09 Oct 2013
Words Tim Admin

Best is West!

At Resort Brokers, one of the most common strap lines we hear from our more ‘country based’ motel brokers is “coast for show, inland for dough”. The saying has been around for so long that nobody can deny it must have some validity. It doesn’t take a genius to work out what message this catchy little line is trying to get across. If you are looking at buying an accommodation business, and are keen to maximise the return on your investment and your cash-flow, it’s worth considering some locations away from Australia’s world famous coastlines. The numbers speak for themselves. Whether you’re looking to a purchase a passive freehold investment, a freehold going concern business or a leasehold, the industry standard returns on investment will be far superior in more remote country based towns. For example, whereas you would typically expect to see a 28% - 30% return on a motel lease in a major city or coastal town, if you travelled a few hours west and beyond, you will find opportunities with returns in the 40% - 50% range (and better). With freehold investments, the returns will jump from 9% - 10% up to 12% - 14%, and with going concerns, the returns will jump from 14% - 16% up to 18% - 22%. Now, some people would argue that opting for a country town as opposed to a more populated hub will have a detrimental effect on your lifestyle. Resort Brokers very own country town specialist, Lindsay Cooper, has a different attitude. “When you buy a motel, you’re working the business day-to-day. Sure, you get some down-time and it’s very rewarding, but essentially it’s a 7-day a week job. If you’re going to spend the vast majority of your time in the motel, you may as well choose one where you can make the most money you possibly can”. Company MD Ian Crooks elaborates on this further. “Time-off when you’re running a motel isn’t taking a couple days over the weekend. Time-off when you’re running a motel means taking a well-earned 1 – 2 week break every 3 months”. He points out that managers running more remote motels are usually so far better off in financial terms that they can really make the most of their holiday. “The income compared to debt servicing is so much more favourable that they often don’t know how to spend all their cash”. He explains that they can afford to fly all around the family to catch up with family, and can often take several overseas holidays each. Remember, it’s not just about having enough money to get away; it’s about having enough money to pay for relief staff. Ian goes on to explain how the ability to take regular, relaxing, rejuvenating holidays is one of the most important factors in successful motel management. “You become so involved in your business that if you don’t get away, it’s very easy to burn yourself out”. So in reality, opting for a motel in a more remote area and subsequently having more disposable income can actually be a benefit to your lifestyle. Ian also adds that the social aspect of living in country towns can have a really positive impact on quality of life. “No disrespect to city people (after all, I am one), but you meet incredibly genuine, honest and reliable people out in the country. Smaller communities bread closer relationships. If you spend a few years in a country town I guarantee you’ll make friends for life. They’re also great, safe places to bring up children”. So, before you dismiss an offering simply because you haven’t heard of the location, take a bit longer to look at the return. You might just find you end up earning an income you never dreamed possible. One stand out example is The Quilpie Motor Inn, listed by Lindsay Cooper. With a net profit of $342,000, you’ll pick up the lease for $450,000. That’s a 77% return. Just think, with a 50% lend ratio you could pay off your entire debt in 1 year and still pay yourself a good salary in the meantime. Other stand out opportunities in this month’s Informer include the Augathella Palms, showing over 60% return on the leasehold and over 30% on the going concern, and the Summit Backpackers, showing whopping 225 return on the freehold investment. That’s a pretty good return for doing nothing. Keep your eye out on our website; there are some absolute gems if you look a bot further afield.