The Budget Hotel

1. Senai is a relatively quiet town located a good 30km away from Johor Bahru. It’s most famous landmarks are the International Airport and Industrial Zone that boasts the likes of Hitachi, Dyson, Flextronics and many others.
2. The hotel business thus makes good sense to cater to travelling salespeople as well tourists who would like to explore Johor before making their way to Singapore. With Johor Premium Outlets being set up not too far away, the potential from tourist spending just became greater for this town.
3. Sometime ago, a friend mentioned that a 20 room budget hotel was for sale in Senai and invited me to tag along to be an extra pair of eyes as he inspected the unit.
4. The price was Rm980k for a 3-storey shop fronting the main road and this figure was matched by a bank approved Valuer’s report.
5. Banks usually finance 85% of valuation and in this case, it works out to be Rm833k. Down payment will thus have to be Rm147k and this is excluding Stamp Duty, Legal Fees and other costs that could add up to another 5% of the purchase price.
6. Due to its worn-out condition, the 10 year old hotel required a further Rm250k in restoration cost. Despite haggling for a reduced price, the property agent was adamant it was not possible and the price was final and non-negotiable.
7. My friend walked away from that deal with a heavy heart as he lacked the financial muscle to make that purchase, let alone the renovation cost to restore it.
8. Months went by and one day, he received a call from a lawyer friend who was offered a budget hotel for sale and was looking for a partner to run the new business.
9. It turned out to be the exact same unit but this time, it was directly from the owner at a cut price of Rm850k. With the bank willing to loan up to Rm833k, actual down payment only amounted to Rm17k.
10. Due to direct purchase from the owner there a saving of 1% on agent fees and on top of that, all legal fees were waived by his lawyer partner. What a deal indeed!
11. The lawyer only wanted to be a passive investor by providing his share of finance and left the entire operations to my friend. With 2 parties financing the purchase and restoration, the venture became a success and is doing brisk business today.
12. The odds of this situation recurring is very slim but it just simply shows that having a network of professionals in the property chain makes absolute sense when one intends to be a serious player.
13. Invest your time in getting to know people in the right industry. Who knows, you may get that once in a lifetime deal that’s far sweeter than the one above.
14. Happy investing!