So you want to buy a tourism asset?
Let me ask you a serious question – WHY?
Not to say that you shouldn’t (obviously we’d like you to), but this is a big decision and you’ll need to be very clear on your investment objectives and have a solid business plan.
Tourism Property are here to help.
We’ve worked closely with tourism asset owners for many years and have achieved great results with owners of guesthouses and B&B’s, through to 20 room leasehold motels and 50 to 250 room hotels and resorts.
What are the options?
That will depend largely on your budget and also how involved you’d like to be in the business.
There are various options for buyers of tourism assets with everything from affordable leasehold businesses, right through to substantial passive freehold investments.
Smaller scale tourism assets such as B&B’s, Guesthouses and motels up to 30 rooms are generally “owner-operated”. This is generally a matter of scale – as the achievable revenue will be unlikely to be able to support a permanent management structure. Of course that’s not always the case and there are a number of solutions for passive or semi-passive investment in assets this size.
Leasehold motels
The most frequent tourism asset transactions are leasehold. There are four main reasons for this:
- There are thousands to choose from; and
- Because many first time owners re-sell after finding they are not suited to the industry; and
- Leasehold motels are highly affordable (often much cheaper than buying a family home in capital cities); and
- Reward for effort can be very high
Before you sell the family home and race off to buy a motel – please – get as much advice as you can and make sure it’s right for you.
We’re here to help – our approach with buyers is to genuinely work with you to purchase the right tourism property in the right location. You can register as a buyer here.
Freehold Property
Especially in regional locations, freehold motels are becoming more rare because of the popularity of leasehold motels.
You’ll either find freehold motels are small (under 20 rooms), or large (above 50 rooms). Smaller properties generally don’t have the scale to be “split” (creating a leasehold and landlord situation).
Quite often we’ll see large freehold motels being offered as a freehold (going concern), or offered on a split basis – as a new leasehold with a 30, 35 or even 40 year total lease term and as an investment property to a passive investor. Some freehold motels, particularly those in poor condition, have what we call a “higher and better use” – essentially a re-development opportunity. This depends on local council zoning and development requirements and many other factors.
Tourism Property have a great deal of experience consulting in the tourism development sector. Want to know more? Just ask.
Passive Investment
Generally, hotels above 50 rooms are in a passive investment class. Tourism assets can offer a unique long term investment opportunity, where a passive investor can purchase a freehold property with a long term lease (often 30+ years at commencement).
The leasehold operator takes all the business risk and (generally) covers all property expenses, making this asset class similar to commercial, retail or industrial property investments.
Couple this with rental returns that far outstrip comparable investments and it’s no wonder that freehold investment tourism properties sell quickly.
Substantial hotels are often owned by corporations and property investment funds, who then employ a hotel management company to entirely manage the business under a hotel management agreement, or a hybrid leasehold structure.
Management Letting Rights (MLR)
This is an extremely common business structure in Queensland, yet quite rare in NSW. We’ve just produced an “Explainer” for Management Letting Rights (MLR) – click here to download a copy.
View all Tourism Property listings here.
Return on Investment (ROI)
Returns on investment across the tourism sector are generally very strong, especially when compared to other asset classes.
Factors that affect ROI include:
- Location – there’s an old saying – “coast for show, country for dough”
- Leasehold terms – length of lease, rent ratio (as a percentage of revenue)
- Land value – on freehold titles
- Operational efficiency – is the business maximising revenue and controlling costs?
- Historical performance – growth trend or declining market
Advantages of tourism assets:
Depending on your circumstances and the type of tourism asset you are considering, there are plenty of advantages.
As an owner operator you’ll be able to live where you work, meaning you could have the ultimate home based business. This is certainly attractive to many first time moteliers, who are able to use equity or sale proceeds from their family home.
Many tourism assets provide flexibility for the owners. You might decide to work hard and establish or grow the business and then scale back to a more passive (even offsite) role. There are options to sell, lease or otherwise divest including appointing a professional hotel management company.
As an investor, freehold tourism assets can represent very strong returns and long term security.
Need to know more? Get in touch with us.
Tips for buyers
1. Get financial “pre-approval”
Knowing how much you can spend is often the most important initial factor. All banks and lenders have varying loan-to-value ratios (LVR) for different types of property. We recommend using an accredited finance broker to assess your financial capacity and be ready to buy when the time is right.
2. Be objective when considering a tourism business
Do a simple SWOT Analysis to consider Strengths, Weaknesses, Opportunities and Threats. Look at your SWOT in terms of the existing business and what you can bring to it as new owners. We’re happy to help, just ask.
3. Talk to your accountant or financial advisor.
Consider the best operating structure for your business. Look into options for protecting your personal assets such as trusts or companies.
4. Due diligence
Experienced investors in tourism assets are skilled in properly assessing financial reports and business risk factors. We provide a hosted Data Room for purchasers to collect financial and business documents in a confidential environment.
I hope this provides an overview of some of the options and key factors to be aware of when buying a tourism asset.
You can contact us here.
Please register as a buyer here. You’ll receive a password to be able to download Information Memorandums from the website and we’ll keep in touch with our regular newsletter.
