I have an interesting success story to share.

A number of years ago, I posted about a 20 room motel in Central Florida that was a bank foreclosure listed for sale for $160,000. I ended up winning the property for $180,000, and there were three other bidders as well.

It was an excellent buy because the location was absolutely prime, and the condition of the property was more than fair (after repairs would've been done). The roof was ok, and most of the rooms still had good beds and appliances.

After a total of about $70,000 worth of remodeling, the motel was fully operational after 6 months of hard work. It only took 3 months before it was partially operational. The property required some plumbing work and drywall fixing for some of the rooms. Fast forward 4.5 years later, and the motel generates $165,000-170,000 on average per year before any expenses, and about $110,000 after expenses. The total cost of everything was $250,000, and I could easily sell it for $400,000 today.

In case anyone was wondering why the motel was listed for such an unusually low price, it was because the bank that listed it for sale actually thought that the property had to be demolished because the entire plumbing system supposedly needed to be replaced. This was actually not true, as it was only a few of the pipes in the bathroom that needed to be replaced for about $1,000 worth of supplies and labor.

THE BANK LITERALLY THREW $175,000 DOWN THE DRAIN BECAUSE OF A SIMPLE INSPECTION MISTAKE ON THEIR PART

Great story. Thanks for sharing and congrats!!

Originally posted by @Aaron Mazzrillo :

Great story. Thanks for sharing and congrats!!

 The lesson I hope to teach people here is that if there isn't any action going on, that alone shouldn't automatically compel you to make a move. All absurd events will happen eventually, and it's only a matter of time before a good one happens to YOU

Did you buy it also thinking the plumbing would need to be replaced? Or did you already figure out it was going to be a minor repair. 

Either way, it turned out to be a great buy! 

Originally posted by @David Hungerford :

Did you buy it also thinking the plumbing would need to be replaced? Or did you already figure out it was going to be a minor repair. 

Either way, it turned out to be a great buy! 

 No, the thing is that the issue with the plumbing was that a few pipes were just clogged up with gunk, which is common in Taiwan. Florida is hot and humid, and it can happen to smaller diameter pipes sometimes over decades. 

Some things to note was the fact that I was the 4th person to offer. The other three people were a little too ridiculous stingy. Im surprised not one just decided to offer an overkill bid of $225,000 just to steal the property right off the bat. This property is just one of those rare deals where the bank made a huge folly, and it probably took them a long time to realize what went wrong, especially when they could've seen that the property was suspiciously still standing two years later (the bank was very local). If the plumbing really was needing total replacement, it still would've been way undervalued.

I feel like the incompetence of bank employees might actually be a good thing, and we should all wish for them to make more mistakes in foreclosures in the future

@Jason Chen , nice congrats on the deal. Just curious how did you purchase the property , did you use a bank loan or did it have to be purchased cash or hard money due to the condition?

How active have you been in running the hotel, were you able to high a Manager to take care of most of the day to day.

I remember seeing some pretty amazing deals on hotels/motels in the Florida are during the crash.. definitely nothing like that in SoCal area even during the crash. 

$9,000/ room purchase price is insane. 

Originally posted by @Joseph M. :

@Jason Chen , nice congrats on the deal. Just curious how did you purchase the property , did you use a bank loan or did it have to be purchased cash or hard money due to the condition?

How active have you been in running the hotel, were you able to high a Manager to take care of most of the day to day.

I remember seeing some pretty amazing deals on hotels/motels in the Florida are during the crash.. definitely nothing like that in SoCal area even during the crash. 

$9,000/ room purchase price is insane. 

it was purchased with a HELOC that hadnt been used yet

me and my family have been familiar with the motel business for a very long time

finding the right manager is tricky but not too hard. you have to show them the ropes and how to deal with customers because motel guests are peculiar. he current manager is very reliable and lives there with her husband. generally you want to find a very stable couple who is old. she is also the housekeeper. its the kind of job that many people want, but few truly qualify as you dont want an untrustworthy person for obvious reasons.

the manager lives there 24/7, but can leave sometimes throughout the day during the late afternoon/evening to run errands and such.

