Types of Investment
If you haven’t been introduced to motels before you may think that the people on the front desk own the total operation, and this may be the case, especially if it’s a small motel.
Motels are a high value investment but also require to be operated for extended hours 7 days a week.
In larger complexes this means the person with the financial capability probably wouldn’t want to work the hours required.
Then there’s the person who wants to make a living from operating a motel but may not have the capital required to fund such a big asset.
This is where motel leases come into play.
The freehold owner has invested in the land and buildings and he receives a rental income from the business owner.
The business owner receives all of the income from the business and pays the landlord a rental.
In NZ motel leases are usually long fixed term leases which secures the business owner’s investment.
In the above example the landlord’s interest is often referred to as the Freehold-only Investment and the business interest as the Motel Lease.
Smaller motels are often operated as a Freehold Going Concern (FHGC) where the operation is owned and run by the same person.
Investment and Returns
Typical “rule-of-thumb” returns in the industry are listed below, however there are many factors that may greatly influence the value of a particular investment:
Freehold-only Investment 7%
Lease 20% to 25%
Freehold Going Concern 10%
For a fuller discussion on motel investment:
Call Stefan 021 912 730