What you need to consider before buying a motel

[Martyn Weber]

Taking over the lease of a motel not only gives you work and an income but also gives you a place to call home and can be very rewarding. To start off in the hospitality industry on the right track, make sure you do your homework before you commit.

Most businesses have a number of different factors that need to work together in order to make it successful. Motels are no different and so you need to take into account a whole range of features while looking at potential motel businesses.

Things to look at when shortlisting a motel

The physical features

This includes everything from the location of the building to the maintenance of the fixtures installed in it.

Layout and structure

The first thing you consider is the motel’s location and street appeal. Study both objectively and see if you would consider staying there if you were in town. The way it looks on the outside could be the deciding factor whether a guest wants to stay or not. Also, check if it is conveniently located and easily accessible. If the answer is yes, you can move on to looking at other features.

The motel’s reception is where guests spend time completing formalities and this is also important. Ideally, the reception area should offer you a view of the rest of the motel so the person in charge can monitor daily activities easily. This also makes it convenient to walk guests through the amenities that the motel has to offer.

Your quarters

Don’t forget that you will also be living there, so look at your quarters. Does it suit your needs? Will you be happy living there? Approach this as you would when you’re looking to buy a home for yourself.

 

The Grounds

Then move on to the grounds, check if there is enough room for parking – both for your guests and for the motel’s courtesy cars/vans. The area should be large enough to suit your needs without making things inconvenient for your guests.

The Guest Rooms

Consider the number of rooms there are for guests and take a physical tour of the rooms so you can look at them closely. Factor in the age, maintenance and the quality of the fixtures (sometimes called chattels) installed in each room. These are considered to be part of the building and contribute in a big way to the final price. So, if there has been any lapse in maintenance, this will have to be taken into account.

The finances

This is a key aspect so you will have to investigate it patiently and carefully. For the assessment, you will need the business’s annual accounts. Make sure what you receive is the same as the ones they have filed with the IRD for the last two or three years. Get the details of their GST returns for the last year and the motel’s lease. Ask for the rent review period as well. In addition to this, you should get an independent valuation of the structure and the grounds. Even if this costs a little extra, you can be sure of the information you receive.

All these details will give you a good idea on the financial position of the business and will tell you how it is being run. However, some expenditures are not restricted to the business and may just be discretionary or personal.

Business Insurance: Business Insurance is an important safety net that you must have. Check to see the insurance coverage for the motel..

Advertising and legal: Look at whether there are any private interests or sponsorship's that you should be aware of.

Electricity, phones, internet and subscriptions: Are these business or personal? Generally, phones, internet and electricity include personal use.

Repairs and maintenance: Maintenance is a huge factor especially for motels. Note if there are recurring charges of repairs for specific parts of the structure/appliances/chattels.

The Lease

It is a good idea to ask for the lease of the motel you are looking into beforehand. This way, you can read it carefully and understand all that it entails. This puts you in a much better position to make an informed decision.

Register it against the property’s title. Motel leases are long term, and this is why they can be used as security for finances. Registering it against the property’s title will help the motelier taking over get any finances that he or she may need.

It is best to have any liability with regard to maintenance issues sorted out in writing with both the previous motelier and the landlord. You could make a list of areas that will need work done like the weather resistance of the structure, fencing, hot water supply, driveways, plumbing, wiring, painting, telephone systems and anything else that you think is relevant.

Don’t forget to check how many years are left on the lease. Most motel leases are for 30-35 years and the remaining number of years may influence its sale potential which would in turn, affect the value of the business in terms of its right to trade. Having the lease extended is common and will depend on the landlord.

Taking on a motel can be extremely rewarding and enjoyable, but it’s important not to rush things. Walk into it with your eyes wide open, take advice from people who are experienced in the field and make a well-informed decision. It always helps to do adequate research on the business before you sign on the dotted line.