Buying a motel, should I convert to multifamily?

Question

I am in the process of buying a 25 unit motel. The current owners have been operating for about 40 yrs and have bad record keeping. They say the expenses are 10k and the income is 25k. It is in ideal location for a multifamily conversion and is zoned for multifamily. Just curious if there are any suggestions on keeping it as a motel or multifamily. The price seems pretty good at 900k. Looking for some advice.

Evan Polaski · Answer

@Alix Cassagnol I am not sure how far "in the process of buying" you are, but from the limited info you present, I would say pass on the deal. Why am I confident in my opinion: per your post you are not even sure what to do with the property.

Nothing is a good deal if you don't know what you are going to do with it. I can already think of about 50 questions that I would want an answer for before I would begin the buying process of anything. I.e.

For a motel: what is your RevPAR and occupancy, what are your staffing needs and payroll associated, marketing budgets, renovation budget with any ADA upgrades needed, reserves, internet booking service. Is a motel even a legal use, since in typical zoning that is a lower class than MF.

For apartment conversion: conversion budget, ada upgrades needed, fire suppression and emergency exit requirements, occupancy, management. What are comps valued at, market rents, occupancy, financing, etc.

Joe Splitrock · Answer

@Alix Cassagnol converting to multifamily will usually reduce income. The big challenge is splitting utilities, so you are not stuck with the same expenses and lower income. You may not be able to split them at all. Have you considered short term or medium term rental (1-3 months)? This is similar to motel, but you can use booking platforms and get rid of daily cleaning.

Joshua Janus · Answer

Do you know anyone that is experienced in multi family or large conversions? You could partner with them and walk into this scenario with a lot more experience and preparation.

Ron Jacobsen · Answer

Alix,

You haven’t mentioned any background in this area but if you don’t have any experience with motels or multifamily I’d be very hesitant buying an older asset and getting into this category. Your renovation costs will be considerable and if you haven’t done a market study re: feasibility, I’d hold off.

Xavier Marin · Answer

Hello Alix,

Where is this motel located? Are there any major attractions in the area that would make it appealing to keep as a motel?

Tim Delaney · Answer

@Alix Cassagnol is that income and expenses monthly or annual? Owners that do not keep good records should not expect to be paid full price for their business since you cannot verify what they are giving you. Banks will also hesitate to loan without proven track record.

Nick Rutkowski · Answer

@Alix Cassagnol

I agree with Joe. To add to his response, if the property is located in NY you have to deal with the stricter tenant laws. If you decide to do extended stays you’ll have more leeway and control of your property. The property already has everything set up, you won’t have to put in as much cash as a multi family conversion. I run Airbnbs in Upstate NY and I make a decent ROI.

Elizabeth Pruett · Answer

I would love to get some photos of the property if you have them available. My motto is the more you are willing to risk, the greater the reward and although it sounds like you may not know what to do right now, perhaps you just need some ideas. So here is one: a motel that could be converted into an experience motel/hotel with a restaurant. One thing that is needed in my community is an experience motel with a great design with a fantastic brunch restaurant attached. I am thinking something girly but also something that guys would like to come and get drinks at. The possibilities are endless with a motel. Perhaps even check with the city and see about zoning half of the building into residential for long term tenants and the lower floor for commercial like barbers, or boutique shops. I'm looking forward to hearing about the problems you will solve, and the opportunities you will bring.

Pat L. · Answer

Not knowing the area it's in, but we have one locally that he inherited that he now uses as a 1/2-way housing. He has about 20 units & told me he pulls in $825/month/unit & most of it is subsidized. They remain on their best behavior to avoid compromising their conditional release/probation conditions. The units are probably not much bigger than the cells they recently shared & maintenance does not appear to be his strong suit.

Jon Kelly · Answer

@Alix Cassagnol you targeted a motel for a reason. Did you originally plan to stay with a motel or convert to multi-family?

If you truly didn't know what you wanted to do then why pursue motels to begin with?

Buying a motel, should I convert to multifamily?

Buying a motel, should I convert to multifamily?

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