5 things you need to know about buying a brothel

Brothels might be viewed as raunchy business, but when it comes to commercial real estate they can be a lucrative investment.

According to industry experts brothels are increasingly coming up for sale, with many long-term operators transitioning into retirement.

The Australian Adult Entertainment Industry’s William Albon says there a plenty of opportunities for brothel investors as well as owner-occupiers across Australia, but doing your homework is essential or you could run into problems.

Here are five key things you need to know about buying a brothel.

1. Research the regulations

One of the most critical aspects of owning a brothel as an asset is making sure the right permits are in place.

In most cases, planning permits can be obtained by a property owner or a small owner-operated brothel from the local council, provided they meet the council’s criteria.

But the rules are different between states and council areas and can be quite cumbersome, Albon says.

“No one uniform set of legislation or regulations governs the legal sex industry across Australia – nearly all states and territories have their own set of rules,” he says.

Brothel laws are different in each state.

“Planning laws in Victoria, Queensland, New South Wales and the Australian Capital Territory set out where you site brothels – not in a residential area, not near schools or places where children congregate or within 200 metres of churches.”

To minimise your exposure to risk as an investors, you should ensure the proper permits are in place before signing a contract.

However, if you are willing to shoulder the risk and time investment and apply for permits yourself, properties can deliver big returns.

“A factory-warehouse on an average size block south east of Melbourne was bought last year for $350,000,” Albon says.

“Having obtained a planning permit but with no fit-out for the brothel, the freehold land and building with planning permit for a brothel now has an asking price of $700,000.”

2. Size matters

When it comes to value, the number of rooms on the premises usually dictates price.

For example, Melbourne’s smallest legal brothel has three rooms while the biggest has 18. The industry average is six rooms, according to Albon.

“Recently the three-room business was sold for under $100,000 with a long lease at under $5000 per calendar month,” he says.

“The six-room places are fetching $300,000 for the business and with a lease at $14,000 per calendar month.”

Brothels come in different shapes and sizes.

3. Know the risks and costs

Being a landlord always comes with an element of risk, and it is no different when it comes to owning a brothel.

Firstly, consider with the comings and goings of clientele and whether there will be more chance of damage to the property.

Investigate whether the size the business will impact your insurance premiums and also consider if any additional features may be necessary.

This includes added security cameras and secure doors to ensure the premises is safe.

There also may be additional requirements such as the number of bathrooms needed and potentially more maintenance that could also add to your ongoing costs.

4. Location is key

It is common knowledge that brothels exist in most suburbs and can often be located on retail strips.

But Albon says many of these may not be operating legally, and due to the tight regulations most registered brothels tend to be located in industrial zones.

Advertising and marketing of services is also heavily restricted in most states, so a property with exposure to passing traffic can be important for attracting clients.

Prominent locations, such as this one in Liverpool, are important for attracting clientele.

5. Good tenants are crucial

If you’re purchasing a brothel property purely as an investment then it’s important to ensure your tenant is legal, as well as reliable.

“Obtaining a licence sees vast criteria relating to probity and honesty and having business acumen needing to be satisfied; so, anyone holding a licence could be regarded as a well-credentialed tenant,” Albon says.

Before purchasing, check the current tenant is registered and has had no issues with authorities.

Also ask the vendor for the lease history, including how much the lease is worth and whether the tenant pays on time regularly.

The bottom line

While there can be a stigma attached to owning a brothel, at the end of the day it is just another commercial property with fundamentals that should be investigated when considering a purchase.

Before investing you should do your homework and have a clear plan of what you want to achieve from the purchase, as well as how the property might perform for you as an investment.