Management

Why Not Lease?

Leasehold motels have been popular for a long time and for very good reasons.

The large contingent of moteliers who own more than one lease and oversee the businesses from afar is growing all the time. The many benefits of owning a motel lease is what keeps moteliers coming back for more.

Each industry has it benefits, however when comparing one to another, consider some of the benefits a motel lease offers.

Financial benefits

  • High return on investment – The returns on investment for motel leases are strong and range anywhere from 27% – 40% depending on certain factors such as location, length of the lease, level of rent, economic strength of the region, standard of the property, strength of the business, etc.
  • Low capital outlay – A motel lease does not require one to buy the land and buildings of the motel. This is the larger value component of a motel and buying the property therefore increases the capital outlay considerably and reduces the risk and return.
  • Financing and low loan requirement – The lower capital outlay means the loan required to buy will be substantially lower. This means lower loan repayments and less sleepless nights for those who are not comfortable borrowing millions of dollars to buy a freehold motel. Banks are historically very comfortable lending for motel acquisitions as they are seen as solid and secure businesses.
  • Taxation benefits – This is dependent on numerous factors such as how the ownership structure is setup. The benefits of living out of the business includes whatever costs one incurs living in their stand alone home such as insurance, electricity, food, beverages, phone costs, rent/loan repayments, motor vehicle costs, etc.
  • Good quality building – If a budget to buy a motel is one million dollars, the opportunity exists to buy a much higher quality motel property under lease than a freehold motel at the same budget.
  • Long lease tenures – On most occasions leases commence as a 25 or 30 year term inclusive of option periods. This is a very long lease tenure offering the lessee long term security to operate the business.
  • Strong cash flow – Upon commencing operating a motel there is an income from day one depending on the level of occupancy. An operator will achieve a certain level of cash flow immediately as most guests pay by credit card.
  • Limited stock on hand – Motels carry very low amounts of stock. Motels with restaurants will carry more stock than those without but generally no more than $15,000, depending on the size of the food and beverage operation.
  • Ready market – When the time comes to sell there is always a competitive market eager to acquire motel leases.

Lifestyle benefits

  • Easily operated under management – Motels are comfortably managed by a couple, so if an owner decides they would like to step back from the business for a while there are many good management couples available who can manage a motel day to day.
  • Onsite residence – Offers a home to live on site for the family allowing more family time together whilst operating a business. Children can also get involved in some ways and start learning from a young age.
  • Downtime during the day – Motels are generally busy until late morning and again between 5pm and 7pm. The time during the middle of the day offers some downtime for the operator.
  • Building customer relationships – For those who enjoy building customer relationships motels can offer a lot of repeat clientele if the guest is looked after. There is a lot of satisfaction gained when a customer keeps coming back regularly because they are happy with the service being provided.

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