I've noted a vacant motel property that's been vacant for more than a year. I'm wondering where to start as far as determining if it would even be worthwhile as a wholesale deal. I have a feeling it's going to be torn down soon and want to find out if it may be a worthwhile investment. Where do I begin??
Where is it located? Is the area nice? How many rooms are there? Tearing down and building on top can be expensive. What's the price? What is the market occupancy and ADR? If its good, then you might as well spend money on renovations and get this thing running.
Unless you have experience with hospitality properties I would steer clear of this project. I have financed and did workout work on a number of hotel properties and they are tricky. From my experience I would stay far away from if the property is an exterior corridor, not had a major hotel flag recently and if other hotels have entered the market within the last couple years.
If it was flagged prior to it being vacant see if you can find the rep for the latest flag and find out what was going on. Many older hotels run into problems once the amount of capital upgrades required to keep a flag get too expensive.
Best of luck.
@Dan Wallace ...it didn't have a major flag on it...never has. It is an exterior corridor. Thanx for the input.
Jerry depending on where this is located I might approach it as a redevelopment project. If it's in Chicago and/or cook county there are a few different options a developer can take advantage of that would help offset acquisition and rehab costs.
@Byam Alexander ...I can see that being done with the property. That may be a great option as the area has undergone some development.
Being in the hotel business myself. This is a business where you grow faster than you can imagine or lose your shirt if you dont know what your doing. My guess is that with the property so small, typically these are owner-operator properties, where the owner lives on site and handles duties such as front desk, etc.
@Jimmy Klein ...That could have been the case.
@Jerry Stanford , how did this project turn out? I am currently researching the possibility of rehabbing an absolute eye sore motel (still in operation somehow). Curious what you learned and are doing with your project.
Hey @Winston Parks ...It's still there...no bites on it that I know of because of the area. I had been trying to see if there any legal issues but I haven't had a chance to research it...
@Jimmy Klein , as someone who has done motel deals in the past where would you point a new investor looking in this area for additional information specific to this industry?
DOn't know the area and how far it's outside, but if I were to come across a motel like that, in a central area, and the price was right, this is what I would do:
Convert it into a 'creative community'. Renting furnished rooms, with their own bathroom, to creatives, like artists, musicians, writers etc. month to month.
Make the outside space 'community space' , maybe add an old RV as community living room, so, when it gets colder people can still hang out together.
I have just built my first creative community out of 6 connected duplexes and all outside space is community space. It's turned out so well and at least once a month someone comes up to me to tell me how much they love living there.
I have another assemblage half a block from there and that's now my 2nd creative community. And my other rentals in the area are being furnished and I'm renting furnished bedrooms to creatives. I'm connecting all of them and I'm changing the neighborhood.
Creatives love to hang out together. They inspire each other, even if they use different media. And they pull others in, who just love the vibe.
I would say you should start with the basics and understand all aspects of operations. Also figure out what role you want to be in? Do you want to be an investor? Or do you want to be more involved? If you have limited funds then unfortunately you may have to be more involved in the beginning. As an investor, you cant really do well on a small property with a management company in place.
@Jimmy Klein - I'm looking to be an investor. Currently I DIY for rental properties and expect I will continue to be involved to the extent I am for the next few years until this no longer works for whatever reason. For something like a motel, would you hire a property management company or manage any necessary employees directly? It hadn't occurred to me to hire a property management company initially or for this type of investment. As someone seeking to DIY, where would you suggest I continue looking to understand all aspects of operations for a motel, above and beyond what I'm familiar with in a LRT.
So I'm still a bit confused do you want to DIY or be an investor? Those are two different things. As for hiring a PM company or managing employees directly, it depends on what you prefer and want. If you want to be truly involved then you dont need a management company, but bear in mind the time commitment that exist. I rarely ever see hotel owners doing DIY rental properties because you have only so much time to dedicate. Unfortunately with the hotel business, if you have 20 rooms, your looking at 20 toilets, 20 tenants that are constantly changing. You need front desk, housekeeping, maintenance. Very hard to DIY unless you drop your other activities and focus full time. If its a small property, a PM company would not make sense and just eat into your profits. Otherwise I suggest you start by either investing with an operator, working at a motel, or possibly investing in some lodging REITs to get some exposure. This is an asset class that has far greater returns that almost every other property type simply because the level of involvement needed. Its hard to dedicate time to other asset classes. Most of the hotel owners I know only specialize in this space because it requires a steep learning curve.
@Jimmy Klein thanks for the helpful replies. You answered my question. As someone who is DIY with dreams of being an investor, different types of investments will require adjustments to my current system. Your comments are helpful to see what some of those adjustments would need to be for a motel/hotel. thanks!
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