Motel Investment - Pros/Cons

Hey Guys,

I'm looking into a small commercial property in a regional town (population 8000) that is basically 5 short stay apartments advertised on wotif/booking.com etc.
The cleaning, maintenance and keys are handled by a local in the town.
Bookings are handled remotely online therefore no reception or staff to man the property.
The returns for the past 4yrs are consistently around 16% net after cleaning, rates, insurances, advertising etc etc.
My Main strategy is developing residential property and need an increase in income to help with cash flow and loan serviceability.

What are the pros and cons of owning this type of property?
Will this help or hinder my borrowing capacity in the future?
Is purchasing something like this a good strategy to increase borrowing capacity?
The 16% net seems too good to be true as well as the fact that it can be run remotely. In my experience if its too good to be true it usually is - Are these returns normal, am I missing something?
Due diligence, are there companies that can do this for me? Commercial DD is outside of my skill set...I think or is it not as complex as I imagine?
Returns seem stable over the past 4yrs, is there something I should look out for that the current owner might know that could affect returns in the future.
Local industry is wool, sheep and cattle

Any advice would be much appreciated

 

Motel and 5 x apartments are 2 very different things from a finance perspective. Do you know exactly which it is?

Motel lending is max 65% LVR and in all honesty I think you will have an issues with the location whereby the lender wouldn't be comfortable lending on such a small area (although this is dependent on the area).

If this is your first entry into commercial world then I wouldn't suggest starting with a motel in a small town.

As for the 16% net return this is highly dependent on a number of things such as the amount of risk and time you need to invest in the property. Where are you getting the 16% return? Are you getting these from a tax return? Are there season factors that impact the return?

Re borrowing capacity - this will be dependent on how everything is structured but I would be counting on a big increase if any for your servicing.

Sounds like servicing is a big issue for you - are you talking directly to the lender or has a broker stated this?

 

Did you buy the units ?

 

No I didn't end up purchasing. After some digging (google search), I noticed that nearby there was a huge wind and solar farm that had just finished a 3 year construction period. This town was accommodating a lot of the workers. When I asked the agent if the motel had been accommodating workers for this project, he all of a sudden went quiet.
Made me wonder how often purchases of businesses or properties are based on old figures that can't be replicated in the future.