Hotel/ Motel Investment

17 Replies

Hello! My business partner and I are considering investing in a 24 room inn/motel that is for sale in our area - this is our first property outside of apartment buildings, so I am hoping to find someone with expertise in the hotel business that could help give me some insight. Is anyone out there familiar? It will just take a few minutes of your time and would be so, so appreciated!

@Shiv Patel
I have a bunch of rentals now and I think I understand the game in that space. I want to explore motel space. I want to dip my toes using a very entry level motel as a learning vehicle. I have identified a few out of state properties but the lender I used to acquire my apartment/SFH portfolio says that they would not lend on a motel.

So the question I have is, how does lending work for motel space? How much down payment is typically needed? Can you suggest some lenders who will offer financing for motels? I want to stay under 1M for purchase price of motel. 

FYI. For rental investment properties I used 20% down. For my first motel, I want to find cheapest beat up motel and happy to be owner operator. 

Hi @Mark Zajaczkowski

im still exploring this space, I have figured out answer to my lending problem. But Im still curious about other aspects in this space.

Only if you feel comfortable and have time, would you mind enlightening us on:
1) How did you find your deal?

2) What was your due diligence like? Especially, how did you ensure that the financials that they shared with you were not "massaged"/inflated/sugar coated?

3) What was the purchase price, how much did you put down and how did you secure your lending, which lender did you use and what kind of financing terms did you get?

4) Was your purchase independent motel/hotel or a flagged/franchised?

I wish BP did more in this space, but it has been a challenge to find any good answers in motel/hotel space. And I will really appreciate if you threw some light on it but if you dont I would understand (you just bought a motel, you are a busy man). And congrats!

Thanks,
Rohit

@Rohit Verma

1) Both me and my business partners are teachers. I teach about 2 miles away from the motel. The listing agent is one of my student's mom. 

2) The financials was one of the most challenging aspects of getting the deal done. Every bank I went to didn't like the motel's financials. However, my business partner and I were able to give more realistic projections. I believe the previous owners were taking a lot of cash payments (if you know what I mean). We tried not to dwell on the previous owners PnLs, but rather built a simple business plan looking toward the future. Luckily, I've taught up in this area for 4 years now and know the market pretty well. Being a "local" in the community definitely helped me.

3) Asking price was 395k, purchase price was 355k. We put 80k total down (My 40k was from a HELOC on my primary and my business partner's 40k was from his savings). We used a local bank, literally 250ft away from the motel. I believe ours is a 20/25 yr lease, around 4.5% APR and we should be able to refinance in a couple years.

4) Ours is an independent motel.

Please let me know if you have more questions! I know, I'm kinda bummed there isn't more of a community in the motel space. It's kinda lonely sometimes lol, I hope we made the right decision!

1) "I teach about 2 miles away from the motel." - awesome, I think this will come in handy when its your first time buying a motel.
2) "Asking price was 395k, purchase price was 355k" - which implies motel/hotel space is isolated from bidding wars we see in residential space. That's good to know.


Im coming from residential space (Single family and condos), having said that, I got ...

More questions :-)
A) So were you able to use a guy would normally do single family home inspections to inspect your motel too? Or is there such a thing as commercial motel inspector?
B) What about insurance? Were you able to use the same company that you use say for your primary to insure your motel?

C) How does property tax look like? Would you mind sharing your PITI and monthly payments you are expected to make to your lender?

D) Since you guys are full time teachers, Im expecting you have people (at least a manager/reception and one person for cleaning)? How many rooms is this property? Where in western Colorado are you guys? Im all over Denver, Longmont, Thornton, Westminister and South Denver/DTC area.

E) Since the previous owners were adventures (accepting cash etc), how would you guys go about ensuring that if you have employees then all the workers compensation and labor related laws are being abided by ie you dont want your employees to take advantage of novice bosses and sue you for some corner case violation? Just as Im asking this question, Im thinking make everyone contractor (thats one thing I have learnt from our friends at Uber/Lyft) lol

Those are too many questions, I would be happy to meet you guys any weekend, drive to you, volunteer for you (wax on wax off lol from karate kid) for your time while I pick your brain some more.

If you guys are not camera shy, I would say go for a Youtube channel documenting the whole process, turn monetization on and you might end up making some money , given the lack of such content. If you are camera shy (like me, well Im also ugly lol) then in  that case just continue posting your progress on BP, im sure many would appreciate.

Also, if your agent is here on BP please let me know, Im super interested in buying a similar property (far far away from yours of corse lol).



@Rohit Verma I Ha haa. I liked your enthusiasm with a twist of humor.

