01 Feb 2012
Words
Tim Admin
News from Shane Mullins and Chris Rowe - North Queensland Agents
During 2011, Resort Brokers agents Shane Mullins and Chris Rowe have become known as a bit of a dynamic duo in the North Queensland region. Both have many years experience in the accommodation industry through management, ownership and sales. In the last 6 months Chris and Shane have joined forces to form an experienced base of knowledge in the region. They work actively in motel, management rights, caravan park and hotel sales throughout the region.
Chris is based in Townsville and operates south to Mackay, west to Mt ISA, and also into the NT. His move to Resort Brokers has been met with a great degree of success, achieving 9 sales to date. He suggests the Townsville economy ‘has clicked into third gear, resulting in solid occupancies in all sectors, with plenty of opportunity still to come.’ Chris also suggested his success comes from ‘patience, pricing and marketing the right properties.’
Shane is based in Cairns and has been active for Resort Brokers for just over three years. He covers north to the cape, west to the gulf, and south to Ingham, taking in Cairns, Port Douglas, Cairns Beaches and the Tablelands. The FNQ economy has certainly thrown down a challenge for property sales over the last couple of years, particularly in certain pockets, but business continues as usual. Fresh transactions continue and activity remains strong in all markets. Shane speaks of ‘new and improved ways to market, list and provide different options to purchasers'. The challenge is to keep calling and manage relationships with positive focus.
Shane has sold 6 properties in the last few months, in locations ranging from Cape York down to Rockhampton. Shane suggests, 'although the market is quite flat in certain areas, there is always a deal to be done.'
Resort Brokers is a national company, so using its extensive database provides a unique sounding board for any property listing. The company structure is designed to encourage all consultants to actively work together and network clients. Indeed, nearly 40% of company sales this year have been made on a shared basis between inter-branch and inter-state agents. Chris and Shane have shared three deals in the last few months, matching and sharing purchasers with various listings.
We have received a number of comments on recent articles in our newsletters and Resort News regarding the meaning of return on investment and how it applies to buying and selling a business. Return on investment is the most important measuring stick when it comes to determining the price of a business.
Purchasers of motels look for certain ROI percentages, depending on whether the leasehold or freehold is being. For instance, a motel lease in Townsville, will be marketed and sold for a return between 30-35%. Investors buying a passive investment (investment freehold) will pay a 9-11% ROI.
Traditionally, management rights are priced using a multiplier applied to the net profit of the business. Although this indicates a ROI, it does not take into account the price of the associated manager’s unit. In this difficult economic climate, management rights purchasers are increasingly looking to take the price of unit into account and examine the return on totalinvestment. In management rights properties where the managers unit constitutes a large proportion of the total price, this can create difficulties. To be competitive and achieve real enquiry, business multipliers must often be reduced in order to improve the overall ROI.
Recently we received an interesting report compiled by one of the major management rights valuers. It laid out guidelines for management rights valuations. The exert below highlights our point.
‘Valuers in the past relied on multipliers and the net. However a small error in the adopted multiplier can have a detrimental effect on the accuracy of the valuation. Valuers are now utilising ROI in conjunction with Net Operating Profit, Net Operating profit per lot and an overall return on investment as standard in any valuation report.
In the heated real estate market of several years ago, it was common to list your property between 10 and 15% over the expected sale price. This permitted room for your broker to negotiate with the buyer. If you adopt this approach today, you'd be lucky to get any inspections, let alone any offers. From recent experience, listings that were priced at or under market value received offers - sometimes multiple offers. Those that did not still sit on the market unsold, rapidly becoming stale.
Vendors often find it hard believe that over-pricing a property will exclude them from interest. Why won't buyers just make an offer if they think a listing is priced too high?
The answer is two-fold. First of all, if a listing is priced too highly in a market where well priced listings are selling, this may indicate that the seller has unrealistic expectations. Making an offer involves a big emotional commitment and it takes considerable time. Most buyers don't want to waste their time making offers on an over-priced property, particularly when there are other listings to choose from. Secondly, even though buyers might prefer to buy without competition, the fact that a listing is popular is a stamp of approval. A property that is in high-demand is one that is likely to have good re-sale value.
Another risk of over-pricing is that you could end up in a downward price spiral. Here's how this can happen. You bring your property to the market listed at a price that you're sure is right. After all, your business is better in your estimation than anything else on the market. Your broker cautions against this, but you're intent on getting your price. After a month or two, you aren't even getting a nibble from an interested buyer. Even so, other listings similar to yours are coming on the market and selling. In reality, agents are probably using your over-priced listing to help them sell the well-priced listings that come on the market. The longer your business stays on the market unsold, the bigger the risk that it will develop a negative stigma. It becomes stale, the white elephant on the market. Buyers wonder if there's something wrong with the property. In most cases, the only thing wrong is the price. So, you reluctantly agree to lower the price. Your efforts could be fruitless if you reduce too little, too late. Meanwhile, more well-priced listings come on the market and sell. In a softening market, as it is in many areas around the country, you might have to make further price reductions. Buyers tend to gravitate to the newer listings, not the ones that have been on the market for months. You'll then have to offer a cut-rate price to be competitive. Some food for thought.
Faced with a challenging world market place, there are certain aspects pertaining to your business that can affect the overall success of selling your property. Of course, there are various external parameters. However, we find if you concentrate on your own business, there are often areas you can help yourself to sell.
Chris and Shane are excited by the year ahead. They wish all of their customers, purchasers and work colleagues all the best for 2012!
