You might already be thinking about buying a motel or hotel, but how do your research a potential property on your own without a business broker? When a motel is listed as “for sale by owner,” it is important to prepare your questions ahead of time and research comparable listings in the area. Without broker’s fees, the transaction will likely be much less expensive for both parties, making it a wise investment, but not every hotel or motel is worth its selling price.
If you’ve been considering the purchase of a motel business, here are some considerations to keep in mind.
Purchasing a motel or hotel “for sale by owner” could mean you are getting a better price than you might otherwise pay for a listed property. However, now will be the time for you to fine-tune your negotiation techniques.
Also, learn as much as possible about the owner, the franchise (if applicable) and the surrounding area. It is also important to find out the owner’s reasons for selling. In other words, get as much detail as possible before going in to meet with the owner and if you think the price is too high, be prepared with some research that proves this.
Consider if your offer will include a request that the seller finance
Before making any offers, make sure you inspect the most recent Department of Health reports, as well as any online reviews and guest comments about the motel. You will also need to thoroughly inspect the property before agreeing to buy it. Ask the owner to show you the past few years of utility bills and have a building inspector come out and look at the site. After calculating overhead costs and other expenses related to the purchase, determine how much income you can realistically expect from the business.
Running a good motel or hotel business requires 24/7 staff accountability.
This means attracting and retaining reliable and dedicated desk clerks, chambermaids and maintenance staff. When this is lacking, a hotel’s reputation can go downhill overnight. Spend some time with the owner discussing operations and meet with individual managers too. What are their most pressing day-to-day concerns and challenges? Is it hard for them to recruit reliable team members? What are the most complicated aspects of running the hotel or motel?
After asking questions and inspecting the property, determine how an update to the exterior and interior of the motel might impact its long-term revenue projections.
- How does it currently compare to similarly priced motels in the region?
- Would the cost of improvements translate into profits quickly enough?
- Aside from property updates, what else might be done to make the property more attractive to travellers?
Before purchasing a motel property that is for sale by owner, check with the state and county planning office to find out about any major construction projects that might impact the accessibility or traffic patterns around the motel. In an attempt to learn more about a property it’s important to do your homework. Buyers should be sure to check fundamental business metrics such as the occupancy rate of the hotel, as well as room rates, potential buyers should investigate the room rates at nearby hotels for comparison.
Many would-be buyers will stay at the motel overnight as a guest before expressing interest in the property. Seeing the hotel or motel through the eyes of a guest is probably one of the best ways to find out what’s really happening behind the scenes.
A motel can be easy to operate. Have one mortgage, one phone bill, one electric bill, equity build-up and cash flow. Many motels have living quarters as a benefit. Special ‘expense’ items which inure to the benefit of the owner/operator. Nice asset base for both operations and future financing with the ability to collateralize existing properties.
Smaller, limited-service property (100 rooms and less) buyers tend to value hotels based on annual room revenue (2.5–3 times) whereas larger, full-service property buyers tend to value hotels on cap rates (9-12%).”
Buying a motel for sale by owner can be a great investment, with significant profit potential once operating costs are covered, but only when you know exactly what you’re getting into.
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