Yes, I see lots of hotels come up for auction since Covid. It would be an interesting space to ‘but low’ and hold for when hotels become cool again.

@Jai Reddy
If you happen to come across any beat up motels/hotels in Colorado area do let me know. I have found one myself but the listing agent was too busy to respond to my voice mails ( I left two of those). Then I tried her assistant who told me that she will respond back after discussing with the agent, property is unpriced, owner has no financials and the assistant's only question to me was how much did I wanted to offer. She has not gotten back to me yet, its been 2 days. I feel for the seller who is relying on these lousy agents who couldnt care less if it sells or not.

Anyways, I found out where the owner lives and this weekend Im planning to "accidentally" bump into him :-)

Originally posted by @Shiv Patel :

Happy to help. We've been investing in hotels for quite some time. 

Wow!!! Before I saw your post I was thinking of the name 'Patel' since we have a 16-room motel 200 feet across the street from my office and the owner's last name is Patel. There must be a lot of money in the business because I am always amazed about how much money he spend on the motel and he tore down a separate house he lived in on the property and build a mansion.

As for someone investing who has no experience, I think someone who invests in a hotel or motel should understand that it is a 24-hour business that requires 100% around-the-clock employees willing to work during every major holiday even during the worst weather conditions, storms, or through whatever crises and current events are happening.

The business requires several different shifts of workers for the front desk, several shifts of room-cleaning workers since many hotels and motels have guests coming and going 24/7 and they want to re-rent rooms asap, constant room maintenance for plumbing, heating and cooling and the guests come in all shapes and sizes with all sorts of inherent problems when it comes to the things they do both on the property, in the rooms, on the bed linens and then add the dealing with drug addicts, potential prostitution, potential sex-trafficking, potential sexual abuse in general and abuse of a minor, damage to the property, out-of-control parties, lovers having fights on the property and in the rooms, damage and theft to the linens, damage to bedspreads, and damage to the flooring.

Since I am a plumbing contractor, many motels and hotels call my company to remove drug addicts' heroin needles stuck in toilet bowls.

Before making an investment into a hotel or motel an investor needs to take a serious long amount of time to look at the books to see whether or not business in the area is declining, but since the hotel and motel business is one of the greatest   cash businesses' in this country you can bet that many sellers will make you well-aware that the 'real' income cannot be verified.

I did a lot of research for the past 20+ years, looked at more than 100 hotels and motels for sale and declined to purchase most of them due to the decline in sales in most areas they were located in. Many of the motels I looked at were eventually torn down and many were less than 1 mile from huge amusement parks like Disneyland and Knotts Berry Farm a fairly well-know and super busy amusement park only 7 miles from Disneyland.

So, don't let sellers fool you with words like 'lot of money in the business' because every business has some sort of inherent problems and you should want to find a business with the least number of inherent problems and the best ROI.

More questions :-)
A) So were you able to use a guy would normally do single family home inspections to inspect your motel too? Or is there such a thing as commercial motel inspector?

Yes, our realtor recommended her inspector that she uses. He had never done a motel before, but the inspection went well about $700 and I walked through the entire property with him during the inspection. Truthfully, he just covered all the systems like you would in a home inspection.

B) What about insurance? Were you able to use the same company that you use say for your primary to insure your motel?

Insurance was one of the more challenging parts of acquiring the motel. We tried to use some local companies, but we were turned away by quite a few or the quotes were ridiculously high. We ended up using Biberk (Berkshire Hathaway), they were very easy to work with and commercial space seems to be their jam. We pay roughly $500 a month for our policy right now. We're hoping next year we can shop around more to get this number lower. We had to go with BiBerk b/c we needed proof of insurance by closing.

C) How does property tax look like? Would you mind sharing your PITI and monthly payments you are expected to make to your lender?

Our monthly payments are a little under $1600, I don't have the breakdown in front of me, but that includes principal, interest and taxes. We pay the insurance separately, so around $2100-2200 total.

D) Since you guys are full time teachers, Im expecting you have people (at least a manager/reception and one person for cleaning)? How many rooms is this property? Where in western Colorado are you guys? Im all over Denver, Longmont, Thornton, Westminister and South Denver/DTC area.

Currently, we have one cleaner. The cleaner lives very close to the motel. We are 14 rooms, 2 floors. We are in Collbran, Colorado about 45 minutes away from Grand Junction.

