Kapitol Brokers

Motels

Kapitol Brokers

Whether to buy a Leasehold Motel Business or a Freehold Motel Business.

Your decision will be influenced on the information given to you. The most important factor is to have that information verified. If the financial figures show a poor yield being below the industry averages it is obvious that the asking price is too high. This area should be referred to an experienced financial advisor to asist you in analysing the potential of the business.

Finance or borrowing structure is important adn is geared with the returns. To successfully finance any motel we believe you must not borrow beyond 60% of the purchase price, even though some lender will loan upto 75%. The Motel must be able to pay off a 10 year loan period.

When buying a Freehold motel you are buying a registered title and business. Buying a Leasehold is buying a Lease being the business usually prepared by the Lessors Solicitor. This document is open to interpretaition and you require an experienced Solicitor to make sure the conditions of the lease are in keeping with the business being sold.

The main points ot look for are term of lease, option to purchase, annual rent increases to CPI adn reviews subject to market every 5 years. If there are no reviews to market, say every 5 years adn the lease is subject to CPI the rental could grow out of proportion to the net profit. In some country towns the motel income connot meet the CPI growth and every 5 years this is adjusted to the factor. If trading drops due to bad management no concession can ever be allowed for that.

Why buy Leasehold? For the high return on money invested. You can earn in excess of 30% net return for your efforts. Some coastal motels have sold for a lot less than this on a lifestyle dream. We understand a 22% net should be the minimum for a well maintained coastal motel.

You puchase a lease for any number of years, usually the full term of an original lease is 25 years. The leases are usually drafted in 5x5 year terms to reduce the impact of Stamp Duty.

By purchasing a lease, in most cases you injerit every cost as if you owned the freehold. The only thing you dont pay for is the structural repairs or maintenance of the building and site.