02 Oct 2023
Words Trudy Crooks Informer 108

Should I Stay or Should I Go?

‘Should I Stay or Should I Go?’ is not only a great headbanger from The Clash I still like to rock out to, it’s a question we’re asked a lot these days from owners and operators who are contemplating a sale. 

So, what do we tell them?

Well, ResortBrokers has always prided itself on levelling with our clients and giving it to them straight. So, here goes: The truth is that deals at the moment aren’t easy.

Banks are really taking their time to stress test buyers, and there’s no denying that interest rates have changed the amount of money a buyer can borrow, particularly owner-operators who are considering buying a home as well as a business. 

On the vendors’ side, what we used to use to ascertain the value of a business or property isn’t the same. Past annual figures were routinely taken as predicting future viability; typically, a year for management rights and between three to five years for other accommodation asset types.

Obviously, we’ve had the major disruption that was Covid followed by the remarkable rebound that saw the majority of accommodation businesses around the country post one of their best years of trade.

Naturally, buyers are concerned about whether those results are sustainable and are looking for consistent, positive trends. Consequently, buyers aren’t just verifying up to last financial year’s results during due diligence, they want to see your most recent figures, which means your last month.

So much for the medicine, here’s the candy.

There’s still a lot of hungry buyers who want to get into the market. Our buyer enquiry has increased by 34 per cent from last year.

No surprise, high yielding businesses are getting the most attention. Leaseholds are back in favour; we’ve recorded a 44 per cent jump in leasehold sales on last financial year. During Covid, the demand for freehold going concerns was at an all-time high. Now, with the housing crisis, as well as buyers looking for good returns and strong cashflow, leaseholds are all the rage. 

Same for management rights, particularly in regional locations that mostly deliver better returns than major metropolitan centres. Central and North Queensland are particularly strong, as well as Melbourne which represents better value than Brisbane at present.

Owners looking to sell are naturally worried that cost of living and interest rates mean they won’t get their dream price. After seeing their businesses through the pandemic, owners are understandably concerned they won’t get the returns for their hard work and perseverance over the last few years.

If you’re thinking of selling, it’s worth contemplating going to market sooner rather than later as no one knows how long the current high level of buyer demand will last. If you’re holding out for a dream price, I’d put three questions to you.

Firstly, do you have the financial means and the emotional and physical energy to get your business to where it needs to be to achieve that price? Secondly, if you can’t get your dream price in the current market, are you prepared to wait for the next cycle, which could be at least 18 to 24 months away, to achieve it? Finally, what else could you be doing if you sold now and were sitting on cash?

ResortBrokers has always held the investment philosophy that money is made in the buying, not the selling. By this we mean the price you pay for an asset, whether it’s a hotel, motel, caravan park or management rights business, is going to be the major deciding factor in the profit you reap when you eventually sell.

Smart investors know that in the wealth creation business it’s not just about what you hold now but what can be achieved in the future. Being cashed up and ready to jump on the next great opportunity is where many astute vendors are now positioning themselves. 

We believe there’s scope in the current market for vendors to seize good sales opportunities in order to set themselves up for their next big buying opportunities down the road. So, should you stay or should you go? No question, we’re in a challenging market. ResortBrokers doesn’t set the market, but we understand the market. Hopefully, these insights will help inform your decision to a question only you can answer. END

Trudy Crooks, Managing Director
0477 882 210
trudy@resortbrokers.com.au