Motel Buying Guide

Buying a hotel or motel requires specialized planning and regulatory compliance. In addition, there are several proven methods of marketing your hospitality services that a potential owner should consider before buying a hotel or motel. Are you an aspiring hotelier? The hotel industry, and the hospitality industry in general, can be incredibly costly. Deciding to purchase an existing hotel or motel, start a hotel construction project, or plan large-scale renovations can be a significant financial decision that takes a great deal of forethought and planning. Current hotel owners may be looking for financing in order to undertake large-scale renovations or prospective owners may be looking to build or purchase a new hotel. When shopping for hotel lending options, geography, target clientele, property valuations, and financing are all concerns before ultimately investing in such a property.

Hotels and motels are very different investments as commercial real estate. Not only do they traditionally have different locales, but they also attract different types of customers, who have varying lengths of stay and lifetime value (LTV). Your choice between a hotel and motel should be guided by your business plan and line of credit. A traditional hotel not only has medium to short-term lodging but also many amenities, such as a pool, complimentary breakfast, room service, workout facilities, front desk/concierge, etc. Rooms are located inside the hotel where you must pass through a lobby. Hotels are often times located inside of cities, near business centers, airports, and city-centers. Motels can provide short-term to long-term lodging to guests with limited or no amenities. These typically have minimalistic rooms that are located directly off of parking areas. Motels are typically located off of highways or other motorways. For this reason, motels are geared towards guests who are en route to a destination. Deciding to invest in a motel or a hotel can be a daunting decision, however, deciding your target clientele and ideal location first can help in narrowing down your options. Once you have these decisions made, the choice should become clear.

Motel Buying Guide

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Location is extremely important when considering investing in commercial real estate, specifically hotels or motels. There are many things to consider when investing in a property such as a hotel, however, possibly the most important is understanding the real-estate value of the area over time. Ideally, you will choose an area that will appreciate over time. This would look like future development in areas surrounding the hotel. Additionally, you should take into consideration the ease of potential re-branding, property improvements, and renovations. Ultimately, you will want to take this into account when calculating your loan-to-value ratio when you explore financing options. Hotels exist in many different environments and serve different purposes. For example, a hotel in a population-dense city may be able to attract a variety of guests, depending on the hotel itself. However, a hotel in a more remote vacation area could attract an entirely different type of guest. Motels are traditionally located along motorways. For this reason, they are more frequently located in between or outside of cities. When looking at a site to purchase a hotel, place, price, physical environment, and people should be considered. That being said, the physical location, along with the prices of other accommodations, food, etc. all influence the type of person that will be surrounding your hotel.

Deciding how to secure motel or hotel financing can be an overwhelming decision with all of the potential options. Luckily, there are many motel and hotel lenders that are willing to work with hospitality institutions to figure out loan terms that work.

This loan program is designed for average and above-conditioned properties located in medium and above market sectors. This is traditionally used for the acquisition or refinancing of a motel property. The minimum loan size is $500,000 with year fixed rates of 3,5,7, and 10. This loan can be amortized for 15, 20, 25, and 30 years. This loan uses the piece of commercial real estate as collateral.

This is similar to the previous large balance motel loan, but the greatest difference is that the maximum loan size is $1,000,000. Stated Income Commercial Loans are available for most commercial property types in the medium and large market sectors.

Traditionally, motels are found in more rural areas that are accessible in transit off of roadways. For this reason, it could be beneficial to use a USDA loan that supports rural agricultural areas (these areas typically support populations of 50,000 or less). Additionally, depending on the size of the motel, the large and small balance motel loans are widely used in financing the purchase or refinance of motels. Hotel financing typically happens through strong banking relationship with lenders and a good credit score, which can allow you to obtain a conventional bank loan. These terms range from 3 to 10 years with amortization up to 25 years. This is better for boutique hotels working with qualified buyers. A CMBS Loan is best for large franchise hotels or resorts, like a Hilton. These loans have a fixed interest rate, a standard amortization period of 25 to 30 years and sometimes have an optional interest-only period. SBA loans are typically used for purchasing, construction, renovation, or sometimes the refinancing of hotels. USDA loans can be used with hotels located in rural areas because they can help bring more business to the community and create jobs.

As with anything else, there are pros and cons to financing a hotel versus financing a motel. Additionally, there are many avenues to take when looking for financing for your commercial real estate project. It is extremely important to consider your business plan, size, location, and target market before making any finalized decisions on a specific building or plot of land. However, once this is decided, understanding your own credit limits, bank relationships and timeline for financing should be taken into account when finalizing a financial plan for this project. Fortunately, there are so many financing options that there is almost always a best fit for the specific project at hand.

Motels and hotels provide lodging to visitors, and these businesses are located in practically every city. Owning a motel can become a lucrative business. But not every motel will succeed. If you are considering buying a motel and running the business, do your homework to determine whether this is the right business venture for you.

Get pre-approved for financing. If you will need a bank loan to purchase a motel, submit your application and other required documentations (tax returns and bank statements) and get approved for financing first.

Contact the city planner's office. Before bidding on a motel, speak with someone in the city planner's office to discuss plans for the area or roadways close to the motel. Upcoming road expansions or construction projects can have an impact on future business.

Ask for financial statements. As a potential buyer of the property, you can request to review the motel's financial records from the past three years. These documents will disclose occupancy information, operating expenses and available cash.

Know the competition. To grow a successful motel business, staying competitive is key. Perform research on other hotels and motels in the area. Obtain information on average occupancy rates, reputation and accommodation.

Negotiate a price. Based on information received from your research of the competition, the city planner's office and the property inspector, offer a fair price for the property. Work with your broker and Realtor to determine a price. The current motel owner will either accept or submit a counteroffer. Include in your bid a clause that states "subject to satisfactory inspection."

Schedule an inspection. Buying a motel involves being responsible for repairs and other unexpected expenses after the purchase. Have a professional check the property to ensure areas such as the electricity, plumbing and structure are safe and functioning properly. Inspectors also provide an estimated cost for repairs. Proceed with the purchase if the motel doesn't need extensive repairs, or ask the current owner to make repairs before the sale date.

Obviously there is no set cost for building a motel. The capital you need will change depending on a number of influences. Every location will have different fees around permits and construction, health regulations, tax collection etc.

This approach has a number of advantages since a lot of the groundwork has already been done for you. If the property is already a motel, then a revenue stream will be established prior to you taking ownership.

Obviously some businesses are more successful than others and there are many reasons for this. However, you can at least eliminate any fault of your own by ticking all the boxes when it comes to best practice management of a motel.

Many people who prefer to stay at motels enjoy the character of the property and the authenticity of the experience. They love the fact that they get to know the person who runs the accommodation, and that they have an opportunity to connect with other guests. Telling your story should be part of your motel marketing strategy, as it allows you to capture the attention of your target market and encourages them to book directly with you.

The motel reservation system that you implement at your property plays a significant role in your overall ability to be successful. A reservation system schedules the dates and length of stay for guests as well as taking payments from them.

There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your motel business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

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