How to break into the hotel business?
FL · Member since 2016 · 912 posts · 107 votes
I'm currently just starting out wholesaling and rehabbing. I have decided that if I'm ever going to do any buy and holds, they will be hotels. Am I correct in assuming the I should still use the BRRRR strategy? And buy a distressed hotel? Should I be direct mailing or should I look on sites like LoopNet and TotalCommercial? What should I be looking for in a hotel? I have been told that I should first become an equity partner in someone else's project, but I'd rather not tie up that cash if I could get it all back through refinancing.
What's my best strategy to start investing in hotels? Should I stick with flagged hotels only at first?
Running a hotel is unlike most other forms of commercial real estate. It's a business within a property and if you're going to succeed then you really need to learn the hotel business.
Not trying to be rude but the questions that you're asking indicate anything but the knowledge to run a hotel business to its full potential. There are a lot of good books out there I'd spend my time trying to learn as much as possible before jumping in. Some of the colleges also have continuing education classes on hotel management you can look into.
Just watched a video on BP about converting an old hotel into Studio apartments. Something to consider.
As far as hotels, just go to yelp in the area you want to invest in and find the hotels with the worst ratings. Then write the owners (find their info from local county office) and tell them you want to buy their building (or you want them to seller finance it to you) and go from there. I say the worst rated hotels because the owners might just be sick of owning them. For added ooopmh to your letters, get pre-approved for a multi-million dollar loan to purchase a building and include an actual price amount in the letter. When they see that number, and your letter, their money gears will start turning.
Just watched a video on BP about converting an old hotel into Studio apartments. Something to consider.
As far as hotels, just go to yelp in the area you want to invest in and find the hotels with the worst ratings. Then write the owners (find their info from local county office) and tell them you want to buy their building (or you want them to seller finance it to you) and go from there. I say the worst rated hotels because the owners might just be sick of owning them. For added ooopmh to your letters, get pre-approved for a multi-million dollar loan to purchase a building and include an actual price amount in the letter. When they see that number, and your letter, their money gears will start turning.
Thanks.
Do you know how to determine what price I should pay? Is there a formula? For example, here's a hotel that needs rehab listed...
http://totalcommercial.com/listings/36539?territor...
How do I determine my maximum offer?
How familiar are you with running comps?
How familiar are you with running comps?
Very. But are there enough comps for hotels? One thing I thought of was to look at the NOI and work backwards to make an offer based on cap rate.
Another question is...
If I'm trying to "break in" to the hotel business, I would want to buy a hotel that needs rehab. But would I be able to find a lender that would lend on such a property?
Running a hotel is unlike most other forms of commercial real estate. It's a business within a property and if you're going to succeed then you really need to learn the hotel business.
Not trying to be rude but the questions that you're asking indicate anything but the knowledge to run a hotel business to its full potential. There are a lot of good books out there I'd spend my time trying to learn as much as possible before jumping in. Some of the colleges also have continuing education classes on hotel management you can look into.
Patrick Philip comps are used on single family, and multi-family properties up to 4 units. Anything over 4 units is considered commercial properties, and are valued by cap-rate instead of comps.
That's what I said in my last post.
Running a hotel is unlike most other forms of commercial real estate. It's a business within a property and if you're going to succeed then you really need to learn the hotel business.
Not trying to be rude but the questions that you're asking indicate anything but the knowledge to run a hotel business to its full potential. There are a lot of good books out there I'd spend my time trying to learn as much as possible before jumping in. Some of the colleges also have continuing education classes on hotel management you can look into.
I'm a fast learner. I'll buy a book on Amazon right now. I have years before any of this becomes a reality, but I will be prepared. Plus, there is the fact that I would be hiring a general manager, and I am humble enough to learn from my employees. But, obviously, I would want to know everything that I can.
I can read this book in a few days and digest all the information, but that doesn't solve my problem of how to BUY a hotel? I see that there are many listed for sale on commercial real estate websites. Are they all good deals? Are none of them good deals? Do I need to find off market deals? If so, where do I look and how exactly do I "run the numbers" if I've never owned such a business before?
Patrick Philip I think the formula you are referring to is the inverted version of finding the cap rate. To find cap rate the formula would be, noi divided by value/price. To invert this to find value/price would be,value = noi divided by cap rate. This will give you a value to place on a property. I am new here, so stick around for other suggestions. Hope this gives you a starting point!
Yes, that would be the formula. Now the question becomes... What figure do I use for cap rate? Is there some standard?
