Motel investments: Why so hard to find?

Finding a passive investment motel with a lease in place has, for many, felt like searching for a needle in a haystack, and with good reason.

Motels under lease have become highly sought-after passive investments and are tightly held for several key reasons:

1. Predictable income stream

When a motel is leased to an operator, the property owner (lessor) receives a fixed rental income, often with annual increases. This provides a stable and predictable cash flow, ideal for passive investors. Motel leases typically require the lessee to cover all outgoings, including council rates, insurance, utilities, and repairs and maintenance.

Leased motels are rarely vacant. If a lessee exits, the mortgagee or property owner generally steps in to maintain operations until a new operator is secured. This helps ensure continuity of income and protects the asset’s value.

2. Minimal operational involvement

The lessee (operator) is responsible for the day-to-day running of the business, including staffing, maintenance and marketing. This allows the investor to remain hands-off, with no involvement in operations, hence the term passive income.

3. Long-term security

Leases are typically long-term (often 10 to 30 years) providing security of tenure and reducing vacancy risk. Many agreements also include renewal options, further extending the investment horizon.

4. Capital growth potential

While the lease provides growing income, the underlying real estate may also appreciate over time. Investors can benefit from both rental income growth and capital gains.

5. Tax benefits

Depending on the jurisdiction, there may be depreciation and other tax advantages associated with owning a commercial property such as a motel.

6. Industry insight

Those already in the industry recognised the benefits early. With the “inside running,” they secured opportunities before the broader investment community fully understood their value. These properties are often snapped up by experienced investors or insiders before reaching the open market, creating a perception of scarcity and driving up competition when one does become available.

7. Strong demand, limited supply, high liquidity

Passive investment motels offer reliable income with minimal effort, making them highly attractive. Once acquired, they’re typically held long term, which reduces turnover in the market. However, when an owner chooses to sell (and the property is priced correctly) there’s rarely a shortage of interested buyers.

8. Attractive yield vs. risk profile

Compared to other commercial real estate, motels under lease often offer competitive (or even higher) yields with relatively low management risk, particularly when leased to reputable operators. Motels have proven to be resilient and consistent performers. They’re often located in high-traffic areas and benefit from strong land value and steady occupancy rates.

9. Solid building construction

Most motels are built with durable materials such as brick or block, with Colorbond, tin or tile roofing. This construction style requires minimal ongoing maintenance, reducing capital expenditure and enhancing long-term returns.

The rise of the ‘create-your-own’ passive investment strategy

Humans are nothing if not resourceful. When we can’t find what we’re looking for, we adapt. To overcome the challenge of finding a passive investment motel, savvy investors are now creating their own, following a simple, strategic approach:

• Buy a freehold going concern (FGC): This means purchasing a motel where the buyer owns both the property and the business.
• Sell a lease to an operator: This transforms the FGC into a passive investment by separating the business from the property.
• Retain the freehold: The investor becomes the lessor, collecting rent while the operator runs the business.

This approach enables investors to manufacture their own passive investment, often with greater control over lease terms and lessee selection.

Why tenanted motels sell quickly

Pre-qualified buyers: Many investors are actively monitoring the market and ready to move quickly when opportunities arise.

Off-market deals: A significant number of transactions occur privately (through brokers or investor networks) never making it to public listings.

Perceived value: When a tenanted motel does reach the open market, it’s often viewed as a rare and valuable opportunity, prompting swift interest and action.

Early adoption: industry insiders only

In the early days of motel leasing, the primary investors were former and current operators. They had firsthand knowledge of how motels functioned, understanding occupancy patterns, seasonal trends, operational costs and guest expectations.

They also recognised that accommodation is a necessity, not a luxury. Business travellers, contractors, tourists, and emergency stays all contribute to steady, reliable demand.

Meanwhile, the wider investor market

• Lacked familiarity with the motel business model.
• Viewed motels as operationally intensive and potentially risky.
• Favoured more traditional commercial assets such as retail, office or industrial properties.

What changed over time?

• Proven track record: As leased motels consistently delivered strong returns, more investors began to take notice.
• Professionalisation of the sector: The rise of specialist motel brokers, management companies and structured leases made the model more accessible and transparent.
• Yield compression in other sectors: As returns declined in other commercial property classes, motels offered more attractive yields for similar (or lower) levels of risk.
• Education and awareness: Industry publications, seminars and word-of-mouth helped demystify motel investments for a broader audience.
• Interest rate environment driving demand: Persistently low interest rates have made traditional savings options less appealing. In response, many investors have shifted toward passive investment motels to achieve better returns with manageable risk.

The broadening appeal of motel investments

Recognition of strong fundamentals:

As the high returns and relatively low risk of motel investments became more widely recognised, the consistent demand for accommodation, driven by business, tourism and essential travel, demonstrated the resilience of the asset class.

Entry of corporate and institutional investors:

Corporate investors began acquiring motels as part of diversified commercial property portfolios.

These entities often own multiple motels, leveraging economies of scale in management and maintenance.

Growth of individual portfolios:

Smaller investors who began with one motel often expanded their holdings, building mini-portfolios of leased motels.

This trend reflects growing confidence in the repeatability and scalability of the investment model.

Rise of self-managed super funds (SMSFs):

SMSFs have become a popular vehicle for acquiring motel freeholds with leases in place.

Investors are drawn to the long-term, stable income and the ability to control their retirement assets.

Motels offer a tangible, income-producing asset that aligns well with the long-term investment horizon of superannuation funds.

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