E) Since the previous owners were adventures (accepting cash etc), how would you guys go about ensuring that if you have employees then all the workers compensation and labor related laws are being abided by ie you dont want your employees to take advantage of novice bosses and sue you for some corner case violation? Just as Im asking this question, Im thinking make everyone contractor (thats one thing I have learnt from our friends at Uber/Lyft) lol

So, it is just me, my wife, my business partner and his girlfriend managing the motel currently. We upgraded the doors to keyless entrys and we have an amazing property management software to keep our bookings in line. My wife and I have a couple rental properties, so we are a little seasoned with property management to make our systems/communication more efficient.  And also finding a local cleaner has been a game changer for us.

Let me know if you ever head over this way and we would be happy to show you what we're doing. 

Jen Taylor (Christi Reece Group) was our agent. I've done a couple deals with her. She is the best (I will never use another realtor and we've recommended her to many of our friends and family for purchasing homes in the Grand Junction area). Also, she is building an awesome campground on the Colorado River in Grand Junction.

@Rohit Verma

I look at auctions on Tenx and there’s a bunch of hotels all over the country coming up for auction.

What @Jack Orthman says is something to keep in mind about the hotels (the multiple shifts requiring various types of personnel)

Originally posted by @Rohit Verma :

1) "I teach about 2 miles away from the motel." - awesome, I think this will come in handy when its your first time buying a motel.
2) "Asking price was 395k, purchase price was 355k" - which implies motel/hotel space is isolated from bidding wars we see in residential space. That's good to know.


Im coming from residential space (Single family and condos), having said that, I got ...

More questions :-)
A) So were you able to use a guy would normally do single family home inspections to inspect your motel too? Or is there such a thing as commercial motel inspector?
B) What about insurance? Were you able to use the same company that you use say for your primary to insure your motel?

C) How does property tax look like? Would you mind sharing your PITI and monthly payments you are expected to make to your lender?

D) Since you guys are full time teachers, Im expecting you have people (at least a manager/reception and one person for cleaning)? How many rooms is this property? Where in western Colorado are you guys? Im all over Denver, Longmont, Thornton, Westminister and South Denver/DTC area.

E) Since the previous owners were adventures (accepting cash etc), how would you guys go about ensuring that if you have employees then all the workers compensation and labor related laws are being abided by ie you dont want your employees to take advantage of novice bosses and sue you for some corner case violation? Just as Im asking this question, Im thinking make everyone contractor (thats one thing I have learnt from our friends at Uber/Lyft) lol

Those are too many questions, I would be happy to meet you guys any weekend, drive to you, volunteer for you (wax on wax off lol from karate kid) for your time while I pick your brain some more.

If you guys are not camera shy, I would say go for a Youtube channel documenting the whole process, turn monetization on and you might end up making some money , given the lack of such content. If you are camera shy (like me, well Im also ugly lol) then in  that case just continue posting your progress on BP, im sure many would appreciate.

Also, if your agent is here on BP please let me know, Im super interested in buying a similar property (far far away from yours of corse lol).



Don't even think about saying that employees are contractors or what is called by the IRS 'EXEMPT' meaning they are independent contractors and you don't need to take taxes from their checks. My company had 18 worker comp lawsuits between about 2018 to 2020 and 3 civil lawsuits and every my employees claimed in all 3 civil lawsuits that I claimed then as EXEMPT when I had copies of all their tax records and my employees signed a copy of their Weekly Wage Earning Statements every week and I retained copies. Each lawsuits was requesting about $500,000 just for their claims that I treated them as Exempt employees. 

What some people do (not me) is they, at least, tax employees who work 5 days for at least 2 days every week. This, at least, covers employees for worker comp insurance, disability, etc.

One of the most important thing that businesses need to investigate and study on websites is how companies get by using undocumented workers. They use fake social security numbers, tax the workers, pay for their worker comp insurance and our great government loves that method and will do absolutely nothing to the business owners because our government is raking in billions of dollars and the government does not have to may the illegal workers one penny for benefits. Some websites claim that 50% of the illegal workers pay 100% of the taxes due from their earnings, but I don't believe that number, at all.

In California, I will bet that 60% to 70% of all the construction workers and restaurant workers are undocumented.

