Buy the Freehold, Carry the Business: One Deal
Commercial Property Loan for Motel | Switchboard Finance
Accommodation Finance
Commercial Property · Freehold · Going Concern
Buy the Freehold, Carry the Business: One Deal
A going-concern motel is rarely one purchase. It is a freehold leg and a business leg, and a lender finances each on its own terms. Here is how the split works and where a vendor carry fits.
Quick Answer
A going-concern motel usually splits into two legs. A commercial property loan funds the freehold leg you will own and occupy, while your deposit and a vendor carry cover the business and goodwill leg. A lender reads the freehold on its going-concern valuation, not the asking price.
Can a commercial property loan fund a motel freehold?
A commercial property loan funds the freehold leg of a going-concern motel, the land and buildings you will own and occupy. The part most buyers miss is that a motel sale is rarely a single purchase. It is two legs a lender finances on different terms: the freehold leg, secured by real property, and the business and goodwill leg, secured by the operating business itself.
Treat the whole price as one number and the structure stalls, because no single product covers both the bricks and the goodwill at the level most buyers expect. Separate the legs and the deal becomes financeable. A senior owner-occupier commercial property loan sits on the freehold, your deposit and a vendor carry cover the rest, and a lender sizes the freehold against its going concern value rather than the headline price.
How a lender reads the two legs
From a lender's perspective the freehold leg and the business and goodwill leg are two different risks. The freehold leg is land and buildings a valuer can assess and a lender can take security over, so it carries the larger, longer loan: an owner-occupier commercial property loan, typically around 60 to 70 percent of the going-concern valuation, indicative and varies by lender. That loan-to-value ratio sits below a standard residential loan because trading risk is built into a commercial valuation, and a no-gaming motel freehold is often read more conservatively again.
The business and goodwill leg is harder to secure, because goodwill walks if trading slips, so non-bank lenders and specialist funders lend against it cautiously, if at all. That is the gap your deposit and a vendor carry are there to close. The split below is how the two legs tend to read at credit.
Stronger Fit
- A freehold with clean title and a steady, documented trading history
- An owner-occupier who will run the motel, not a passive investor
- A going-concern valuation that supports the agreed price
- A real deposit on the business leg plus a documented vendor carry
- A clear deed of priority ranking the senior lender first
Gets Tricky
- A leasehold-only business with no freehold to secure
- A price set on the asking figure, not the going-concern valuation
- A thin, highly seasonal or falling trading record
- A vendor carry with no deed of priority agreed in writing
- Licences or fit-out bundled into value with no clear apportionment
Why the valuation, not the asking price, sets your loan
The number a lender lends against is the going-concern valuation, not the asking price. For a freehold going concern, a qualified valuer assesses the property on its sustainable trading performance as an operating business, not just the land and buildings, so a longer and stronger trading history supports a higher valuation. Valuers work to professional standards set by bodies such as the Australian Property Institute, which is why a lender waits for the valuation before it sizes the freehold leg.
This is where buyers get caught. An asking price built on a hopeful multiple of earnings can sit well above the going-concern valuation a lender will accept, and the loan is sized off the lower number. We cover how this is assessed in our going-concern valuation explainer, and the freehold versus leasehold split changes the read again. A senior lender sizes the freehold against the valuation first, then weighs the strength and length of the trading history behind it.
Where the vendor carry closes the gap
Once the senior commercial property loan covers the freehold leg, your deposit and a vendor carry close the gap on the business and goodwill leg. Our guide on how much deposit you need to buy a motel covers the cash side. A vendor carry is the seller agreeing to defer part of the price and be repaid over an agreed term, a business-purpose arrangement between commercial parties. It sits behind the senior lender, and the order of repayment is set by a deed of priority so the senior lender keeps its first-ranking position.
A vendor carry left undocumented is the single most common reason a clean-looking split stalls at credit, because a senior lender will not settle behind an unranked claim on the same security. There is also a second shape worth knowing: a seller can retain the freehold and lease it back to the buyer, selling only the business and keeping the property as an income asset. That keeps the freehold leg out of the buyer's loan entirely and changes who needs which finance.
A going-concern motel is two deals in one. The freehold leg is an owner-occupier commercial property loan, read against the going-concern valuation rather than the asking price; the business and goodwill leg is funded by your deposit and, where needed, a vendor carry sitting behind the senior lender under a deed of priority. Get the split and the ranking right and a purchase that looked too big to fund becomes a structured, financeable deal.
Key takeaway: price the freehold on its going-concern valuation, fund the business leg with a deposit plus a vendor carry, and document the deed of priority before you sign.Frequently Asked Questions
A commercial property loan can fund the freehold leg of a motel going-concern purchase, secured by the land and buildings you will own and occupy. Lenders treat this as an owner-occupier commercial property loan and typically size it around 60 to 70 percent of the going-concern valuation, indicative and varies by lender. The business and goodwill leg is funded separately, usually by your deposit and a vendor carry. Speak to a broker before you lock in the structure.
When you buy a motel freehold, a lender lends against the going-concern valuation, not the asking price, which reflects the property's sustainable trading performance as an operating business. A qualified valuer assesses the freehold on that basis, so a longer and stronger trading history supports a higher valuation. Our going-concern valuation explainer walks through how this is assessed.
Borrowing against a motel freehold typically sits around 60 to 70 percent of the going-concern valuation, indicative and varies by lender, with a no-gaming freehold often read more conservatively. Supporting security can lift effective borrowing further, indicative and varies by lender and security. The remaining gap on the business and goodwill leg is usually where a vendor carry fits.
Splitting a motel purchase into a property leg and a business leg is the standard structure for a freehold going concern: the freehold leg is funded by an owner-occupier commercial property loan, and the business and goodwill leg is funded by your deposit plus a vendor carry where needed. Each leg is secured and priced differently, and a deed of priority records the order lenders are repaid. Confirm your own structure with your solicitor.
A deed of priority is a written agreement that sets the order in which a senior lender and a vendor carrying part of the price are repaid against the same security. It matters because a senior commercial property lender usually requires its first-ranking position to be documented before a vendor carry can sit behind it. Without it, an otherwise clean split can stall at credit. You can compare the two ownership paths in our freehold versus leasehold guide.
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