In general terms there are three (3) typical types of Motel Business structures, as follows:
- Freehold Going-Concern – A Motel Operator owns the property (land and improvements) and runs the business;
- Freehold (Lessor’s Interest) – An investor owns the property and leases the complex to a Motel Operator who owns/runs the business;
- Leasehold (Lessee’s Interest) – A Motel Operator owns/runs the business and leases the property from an investor.
Motels are a long established and easily recognised business within Australia and vary widely in size, age and style of operation. They all have their place and are dependent upon many factors that affect the accommodation business and its success. Some examples are:
- The location and physical position;
- The broad and local economies;
- The quality of accommodation offered;
- Annual events.
It’s fair to say that the success of a Motel business is location centric, in that it can be on a major highway in a country location, half way between two major cities and it will capture the weary traveler looking for a break in the driving. However; place that same Motel two kilometres off the same highway and both occupancy and tariff will be negatively affected.
In summary, the better performing Motel businesses have a good high exposure and easily accessible location.
Owners and Operators need to be aware of their strengths and weaknesses and utilise these to optimise their particular niche in the marketplace and target clientele accordingly. Constant upgrading is mandatory utilizing the ‘old rule-of-thumb’ being a major refurbishment every seven years.
Now is the time to ask whether your business is performing to the best of its merits or is in a position to take advantage of all opportunities. Areas to investigate include:
- Is enough being set-aside each year for capital expenditure?
- Marketing/advertising budget – is enough being spent and in the right areas?
- Who are your main competitors, and what is your main point of difference?
- Could the occupancy rate being achieved be bettered and, if so, how?
- Are your tariffs competitive?
- In a Leasehold scenario is the rental rate per room considered appropriate?
- What is the rental rate relative to net profit, and is this acceptable?
- Is the net profit per room acceptable in the marketplace?
- How much is the net profit, and how does it relate to income and expenses as a percentage of turnover? How does this compare to industry benchmarks?
- How does all of this tie-in with the term remaining on the lease?
These are examples; there are many others; and experienced owners and operators will be familiar with these questions, but sometimes need advice in seeking the right answers. Australian Valuers can assist with any of your property operation questions, provide consultancy advice, and conduct market valuations as needed including for Pre-sale and Pre-purchase.
Call today for a confidential discussion.