@Mark Zajaczkowski
1) For inspection, 250 for a 1 or 2 bedroom condos, 500 for a single family is pretty common in front range. So 700 for 14 rooms. I think you guys got a great deal.
2) For expenses (cost of owning real estate primarily, excluding labor and utilities) 2200/month is not too bad either.
3) Like your idea of keyless locks, makes manager's life easier. I too have Schlage Connect locks on all my properties that allows me to remotely open/close lock and most importantly change door codes. If I were to argue this could be taken a step further, instead of having onsite manager stick a (at least) 32 inch display, hook it up to a portable computer with camera running zoom  call, place a self checking kiosk at the reception where new customers could look at available rooms and see their prices, if they book it, they swipe their card (hook up a square reader or similar) and they get door code for their room displayed, for old school people they press a "help me" button and anyone from the team (you, your wife, your partner or his gf) could join on zoom call and give them human help. It just seems so _inefficient_ to have a full time person tied up just to do a checkin. They could be out watching movie, doing something else or teaching a class. For anything that needs 5-minutes physical presence simply ask the onsite cleaner and pay them extra for those interruptions. Just some thoughts. Or a teenager on phone could do the same too. They can run Dairy Queen and McDonalds so they should be able to do this as well and if you teach you should be able to find plenty of teenagers. That should reduce labor costs a lot.




@Jai Reddy
Speaking of auctions on Tenx, do you (or anyone else on this thread) know any good method of seeing hotel/motel sale history? Like for residential, I can see entire history, when it hit MLS, were there any recent price reductions and even if I dont end up purchasing property and someone else snaps it from me I still like seeing how much it went for. I dont see those details on Tenx, like comp data is not there at all and I understand in hotel/motel space the way they do valuation is different from residenital space but I think it matters to me, I think a tool which could let me input any hotel/motel/or office building property address and give me its full sale history will be very valuable to me.

@Jack Orthman
"Don't even think about saying that employees are contractors or what is called by the IRS 'EXEMPT' meaning they are independent contractors and you don't need to take taxes from their checks."

Thank you for your comment but I dont think I fully understand it, I probably need to educate myself more before making sense of it. The definition I have in my head is, non-exempt employees are generally people at leaf end of organization's org chart, like I work for tech so I see manufacturing people come in and swipe their entry/exit card and for every extra hour of overtime they get paid 1.5 times, whereas we dont have any entry/exit card swipe requirements, if a project needs 50 hours on a particular week from us we dont get paid any overtime coz we are exempt employees. And I thought contractors by definition are paid for every hour they work unlike "exempt" employees where there is no overtime.

You shared some very interesting thoughts on illegal/undocumented workers. Before coming to USA, I spent 10 years in the UK and I know British had very hefty penalty 10,000 GBP per illegal worker. I can see in USA government does not care, if they really cared Im pretty sure they can fix that problem, but current solution to get rid of all the illegal work seems to be going in the direction of "make every illegal worker legal". Anyways, to me this falls in the category of shady area, some businesses might use these tactics to improve their cash flow but Im pretty sure a business (if done right) can still be profitable without such "optimizations"

Anyways, thank you all for your inputs, I appreciate it.

Originally posted by @Rohit Verma :

@Mark Zajaczkowski
1) For inspection, 250 for a 1 or 2 bedroom condos, 500 for a single family is pretty common in front range. So 700 for 14 rooms. I think you guys got a great deal.
2) For expenses (cost of owning real estate primarily, excluding labor and utilities) 2200/month is not too bad either.
3) Like your idea of keyless locks, makes manager's life easier. I too have Schlage Connect locks on all my properties that allows me to remotely open/close lock and most importantly change door codes. If I were to argue this could be taken a step further, instead of having onsite manager stick a (at least) 32 inch display, hook it up to a portable computer with camera running zoom  call, place a self checking kiosk at the reception where new customers could look at available rooms and see their prices, if they book it, they swipe their card (hook up a square reader or similar) and they get door code for their room displayed, for old school people they press a "help me" button and anyone from the team (you, your wife, your partner or his gf) could join on zoom call and give them human help. It just seems so _inefficient_ to have a full time person tied up just to do a checkin. They could be out watching movie, doing something else or teaching a class. For anything that needs 5-minutes physical presence simply ask the onsite cleaner and pay them extra for those interruptions. Just some thoughts. Or a teenager on phone could do the same too. They can run Dairy Queen and McDonalds so they should be able to do this as well and if you teach you should be able to find plenty of teenagers. That should reduce labor costs a lot.

Thank you for sharing your Instagram, I will create a account for myself to see updates from you. Also, thank you for sharing your agent's details I will reach out to her to see if see has anything in front range.


@Jai Reddy
Speaking of auctions on Tenx, do you (or anyone else on this thread) know any good method of seeing hotel/motel sale history? Like for residential, I can see entire history, when it hit MLS, were there any recent price reductions and even if I dont end up purchasing property and someone else snaps it from me I still like seeing how much it went for. I dont see those details on Tenx, like comp data is not there at all and I understand in hotel/motel space the way they do valuation is different from residenital space but I think it matters to me, I think a tool which could let me input any hotel/motel/or office building property address and give me its full sale history will be very valuable to me.