@Jason Chen , oh ok that is interesting. I'm sure it helped a lot that you and your family knew the motel business for a long time. Having you been looking for more motel deals ?  Do you see deals that make sense in the current market? 

Originally posted by @Joseph M. :

@Jason Chen, oh ok that is interesting. I'm sure it helped a lot that you and your family knew the motel business for a long time. Having you been looking for more motel deals ?  Do you see deals that make sense in the current market? 

 the #1 thing that i have learned about real estate is that pretty much everyone you deal with is going to be hilariously greedy. this isnt my experience 100% of the time, but it is like that 99% of the time.

i dont know about you, but seeing a property that is reasonably valued at $120,000 listed for $205,000 is outright ridiculous to me. all that tells me is that the owner is not in a desperate situation. most deals can only be had when the seller is downright desperate from my experience.

in terms of deals ive seen hat are good in florida - i have seen absolutely zero since then EXCEPT maybe one, which was in a slightly remote location. the name of the motel is the Tangerine Inn (find it on google) in Volusian county here in florida, and i believe its a 12 unit foreclosure a few years ago that was listed for $160,000. 

the low price piqued my interest, and upon inspection, i saw that it was actually a doable deal, but only average. there wasnt a lot of competition nearby, but the place was very old looking and outdated. it required about $90,000 to fully renovate, and maybe $40,000 to get a few rooms up and running at first.

a few weeks ago, i checked the volusia county property appraiser and saw that it sold for $60,000 in 2014 which was not bad at all. i called them and they charged a ridiculously high $80 a night for a crappy room. my guess is that they average only about a 35% occupancy rate whereas i have about a 90% i maintain throughout the whole year.

besides that, every pther motel deal ive found online through sites such as loopnet were hilariously bad. $600,000 for a 10 unit motel. $950,000 for a 13 unit motel in clearwater beach.

i will add more to this soon

I enjoy hearing these types of success stories.

Great story thank you! So you're saying your total expenses on a monthly basis are 35 to 40%? That's a great part of the story. You mentioned the manager living on the property but that still sounds incredibly inexpensive to run. Anything else you can share in that regard? Thanks again for your post!

Sweet deal, thanks for sharing with us, and you never know what you can come up with when the other party is clueless...

Originally posted by @David Ptak :

Great story thank you! So you're saying your total expenses on a monthly basis are 35 to 40%? That's a great part of the story. You mentioned the manager living on the property but that still sounds incredibly inexpensive to run. Anything else you can share in that regard? Thanks again for your post!

 I am usually never at home so i gotta type everything on the phone, otherwise i would more easily be able to get into more detail.

now the amount we pay the manager is not very much at all, but that is ok because the manager gets a huge perk: they get to live in the manager's quarters which pretty much all motels in the united states have. the managers quarters is connected to the front office and consists of a 2 bedroom, 1 bathroom apartment with an adequate spacious kitchen and spacious living room. an older couple who is retired, about to collect social security checks possibly, and has a minimal and quiet social life is most desired for this position. they get to live rent-free and utilities-free, and i get a manager for minimal expense. its a win win situation and i often become good friends with them. most managers only stick around for 1-2 years, but some are willing to basically stay for decades even.

the motel business is a seasonal business, but not an extreme one. typically around march-may, business slows down an observable amount, and after that it picks right back up to 90-100% occupancy on every night. several nights a year, we have to turn away guests at nighttime because we have no rooms left to sell.

the budget motel is a peculiar business, but then again its really not. your average person might struggle to understand how this business requires a decent amount of hard work, yet is simultaneously one of the most laidback businesses you can get into.

we remain super competitive, to the point where its not even competitive anymore for us. the reason why is because i have placed a 40 inch tv in every room, along with a full sized refrigerator and a real kitchenette. for $190 total per week and free housekeeping and wifi, who wouldnt want to stay there vs. renting at an apartment that requires all sorts of documentation and an application fee? most of our customers are locals who become long term, and sometimes super long term guests.