The figure you would use for the cap rate would be the asking price. If you know your noi, and you know what the seller wants for the property, then you can then calculate the value of the subject based on this criteria. This very well may not be the true value of the property but, it gives you a snapshot of their story. Only after your due diligence, will you know the true value. Pm me, I am interested in discussing this further.
I'm 99% sure I just PM'ed you. I sent it along with a colleague request. I haven't received responses many times when I've done this. I don't know if I'm not using the PM system correctly or if people just don't like me. Lol.
@Patrick Philip I think it's great you want to learn the hotel business. I'm a 'shiny object' kind of person so I'm always looking to learn about new businesses. Hotels is one of them, I get emails all of the time from brokers of hotels because of a one-time passing interest in them.
I would definitely suggest you spend a lot of time reading up on the subject. Look up REV PAR for some interesting info. Also look at 10q/10k public reports from the big hotel companies. It's free and they will tell you more than you want to know about the hotel business.
One thing you will find in that research is that hotels are having a structural technology problem right now because of websites like AIRBNB, VRBO, etc.
If you're wanting to get into the lodging business why not start on the right side of technology? Buy yourself something near the beach and become a host.
Patrick Philip I think the formula you are referring to is the inverted version of finding the cap rate. To find cap rate the formula would be, noi divided by value/price. To invert this to find value/price would be,value = noi divided by cap rate. This will give you a value to place on a property. I am new here, so stick around for other suggestions. Hope this gives you a starting point!
Yes, that would be the formula. Now the question becomes... What figure do I use for cap rate? Is there some standard?
Ok I'll bite, only because if really like to see a new investor start off on the right foot. First , please refer back to my previous post where I mention that these types of questions indicate that you need to do a lot more research. Don't take that the wrong way but take it as motivation to get started then jump right in to the learning.
Now there are no standard Rates anywhere or for any property type that are going to help you figure out what to offer. Your approach is also going to be determined by whether you were looking at a listed properties or if you have leads for off market properties as the negotiation style and what you may be able to offer could be different in these situations.
A cap rate is simply a benchmark so that buyers and sellers can see what expectations are for a given property type in a market. There are no rules as to what level A property will price out and it's all going to be reliant on the motivations and desires of the seller. Different classes of hotels, franchise flags, number of rooms, location by city and also location with in a city, length of time remaining on a franchise agreement, amounts of any upcoming PIP, property condition, and a number of other factors will always in to an appropriate cap rate For a property. Without knowing more about what you were looking for there is literally no way to answer what cap rate you should offer.
Patrick Philip I think the formula you are referring to is the inverted version of finding the cap rate. To find cap rate the formula would be, noi divided by value/price. To invert this to find value/price would be,value = noi divided by cap rate. This will give you a value to place on a property. I am new here, so stick around for other suggestions. Hope this gives you a starting point!
Yes, that would be the formula. Now the question becomes... What figure do I use for cap rate? Is there some standard?
Ok I'll bite, only because if really like to see a new investor start off on the right foot. First , please refer back to my previous post where I mention that these types of questions indicate that you need to do a lot more research. Don't take that the wrong way but take it as motivation to get started then jump right in to the learning.
Now there are no standard Rates anywhere or for any property type that are going to help you figure out what to offer. Your approach is also going to be determined by whether you were looking at a listed properties or if you have leads for off market properties as the negotiation style and what you may be able to offer could be different in these situations.
A cap rate is simply a benchmark so that buyers and sellers can see what expectations are for a given property type in a market. There are no rules as to what level A property will price out and it's all going to be reliant on the motivations and desires of the seller. Different classes of hotels, franchise flags, number of rooms, location by city and also location with in a city, length of time remaining on a franchise agreement, amounts of any upcoming PIP, property condition, and a number of other factors will always in to an appropriate cap rate For a property. Without knowing more about what you were looking for there is literally no way to answer what cap rate you should offer.
I'm looking for the most profit possible. Whether that's through rehabbing or buying a turnkey hotel. The only I know I'm NOT trying to do is a mom-and-pop where I have to be on-site. But after reading the post above, it may make sense for me to do AirBNB's instead. That certainly would be a lot easier to get into.
@Patrick Philip I think it's great you want to learn the hotel business. I'm a 'shiny object' kind of person so I'm always looking to learn about new businesses. Hotels is one of them, I get emails all of the time from brokers of hotels because of a one-time passing interest in them.
