21 Jan 2015 - Resort Brokers Research
Our brokers are often asked to assist on the form of ownership buyers should consider. The answers will largely depend on the particular drivers and aspirations of the person asking. However, it suggested that we could at least analyse it from an empirical perspective.
So we have gone about setting up a spreadsheet comparing the relative financial performance of a business investment (motel lease), freehold going concern and a simple freehold investment.
We were forced to make some fairly basic assumptions in order to ensure we were comparing apples with apples. We assumed the party had $1,000,000 in equity and numerous other factors were introduced such as discount rates, growth rates for income and costs and other factors.
On a fairly typical basis the answers were fairly conclusive in that the business investment (motel lease) was potentially the best performing asset class.
We have allowed you permissions to make your own changes so that you can personalise it to your own particular situation.
The graph shows that the business investment outstrips the other two forms of investment with the freehold investment continuing to run at a cash flow loss. However, some people prefer to run losses for tax reasons but arguably only the interest component will be tax deductible.
We have compared the financial performance from three perspectives and the three graphs below indicate the results:
As discussed at the outset, it’s not all about the money. People buy these three distinct forms of asset for a variety of reasons and it is fair to say that an investor looking for a freehold investment is likely never to be interested in buying a business investment. The first is a passive investment whilst the second requires labour input.
Whilst every care has been given to ensure that the formulas and theories in the spreadsheet are accurate and relevant we take no rfesponsibility for any errors or inaccuracies. Please seek advice from your own experts, valuers, accountants before making any decisions.
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