Why Getting a Loan for a Motel isn’t Always Easy
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Hello. Your Real Estate Doctor, Bae Jun-hyung, senior expert member, here. It’s been a while!
Recently,we’ve seen a big jump in demand for lodging in Korea,thanks to K-content and more tourists. As of this, investors are quickly looking to buy accommodation facilities. Among options like guesthouses, hostels, and hotels, ‘Motel Little Buildings’ are becoming a new prospect for investors. Let’s take a closer look.
Motels often seem to offer good returns, but you’ll find getting a loan to purchase one can be harder than you think. It’s not just the building’s price; there’s a special evaluation system for motels within the financial sector. Today, I’ll explain how banks evaluate accommodations and why motel loans are frequently enough difficult to secure.
The Two Faces of Collateral Value
General shopping Malls (focused on physical value) vs. Accommodations (focused on profit value)
First, it’s notable to understand how banks assess the value of real estate as collateral.
1) General Commercial Building: ‘Hardware-focused evaluation’
Typical shopping malls and small buildings are valued based on land value plus the building’s replacement cost (what it would cost to rebuild). No matter what kind of business is inside, the building’s physical value is the main factor when a bank decides how much to lend.