Hotel Investment Strategy

[Jeff Shane]

BP Family,

I am looking at purchasing a small hotel/motel (40 keys) and I'm wondering has anyone had any success using creative strategies (short-term option, owner financing, etc.) to work a deal? I know the parameters are way different from apartment buildings, but I would love some guidance please.

Thanks,

Jeff

[Jimmy Klein]

Attempting? If you have 20% of the money at closing, there are many conventional banks at might do 80% if the debt service coverage is there. You will need 20% at the closing table. This is also assuming you have a decent net worth to provide a guarantee. You could get seller to carry back 10%, but problem here is the location. The location is in a very rural market so unless the deal is very strong, banks won't be interested. Typically these type of properties in Texas command cap rates in the 30% range. I recently look at a Hampton Inn in a similar market in Texas that was going for a 20% cap rate. The debt service coverage on an amortizing basis for a market like this would need to be 2.5x for a bank to get interested. It may be less given that its located off I-10. I know this for a fact as I have dealt with this first hand. This property is also four hours away from your listed residence of Cypress, TX. I have been in the hotel business for 30 years and know for a fact that this is the type of property you will have to live on site for it to run smoothly.  Rule of thumb, you should be paying maximum around 2x that of the last twelve months of revenue based on this location. How much revenue has it done in the last twelve months and what is your purchase price?