I would definitely suggest you spend a lot of time reading up on the subject. Look up REV PAR for some interesting info. Also look at 10q/10k public reports from the big hotel companies. It's free and they will tell you more than you want to know about the hotel business.
One thing you will find in that research is that hotels are having a structural technology problem right now because of websites like AIRBNB, VRBO, etc.
If you're wanting to get into the lodging business why not start on the right side of technology? Buy yourself something near the beach and become a host.
Good point. I should just do AirBNB's. I don't know how I didn't think of that seeing as I just stayed in one LAST WEEK. Lol.
So I should buy distressed properties, rehab them, rent them AirBNB, then refinance and I'll be in with no money, at least in theory. I could buy one after the other and have someone manage them for me.
First off, the BRRRR strategy doesn't work for hotels because unlike houses, banks are not going to let you pull out a million dollars within a year. In the hotel business, the rehab and sell method has been around for ages, but the difference is that it takes years. Unlike a house, that you can rehab and rent within six months, hotels that are rehabbed take about a few years to realize that value. People don't just start staying at your hotel within two weeks of rehab, it takes marketing, sales effort, retraining of staff, etc. You have to eliminate years of negative perception about the property from people's minds. This isn't done overnight.
Second part, not to sound rude, but if you are not planning to be involved in the business and think a GM will solve everything, let me stop you right there. If you cannot commit your own blood and sweat, you will lose your shirt. Either your completely involved in the business or you are not in the business. This isn't multifamily or retail where you collect rent and relax. Here you have daily turnover, you have a housekeeping team, maintenance team, front desk.
Books won't help you in this business, you need to experience the business and if you think this is a passive investment, I would recommend you find another interest. I still recommend you get a job at a hotel front desk to learn the ropes. I am sorry for being harsh, but I think you need to do a lot more research just based on the questions you are asking.
There is a reason why hotels have the highest returns out of all real estate asset classes...it requires the most time and energy.
First off, the BRRRR strategy doesn't work for hotels because unlike houses, banks are not going to let you pull out a million dollars within a year. In the hotel business, the rehab and sell method has been around for ages, but the difference is that it takes years. Unlike a house, that you can rehab and rent within six months, hotels that are rehabbed take about a few years to realize that value. People don't just start staying at your hotel within two weeks of rehab, it takes marketing, sales effort, retraining of staff, etc. You have to eliminate years of negative perception about the property from people's minds. This isn't done overnight.
Second part, not to sound rude, but if you are not planning to be involved in the business and think a GM will solve everything, let me stop you right there. If you cannot commit your own blood and sweat, you will lose your shirt. Either your completely involved in the business or you are not in the business. This isn't multifamily or retail where you collect rent and relax. Here you have daily turnover, you have a housekeeping team, maintenance team, front desk.
Books won't help you in this business, you need to experience the business and if you think this is a passive investment, I would recommend you find another interest. I still recommend you get a job at a hotel front desk to learn the ropes. I am sorry for being harsh, but I think you need to do a lot more research just based on the questions you are asking.
There is a reason why hotels have the highest returns out of all real estate asset classes...it requires the most time and energy.
Okay. I don't think I would want to rehab and sell, though. I'd rather keep the investment.
I think I'm going to start off with AirBnB's and see if I can get that to work.
How do I know? I tried it. Simple.
Just so happened that the owner was selling the last of a flag ship brand. They are investors. Meaning other people are/will be the ultimate end buyers.
So are you saying it's impossible for me to buy a hotel? Even if I had the money?
Hi Patrick,
You can find hotels to purchase by walking into a property and speaking with the owner. It is no more mysterious than buying an apartment building directly from an owner. But you are buying a business, so you need to learn it. Watch "Hotel Impossible" on the Travel Channel to get an idea of the issues you will face.
Like apartments, the idea is to find a property that has been mismanaged and has deferred maintenance that is charging below market rates with low occupancies in a fairly decent area with good market drivers. Assuming the delta between you subject property and the competition is large enough, it might be worthwhile to make a run at it.
@Patrick Philip, Talk to hotel owners. They are nice people for the most part. I got interested in hotels about a year and a half ago and started talking to people. I found I had 2 friends that own multiple hotels each (they don't even know each other and they're in the same small town). I've also asked around and found that other owners have been really helpful in sharing their experiences. I've also been reading books and articles on hotels and hotel investing, and have been analyzing deals and submitting offers. Hotels are a whole different animal and is nothing like SFR or multi-family. @Jimmy Klein has some really good info in his reply, and he's got a lot of experience with hotels.
-Paul