Pricing a Motel
Hey BP,
I am looking for some input on how I may handle a current opportunity. There is a motel in a fairly nice area of town that is a total eyesore. It attracts unsavory guests and has obviously not received any investment for upkeep. Today I spoke with the owner via phone and he said he would sale and asked that I make an offer. I found that odd as I do not have any information to make an appropriate offer. Here are my questions:
1. Would I price this just like any other commercial property? (cash flow/CAP)
2. Does the land come with the business? It does in any other multifamily deal so I assume it would in this case.
3. Once I have the cash flow and cap rate for the area, how would I go about discounting the enormous amount of renovations that will need to be done?
4. Will I simply take the cash flow/cap and there is little negotiation?
5. Is it customary for a buyer to ask for a higher cap rate due to the amount of future investment needed or should I plan on getting an inspector to give estimated costs of repair which will be taken from the price?
Any feedback or help is greatly appreciated!!
Thanks!