Metrics when owning a hotel/motel
Hey all,
For those of you that are actively buying or have purchased a "Mom and pop" Inn or motel - what metrics matter the most to you? How does your underwriting look?
I'm an active multi-family buyer/investor and vacation property owner. Just looking for subtle nuances that may be not so obvious in my underwriting.
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#1 Short-Term & Vacation Rental Discussions Contributor
- Olympia, WA
Hey @Andrew Bosco. So a typical STR isn't really a hotel/motel/inn.
The biggest differences will be the taxable situation. Most STRs are considered passive.
A motel/inn/hotel will not be considered passive. It will be a business and will be taxed as such.
You will need to get with a CPA in order to quantify those differences. It will be important in the long run.
Otherwise, the differences will be along the lines of types of loans. Commercial vs residential or second home type loans. Higher interest and bigger down most of the time.
You will be competing against other boutique or small hotels AND STRs as well. Pricing will be a big consideration. Finding the right pricing will be key. You don't want to undercut as that will bring the worst kinds of guests.
You don't want to overprice and that will force folks to move to a STR home or the like. More space for the same price. That sort of thing.
Alot will come down to your lender. You should ask what kind of metrics they are looking for when buying an existing hotel/motel/inn type of business.
Hey Andrew,
Above all metrics - we made sure to pick an area that people were already traveling to, anyways. A vacation-destination market, with year-round travelers. Not just seasonal. Ours was the Poconos, PA market. Seeing you're up Northeast as well, with areas that have both lakes for summer fun and slopes for winter, I think you'll be OK in that regard.
You asked for subtle nuances that aren't seen in underwriting, so here they are..
1. We moved in. Depending on the size of the property, that may be appropriate, or it may not be necessary. We were at 43 units, young and dumb nothing to lose. We had management in the region anyways so this wasn't as difficult of a decision to bear. Ours was once "mom & pop" too, and is returning to be such with onsite managers 24/7, but all depends on the deal. If you find a vacant mom & pop motel with 8 units and just needs to renovate, obviously that will be a different story. But moving in allowed us to build the vision for the hotel while we were onsite, interact with our first guests to make sure everything was good, and the more. We don't think it'd be nearly as successful today if we / someone else wasn't onsite as often.
2.Cleaning/Laundry - we knew this would pose a hurdle, but not one as big as we planned. After all, you're running a hotel. High volume, fast turnover. You need to have a solution to this problem from the start. We were blessed to have a laundromat conveniently located down the street and been able to make a deal with the owner. Cleaners - we paid them a contract price per clean, which included labor for laundry and materials for cleaning (clorox/windex/floor cleaner etc.). We obviously supplies consumables. Being that cleaning was guest-paid in the reservation, we were able to control this quite well while still incentivizing top tier quality control with having a contracted per-clean rate. Not hourly. We didn't have time to manage employee cleaners. Cleaning is the lifeblood of this business. Don't be afraid to pay well for it. They also were able to take over our inventory for supplies and linens at no extra charge. It made their jobs easier.
3. Landscaping. We made sure to harbor a good % of our Reno budget just for landscaping, lighting, fire pits, lawn games, etc. People traveling these days don't just want to get away to their rooms, cuddle, and watch Netflix, they also want to explore and have an outlet to be outdoors. You don't need to go commercial-level with these things to get a return on them. Simple is fine, just do it right. We made fire pits and give the option to purchase bundles of wood to guests along with marshmallows/smores. Guests love it. And it's a revenue generator.
This is just a small peak - would be happy to chat more. This was without a doubt my favorite project we have ever done, I'll surely never forget it.
https://www.airbnb.com/rooms/854353424416830480?adults=1&...
Hope this helps!
Quote from @Tyler Winget:
Hey Andrew,
Above all metrics - we made sure to pick an area that people were already traveling to, anyways. A vacation-destination market, with year-round travelers. Not just seasonal. Ours was the Poconos, PA market. Seeing you're up Northeast as well, with areas that have both lakes for summer fun and slopes for winter, I think you'll be OK in that regard.
You asked for subtle nuances that aren't seen in underwriting, so here they are..1. We moved in. Depending on the size of the property, that may be appropriate, or it may not be necessary. We were at 43 units, young and dumb nothing to lose. We had management in the region anyways so this wasn't as difficult of a decision to bear. Ours was once "mom & pop" too, and is returning to be such with onsite managers 24/7, but all depends on the deal. If you find a vacant mom & pop motel with 8 units and just needs to renovate, obviously that will be a different story. But moving in allowed us to build the vision for the hotel while we were onsite, interact with our first guests to make sure everything was good, and the more. We don't think it'd be nearly as successful today if we / someone else wasn't onsite as often.
2.Cleaning/Laundry - we knew this would pose a hurdle, but not one as big as we planned. After all, you're running a hotel. High volume, fast turnover. You need to have a solution to this problem from the start. We were blessed to have a laundromat conveniently located down the street and been able to make a deal with the owner. Cleaners - we paid them a contract price per clean, which included labor for laundry and materials for cleaning (clorox/windex/floor cleaner etc.). We obviously supplies consumables. Being that cleaning was guest-paid in the reservation, we were able to control this quite well while still incentivizing top tier quality control with having a contracted per-clean rate. Not hourly. We didn't have time to manage employee cleaners. Cleaning is the lifeblood of this business. Don't be afraid to pay well for it. They also were able to take over our inventory for supplies and linens at no extra charge. It made their jobs easier.
3. Landscaping. We made sure to harbor a good % of our Reno budget just for landscaping, lighting, fire pits, lawn games, etc. People traveling these days don't just want to get away to their rooms, cuddle, and watch Netflix, they also want to explore and have an outlet to be outdoors. You don't need to go commercial-level with these things to get a return on them. Simple is fine, just do it right. We made fire pits and give the option to purchase bundles of wood to guests along with marshmallows/smores. Guests love it. And it's a revenue generator.
This is just a small peak - would be happy to chat more. This was without a doubt my favorite project we have ever done, I'll surely never forget it.https://www.airbnb.com/rooms/854353424416830480?adults=1&...
Hope this helps!
DO NOT FORGET ABOUT SEPTIC SYSTEMS! Whatever is there that's existing , make sure it can handle the volume at which you're planning to rent it out at.
As far as metrics for hotels, too many people and blogs obsess over REVPAR rather than GOPPAR (gross operating profit per available room). Focusing on profit rather than top line is always my guidance as it encourages you to automate and streamline processes, which often leads to innovations on the guest experience front. Digitizing processes in order to drive down costs really pays off. Of course, NOI is another key metric you'll want to estimate as you write up your scenario modeling.