Mike Phipps Finance
ABOUT MIKE PHIPPS     
MIKE PHIPPS INDUSTRY PROFILE     
OUR SERVICE     
MANAGEMENT RIGHTS     
OFF THE PLAN     
HOW RIGHTS ARE VALUED     
KNOW THE JARGON     
THE PURCHASE PROCESS     
HOW MUCH CAN I BORROW     
LICENSING AND COMPLIANCE     
MOTELS AND CARAVAN PARKS     
INDUSTRY PARTNERS     
HANDY LINKS     
OPINION AND EDITORIAL     
PRIVACY POLICY     
DISCLAIMER     
DISPUTE RESOLUTION     
CONTACT US     
Preferred Suppliers Accommodation Industry ARAMA Queensland Member MFAA - Mortgage and Finance  Association of Australia Member Financial Services Institute of Australia
Motel and Caravan Parks  




Motel and Caravan Parks

The purchase of an interest in a motel can either be by way of freehold or leasehold acquisition. As the term suggests,
a freehold purchase is the acquisition of the physical motel property. The purchaser can either be intending to manage
the motel as owner operator or to act as an investor. In the latter case the motel would be operated by a lessee who
would pay rent to the freehold owner. The more common motel transaction involves the purchase of the leasehold
business. In this case the freehold title to the motel is owned by an investor who has sold (or is selling) the lease. The
incoming lessee purchases the leasehold interest either from the outgoing lessee or the freehold owner. In essence the
purchaser (lessee) is buying a business (the leasehold) from the current business owner (either the existing lessee or
the landlord, also known as the freehold owner or lessor). As well as purchasing the business (including any equipment,
chattels and stock) the lessee pays a monthly rental to the landlord (lessor).

The purchase of a motel lease should be approached with the assistance of industry professionals. It is essential that
an industry expert accountant review the financial records of the business and ensure that the net profit after rent can
be verified. The accountant will also provide tax planning advice, assist with the setting up of business entities including
companies and trusts and complete cash flow forecasts for the business. The accountant can also be of invaluable
assistance in framing the business plan that will be required by the lender in support of the finance application.

The purchaser’s lawyer should be familiar with commercial leases and particularly motel leases. The validity of the
lease, the vendor’s right to sell and the obligations of the lessee are all areas requiring specialist legal advice.

Motel lease finance is also highly specialized. Most banks will lend up to 50% of the value of a going concern motel
lease. Terms will usually be dictated by the term of the lease with 15 years Principal and Interest being common. The
lender will require security by way of a charge over the motel lease together with a landlord’s deed of consent and right
of entry. The deed of consent is required as most motel leases include a provision which obligates the lessee to have
the land lord’s approval in terms of the lease being used as security for a loan. The bank will require a right of entry as
this allows them to enter the motel and operate it should the borrower default on the loan.

Lenders will require the motel lease to be valued by an industry expert valuer. The costs can be substantial and must
be covered by the borrower. Likewise, the costs of preparing the specialised security documents required can also be
significant and should be allowed for when the motel lease purchaser is calculating the total costs of purchase and
finance.

Many motels continue to generate a significant return on investment and are a great opportunity for operators to derive
substantial returns on capital invested. While the purchase and finance process can be intimidating for first time
entrants the use of specialists in all fields will certainly make the process that much easier.

Click here to email Mike Phipps Finance

 


ABOUT MIKE PHIPPS  | MIKE PHIPPS INDUSTRY PROFILE | OUR SERVICE | MANAGEMENT RIGHTS | WHAT AM I BUYING | OFF THE PLAN | HOW RIGHTS ARE VALUED
KNOW THE JARGON
| THE PURCHASE PROCESS | HOW MUCH CAN I BORROW | LICENSING AND COMPLIANCE | MOTEL PURCHASING | INDUSTRY PARTNERS
HANDY LINKS | OPINION AND EDITORIAL | PRIVACY POLICY | DISCLAIMER | DISPUTE RESOLUTION | CONTACT US | HOME

Mike Phipps Finance is a leading Australian finance specialist in Management Rights. Mike Phipps Finance Management Rights and Accommodation Specialists
Phippsfin Pty Ltd    ACN 139 124 673    Australian Credit Licence 364 314