In the commercial space, Bed and Breakfasts (B&Bs), hotels and motels are all popular for investment purposes. The number of new hotels and B&Bs popping up both nationally and globally is a testament to this appeal.
As with any investment there are certain downsides to owning this type of property but there are also some notable benefits that make it an appealing market for investors.
Here is a breakdown of some of these benefits that B&B, hotel and motel owners have access to.
Alongside the many lifestyle benefits of being a B&B owner operator, these business owners are able to put some of their living expenses through business accounts (including food, utilities, repairs and entertainment) to receive tax benefits, have the freedom to incorporate their own personal and creative flair into the property and have the flexibility to work from home.
Many people see these lifestyle and cost saving perks as reason alone to get into the B&B business, but operators must be aware that there are a number of laws, regulations and licensing requirements that they must abide by. This includes business registration, food safety, fire safety and signage, insurance and anti-discrimination, among other things.
Motel owners have similar benefits to B&B owners, but often there is more opportunity for greater revenue in this type of investment. There is often the convenience of onsite residence for the operator. Depending on the market and location the motel is in, these assets typically offer a solid return on investment. It’s also a rather competitive market meaning that there are generally always buyers when it comes time to sell. The limited service nature of motels means they are a simpler operation to run than a hotel, and the guests aren’t in your immediate space as they are in a B&B.
For hotel investors, the obvious benefit is the potential for much greater returns due to the larger capacity and higher level of service that can be provided. In this type of investment – which is considered a serious business as opposed to a “side business” that B&B’s are often thought of – there is the opportunity to provide a more luxury level of service. These properties are also typically found in CBD or popular tourist locations, as opposed to more outskirt locations where you’re likely to find motels. Furthermore, investors may also have additional support and expert guidance if the hotel is part of a franchise operation.
Despite these differences, these three types of businesses all have one major benefit in common – the depreciation they are able to claim from their property and operations.
They are able to claim property depreciation on a wide range of assets including air conditioning, swimming pools and pool accessories, televisions, barbecues, spa bath pumps, safes, fridges, bedding, fire equipment, cookery and cutlery, hot water assets, heaters, kitchen appliances, beer dispensing equipment, bars, furniture, blinds, carpets, laundry assets and so many more things commonly found in hotels, motels and B&Bs.
Furthermore, these types of properties typically undergo a lot of renovation work – both from current owners and previous renovations undertaken by past owners. Owners should seek advice from a specialist Quantity Surveyor on how they can claim on past renovations. Owners should also seek their advice prior to carrying out renovations of their own in order to maximise deductions on the items they’re scrapping as well as new assets.
Looking at the bigger picture, how do B&Bs, motels and hotels compare in terms of the total depreciation they can claim in the first year and cumulatively in the first five years?
The below example is an estimate of the total amount these businesses would be able to claim.
As you can see, B&B, motel and hotel owners can all claim significant depreciation deductions. The extra cash flow this makes available to them can go a long way in helping the day to day operations of the business and balancing out operating costs. This is a big advantage in such a competitive environment.
If you are interested in obtaining a free estimate of the likely depreciation deductions available for hotels, motels or B&B’s, complete this form or call our expert team for obligation free advice on 1300 728 726.