@Jack Orthman
"Don't even think about saying that employees are contractors or what is called by the IRS 'EXEMPT' meaning they are independent contractors and you don't need to take taxes from their checks."

Thank you for your comment but I dont think I fully understand it, I probably need to educate myself more before making sense of it. The definition I have in my head is, non-exempt employees are generally people at leaf end of organization's org chart, like I work for tech so I see manufacturing people come in and swipe their entry/exit card and for every extra hour of overtime they get paid 1.5 times, whereas we dont have any entry/exit card swipe requirements, if a project needs 50 hours on a particular week from us we dont get paid any overtime coz we are exempt employees. And I thought contractors by definition are paid for every hour they work unlike "exempt" employees where there is no overtime.

You shared some very interesting thoughts on illegal/undocumented workers. Before coming to USA, I spent 10 years in the UK and I know British had very hefty penalty 10,000 GBP per illegal worker. I can see in USA government does not care, if they really cared Im pretty sure they can fix that problem, but current solution to get rid of all the illegal work seems to be going in the direction of "make every illegal worker legal". Anyways, to me this falls in the category of shady area, some businesses might use these tactics to improve their cash flow but Im pretty sure a business (if done right) can still be profitable without such "optimizations"

Anyways, thank you all for your inputs, I appreciate it.

 a Non-Exempt employees are the employee who are not exempt from having their employer take payroll taxes from their paychecks and then those employers have to pay the IRS and other government agencies the taxes they deducted plus pay extra money by matching some of the taxes.

All employees who are under the full control of their employers for the time they report to work until they leave, employees who are under the full supervision of their employers, employers who are provided with all their tools by their employers and the list goes on.

Exempt employees are not employees. They are independent contractors. Unlike an exempt employee, an employer does not and cannot tell an Exempt employee when to report to work. Generally, employers do not provide independent employees with their tools. Take an exempt worker who installs a new roof for an employer. In that case, the employer does not micro-manage the employee by telling the employee what time of day to start, how many hours to work, how to install the roof, etc.

The dilemma we have in the entire United States is the Americans DO NOT WANT TO WORK HARD for the money they earn. There is a super high amount of businesses in the United States that cannot find workers who will do construction work, do the dirty work in meat packing plants, or pick our crops in the 120 degree heat before our crops spoil. This is no joke!

I am 100% forced to hire a significant number of undocumented workers. Otherwise, I have two choices; YOU can pay me 300% more for my services, or I can close my business. This is the same dilemma a high percent of businesses have.

YOU don't want to pay $20 per pound for apples, grapes and vegetables. Nobody wants to pay 300% more to have a home built. So, the exact same people who complain about the undocumented workers use them every day of the week for gardeners, to clean around their homes and for every construction service when they pick the undocumented workers up at Home Depot. BUNCH OF HYPOCRITES!!! 

The major problem we have with undocumented workers is I see their are two types; those who believe in learning English and getting an education and those who work in this country and never want to learn one word of English and they are so ignorant it is unbelievable. The problem with the ignorant workers is when you lay them off, or need to fire them for any reason you can bet that 100% of those workers will file a post-termination workers comp lawsuit and/or a civil lawsuit for discrimination, retaliation and the reason they file lawsuits is because they are ignorant, can't easily find another job and for the easy cash.

I will tell a little more information I think is very interesting about how our government and the system works. If you hire an undocumented worker and you know he (or she) does not have a social security number you cannot terminate that worker because then you are being discriminatory and the undocumented worker will sue you. That is not a joke because I had that problem several times.

Example. I received a letter from California EDD (unemployment office) stating that six of the social security numbers my employees were using were not valid. The form included the 6 employee's names and the incorrect social security numbers. The form clearly stated DO NOT DO ANYTHING and DO NOT TERMINATE THE EMPLOYEES. That is all the form stated. The form did not even request that I correct the social security numbers. As long as I continued to pay the taxes for the employees I was in the clear and I was not violating any laws. NOBODY CARES! And...our government loves undocumented workers because companies like mine pay the taxes and our government does not provide undocumented workers with any of the benefits they pay for. So, our government keeps the money.

When you get into trouble with undocumented workers is when you don't pay taxes for them. So, pay taxes regardless of what social security number your employees give you and if you ever get sued by your employee you won't be threatened with having to pay almost $1million for damage the employees sue for  e.g. not paying for their benefits they can't get, anyway, but at least you didn't cheat any government agency and you did pay.