6 Things You Need to Know about Buying a Hotel
January 21, 2019 | Last Updated on: July 15, 2022
January 21, 2019 | Last Updated on: July 15, 2022
For many entrepreneurial men and women who have always admired great hospitality companies like Hilton and Marriott, there is nothing more exciting than buying a hotel. Hotels are a sizeable investment of time, effort, and money, but success in the hospitality business is lucrative financially and satisfying on a personal level too.
But even if you’re convinced that you’ve got the ideal temperament and skillset to run a successful hotel, there are a few ideas you will want to consider before you begin the process of acquiring one.
Unless you’re looking at purchasing a brand-name hotel with a long history and a famous logo, your customers will probably not be seeking out your business just based on reputation. They’ll be seeking out your services, alright. But much of your ability to fill the rooms of your hotel will come from being in just the right place when a road-weary traveler needs a place to sleep.
Some successful smaller hotels are located along busy interstates or near large colleges. Others are situated between landmark destinations and major cities. There are plenty of ways to strategize about the location of a hotel that isn’t a destination in and of itself.
How do you know the hotel you’re buying is in the right place? You can make some of that determination from the comfort of your computer desk. Are there other hotels nearby? If so, that could be a sign that the area you’re researching has the supply of travelers necessary to make the business viable. If there aren’t any others, ask yourself if that means you’re at a competitive advantage or if there are so few hotels because there aren’t enough people visiting that place to sleep in them.
You can look at this information in a more empirical sense when you get the opportunity to review the financial and occupancy history of the hotel you’re considering. Are there peak periods and low periods? What is the overall trend for this property?
The more you know about how many people stay in the hotel on a given night, the better you’ll be able to project your finances – and plan to make payments on the loan you’ll need to acquire the hotel itself. Now’s the time to pick up some of the key hospitality lingo that will make you a better hotelier. Look for RevPAR (or revenue per available room) figures when reviewing the financial statements from the would-be seller. If you’re starting a new property from scratch, be sure you know what kind of revenue you should expect.
Doing just the bare minimum to keep a hotel in operation is a lot of work. But you’re planning to go the extra mile and make sure that your hotel is a tremendous success, right? That means you need to be willing and able to put in real effort at any time of any day to make your property a success.
Look at the hotel you’re buying as a second home, but with thousands of strangers (your customers) as short-term roommates. Anything can go wrong at any time and require your attention and effort. On top of the guests, your hotel will require a staff with a range of skill sets and responsibilities. Are you prepared to manage housekeeping, maintenance, and guest-facing personnel? Are you comfortable delegating responsibilities in these areas? Will you be the general manager, or do you have a key candidate in mind to fill the spot?
You’ll need to stay on top of your finances, staff levels, and physical building maintenance. On any given day, you might have to rake leaves, manage finances, help customers, and update your business plan. Do you have a plan for a cold winter with building damage, low occupancy, and a staff with varied transportation issues? The hotel business is tough, but if you plan ahead you can definitely be tougher.
Buying a franchise hotel will cost at least $195,000, according to entrepreneur.com. And that’s just the startup cost. After you’ve gotten the keys, so to speak, you’re looking at payroll, property taxes, a mortgage, utility payments, and interest on startup financing. That’s before you mention equipment purchases and upgrades, renovation, or marketing. There are a lot of costs that go into owning a hotel.
This is why location and research are so important. If you’re confident – and have evidence – that your hotel will be able to cover the costs of its own existence, you still need to find money for your own personal salary. It can be daunting. Some owners only really consider the absolute bright side – they see a full hotel in the busy season and that initial price tag and determine that they’re in a perfect situation, when in fact those sunny times are only a few months out of the year. Their lack of foresight was the thing that doomed them from the start.
Both the Small Business Administration (SBA) and the United States Department of Agriculture (USDA) back loans which can be used for purchasing or constructing a hotel. The backing of Uncle Sam means that lenders can offer lower interest rates to prospective buyers, which can alleviate some of the financial pressure that comes with the hotel business.
SBA hotel loans can be used to purchase or construct an independent or franchised hotel at a very low interest rate with a smaller down payment than a regular commercial loan. They are difficult to acquire, however, so be ready to be patient with the process. Get in touch with a funding company that can work with you to explain all the required paperwork and smooth the process along.
The USDA also guarantees loans for businesses – including hotels – which are constructed or purchased in rural areas through local financial institutions. The USDA Business & Industry Loan Guarantees program exists specifically to encourage investors and business owners to invest in rural parts of the country. With this program in particular, you’ll want to be careful with regards to location. The financing may be right, but will the hotel’s location bring in enough customers to cover your expenses?
Either of these government institutions can provide a helpful and inexpensive loan while also helping grow your budding hotel business along the way.
Brand recognition is vital for hotels. When it comes down to it, as long as prices are comparable, a traveler will almost always opt for the hotel chains they’re familiar with in lieu of trying a small, independent business. So you may want to consider purchasing a franchise.
There are benefits to both franchising and choosing not to buy a franchise. It will often be more expensive to buy a franchise hotel, both in the initial purchase phase and over time as you pay franchising fees. But a franchise hotel is also more likely to receive funding from lending institutions. And while independent hotels allow you to put a very personal stamp on your business, a franchise provides built-in marketing, recognition, training materials, and numerous other benefits. Are you willing to give up that control in exchange for simplicity? For many entrepreneurs this is a big decision.
No matter your answers to any of these questions, the most important factor in the success of a hotel is what guests feel when they walk through the front door or wake up in the morning. If you plan on buying a hotel, you should be planning to do everything possible to make sure guests have a great time under your roof, even if they’re just making a pit stop on the way to their final destination.
How can you do this? You can make sure that your staff places an emphasis on friendliness, helpfulness, and cleanliness. You can make sure the grounds of your hotel are neatly kept. You can replace what’s broken and upgrade what’s obsolete.
Buying a hotel can be difficult. It can be stressful. But if you’re prepared and ready to give it your all, you can turn that stress into a hugely rewarding business and lifestyle