Has anyone bought/invested a hotel?

Question

There is a hotel near by for sale with over 11.85% CAP. Any pros and cons for owning a hotel?

Cason Acor · Answer

Hotels are popular investments for a lot of commercial investors. However, they’ve been hit the hardest by the pandemic and you are buying an actual business, so it’s harder to be hands off. But that also means that you can get an SBA loan to buy a hotel with a lot less money down.

Another thing to note, is hotels routinely sell for 10+ cap rates, even in good markets. So just because you see a hotel listed for an 11.85 cap, doesn’t necessarily mean that it’s a steal.

Justin Bauer · Answer

Its a business and not a passive investment. If you want to run a business you can turn it into a 20 cap rate.

Shiv Patel · Answer

The cap rates/returns will be significantly higher compared to other asset classes due to the higher risk profile associated with them. The key difference is the management. Hotels require more extensive and hands on management compared to that of multifamily. Pros are honestly the higher returns compared to most property types. Cons are that you just have to be more involved. It is a misconception that hotels are extremely risky. The properties we own are limited service hotels which are easier to manage. Historically our hotels have done well even in recessions. For example, during the financial crisis, the average occupancy drop was only around 10%. Obviously the pandemic has been pretty rough, but everyone has been hurt here. The banks have been very friendly and willing to help as well so most hotels will be fine through this crisis.

Bill F. · Answer

Can't give a lot of actionable advice without more info like size, type(airport, vacation, B&B ect), affiliation(if any), classification (economy, midscale ect)

Pros: Short lease terms so you can always have the market rent.

Lots of units to easily spread occupancy over.

Depending on the classification, you have a diverse revenue stream( Food and Bev, parking, events,)

Cons: As said before, these are business with a RE component. You will have to have staff, turnover, suppliers.

Again depending on the classification and type, COVID could have a large impact on the occupancy. For hotels overall, about 60% of their room nights came from business travelers; for hotel airports this can be north of 80%. When a new normal arrives it may not bring with it the same level of business travel. With the supply fixed in a given area and reduced demand, that could spell cutthroat price competition for the remaining travelers.

All of this isn't to say that they are bad investments, but that now may not be the best time to get into them if you want a passive investment and have little knowledge of the industry. At the end of the day, the price will play a large role in the decision. From my point of view, a 10 cap isn't inline with the risk you'd be taking on.

Has anyone bought/invested a hotel?

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