even during the slow season, it is not really "slow" because of the amenities we offer vs. the other motels that essentially nickel and dime you to death, and give you little in return. can you imagine paying $50 total per night for a room with a full sized refrigerator and 40 inch tv? not even the hilton has that. can you even imagine your typical budget motel operator spending an extra $1000 on room improvements such as these?  the floors we have are also tile floors, so you can forget about bad smells and disgusting things lying in the carpet. also makes the room super easy to clean. ha! the customer is always first.

my only gripe about the 15-50 room motel industry is that the barrier to entry is quite high, and not just for pricing reasons. very few are for sale as most owners simply just dont want to sell, and most are too stubborn to list them for a reasonable price. in a way, i guess it benefits me because that means less competition...but i dont know. 

I can't imagine finding anyone to work 24/7 for lodging and a stipend. If your cost of labor was only $10 an hour that would be over $87,000 a year! Sounds like this couple is the secret to your success.

Originally posted by @Robert Hudson :

I can't imagine finding anyone to work 24/7 for lodging and a stipend. If your cost of labor was only $10 an hour that would be over $87,000 a year! Sounds like this couple is the secret to your success.

no, its nowhere nearly as brutal as you think. they have tons of free time, and they are allowed to leave the property later on during the day. the lack of stress from being able to pay rent or mortgage is big for them as they live there for free.

anytime you buy a motel, keep in mind that you are not only buying a motel with X amount of rooms, but that it is also X amount of rooms + 1 good sized apartment unit, so there is some extra value there

So do you want to sell for the $400k ? .. I know a investor that is looking for something just like that .. Im sure your not but I figured id ask .. I really wouldnt get anything out of the deal except a relaionship .. maybe a finder fee i guess .. Im one of those rare few that you mentioned .. As i am not all about the money .. I know its difficult for some to understand .. but , for me .. yes.. I love money and love making or wining it .. I love buying and selling things .. nothing feels better than buying something way under value .. I bought my personal residence for $.25 cents on the dollar .. I paid $48k for it and its worth a bit over $225k .. just love that .. so .. dont let me forget to say congrats on your purchase and your hard work .. 

For me ... trying to find a property or looking out for other investors i know .. is more about building relationships than it is about a finders fee .. Don't get me wrong .. still want to fee ..lol... 

anyway .. I just wanted to say congrats and i wish you the very most of continued success .. 

you should pm me the name of the place and next time i spend the night in Tampa .. I'll call to see if you have rooms ..  Hey .. there's a untapped idea .. offer any Bp member a discount on a room .. there are a lot of out of state and out of the area investors traveling to Tampa right now .. Do you have a conference room ? Maybe a good place to hold a real estate meeting for BP members .. I know there are a few meeting in Tampa but im sure we can always use one more .. .. 

Ok , I will quit now ..lol.. 

again .. I wish you the very best ..

God Speed, 

Michael Short 

Originally posted by @Michael Short :

So do you want to sell for the $400k ? .. I know a investor that is looking for something just like that .. Im sure your not but I figured id ask .. I really wouldnt get anything out of the deal except a relaionship .. maybe a finder fee i guess .. Im one of those rare few that you mentioned .. As i am not all about the money .. I know its difficult for some to understand .. but , for me .. yes.. I love money and love making or wining it .. I love buying and selling things .. nothing feels better than buying something way under value .. I bought my personal residence for $.25 cents on the dollar .. I paid $48k for it and its worth a bit over $225k .. just love that .. so .. dont let me forget to say congrats on your purchase and your hard work .. 

