaseholder. Additionally, any profit the business makes goes to you, as well as the money that comes with selling it. Should you choose to sell a freehold going concern, you could secure an attractive lump sum that’s available to invest elsewhere.

Investing in a motel through a syndicate partnership

Motels turn excellent profits, which is why banks are happy to finance them. If you want your share of the pie, entering into an investment agreement under a syndicate partnership generates income, without ongoing input, as you’ll be employing a working manager.

Just like when you invest in shares, you become a silent partner. The income is passive and based on your share of the ownership structure. Syndicate partnerships offer a broad range of profit potential, what’s of most importance is the significant value that can be derived from an investment where you have zero management responsibilities.

Location, location, location

If you decide that buying or investing in a motel is right for you, the last factor you should consider is the location. While coastal destinations will attract the tourist flock, inland motels still have great potential for generating big returns.

Whichever option you choose, the team here at Accommodation Business Brokers can help. With an impressive motel portfolio throughout Australia, we have investment options to suit all requirements.

To discuss your motel investment desires, or to advertise with us, get in touch.

Chris Rowe & team

With a strong appreciation of what constitutes a successful accommodation business sale, I’m able to recommend a sale price for your business; whether its a hotel, motel, resort, backpackers, caravan park, or management rights , at optimal market value. During my time as a broker, I have sold in excess of 100 properties around New South Wales, Victoria, Queensland and the Northern Territory. On average, I can take a property from ‘Listed’ to ‘Sold’ within 30 days.

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