For me ... trying to find a property or looking out for other investors i know .. is more about building relationships than it is about a finders fee .. Don't get me wrong .. still want to fee ..lol... 

anyway .. I just wanted to say congrats and i wish you the very most of continued success .. 

you should pm me the name of the place and next time i spend the night in Tampa .. I'll call to see if you have rooms ..  Hey .. there's a untapped idea .. offer any Bp member a discount on a room .. there are a lot of out of state and out of the area investors traveling to Tampa right now .. Do you have a conference room ? Maybe a good place to hold a real estate meeting for BP members .. I know there are a few meeting in Tampa but im sure we can always use one more .. .. 

Ok , I will quit now ..lol.. 

again .. I wish you the very best ..

God Speed, 

Michael Short 

One day I will probably reveal the name of the motel. It is not located in Tampa, and it doesn't even have conference rooms. I wouldn't mind giving other BP members a discount at all.

The motel is not for sale, but the $400,000 number is just something I threw out there as a less than minimum price floor for how much it is worth. In fact, if I listed it for sale today for $550,000, there would be someone offering $475,000-$500,000 for it within a couple of months because I know of someone in this area who has already made a similar offer for a similar motel here.

Even if someone offered more than that, I wouldn't take it unless it was a ridiculous offer that was above $800,000, for a number of reasons. The prinary reason would be that I would be sacrificing something that generates a lot of cash flow, combined with the fact that the motel business has a very high barrier to entry like I mentioned earlier.

Let me give you an example of what's going on in the motel scene. There is currently a 17 room motel that rents for $65 a night in Florida. It is currently listed for sale for $2,950,000. You can actually find this listing on loopnet right now. The owner claims that the property has a net income of $232,000 which I believe is not true. The thing with motels is that the numbers can easily be fudged with, and often are. Am I to believe that my motel which generates $115,000 a year after expenses and has three more rooms and rents for roughly the same price, has only 50% of the income of that 17 room motel? I am tellig the truth, whereas the other owner is exagerrating things. A duplex or quadplex for example, are examples of properties where the numbers are difficult to falsify.

And it's being listed for $2,950,000. I dont know why someone would pay over $600,000 because theyre going to be in adult diapers by the time it's paid off, and thats assuming they negotiate the price down to $2,000,000.

All good info .. and I believe you when you say the numbers can be fudged . It wouldn't supize me if there are owners out there using two separate  books .. one for the IRS and the other for show and tell .. I'm not saying  you of course .. as long as their is cash going though the front desk .. then there is room for fudging .. I knew you were only giving a example of what you mm could sell you place for .. but you can't blame a guy for trying .. heck it seems even if you are to sell at $800k and if the new owners could keep it doing the numbers you said .. netting. $110k yr .. well that to me would seems to still be pretty good investment .. or would I be wrong .. .. 

I wish you continued success .. Michael 

Originally posted by @Michael Short :

All good info .. and I believe you when you say the numbers can be fudged . It wouldn't supize me if there are owners out there using two separate  books .. one for the IRS and the other for show and tell .. I'm not saying  you of course .. as long as their is cash going though the front desk .. then there is room for fudging .. I knew you were only giving a example of what you mm could sell you place for .. but you can't blame a guy for trying .. heck it seems even if you are to sell at $800k and if the new owners could keep it doing the numbers you said .. netting. $110k yr .. well that to me would seems to still be pretty good investment .. or would I be wrong .. .. 

I wish you continued success .. Michael 

 You would both be wrong and not wrong at the same time. If I were to sell it, I would sell it to one of these European or South American investors who seem to like buying Florida motels at overinflated prices very willingly.

I actually suspect that the reason why these Euro/S.A. "investors" who are purchasing small motels on the Florida beaches is because they are laundering drug money or they need a place to stash money generated from organized crime. It's a longshot, but it could be true. There's just no reason to pay $5,250,000 for a small 34 unit motel on the beach when that $5,250,000 couldve been put to much better use elsewhere.

I think the most realistic selling price for th 20 room motel would be $600,000, and thas about as high as it would go. Once you go above that, you have to think to yourself, how many sole proprietors are likely to have that much money on hand or can get it trhough financing that can afford that much? 650k+ might be too high and will never happen