All Forum Posts by: Leon Lee

Quote from @James Alderman:

I'm sure that you have photos for potential guests to view through the booking platform. Will you wait until all the rooms are finished to update the property photos? I wouldn't want to post photos of the renovated rooms, and then have a guest upset because they get an older room. 

You could create "updated rooms" as one booking choice at a higher price point. You'll need to carefully manage the booking allocation as rooms are finished, and have solid schedules that are stuck to, to maximize cash flow. Or only switch the allocation as rooms are finished, lose some of the potential increased rates, but have some happy, surprised guests when they get an updated room after paying for an older one.

I hope that makes sense.

 Yes, that makes a lot of sense: We always listed our other airbnb units individually and we are learning how to handle multiunits in Guesty for this motel!

Thanks again!

Lee

Quote from @James Alderman:

Are you saying that you would gut and renovate units incrementally until all the rooms are done?

 James

We have two choices: (1) to incrementally improve all units by replacing mattresses, beddings, furnitures, etc., and then gut one or two units at a time, until all units are renovated OR (2) do not do any improvements on most of the units, except the ones that are being majorly renovated. 

Thanks

Lee

Quote from @Michael Baum:

Geez @Leon Lee, that sounds both awesome and terrible at the same time. A couple of questions:

Do you have all the funds to completely redo the whole place at once? Can you absorb the loss of revenue while that occurs? Where is it located? Are there some rooms better than others? How far away are you from the property?

Personally I would plan to do the whole thing at once if I could. Otherwise, do a minor clean up in the best rooms and go from there. i would immediately toss each and every mattress in the place and start there. Remove carpets and replace with some kind of LVP on the cheap. Take care of the obvious problems in all the rooms right away. Then pick the worst 2 and start there.

Some pics would be helpful. Good, bad and ugly.

 Michael

Thank you for the info, which is very helpful! 

We do have funds to completely redo the whole place at once. But we are afraid that with so many units being gutted and renovated, any hiccups or market downturn could put us in a very bad situation. I am 7 hours drive from the property, which adds another lay of complexity. So long distance + major renovations + many units being worked on simultaneously do not sound good to me. That is why we are thinking about to first incrementally improve the condition of the units (to make it acceptable), and then gut them one or two at a time, until all units are being turned. This way, we continue to have cash flow coming in, and if we happen to have a bad contractor or one or two units and/or some permit/regulation related issues, the scale of the damage won't be too overwhelming. 

Are there any other points that we need to pay attention to?

Thanks again!

Lee

Hi, Fellow BPers

I have a question on what strategy is the best on turning a rundown motel we recently purchased and would appreciate your inputs:

This is a 20-unit beachfront motel that has been poorly run in the past 3 years. A few examples include several units with bed bugs; moldy grouts in about half of the bathrooms. Yellow stains are everywhere on mattresses and pillows\ inserts that probably will stop 90% of travelers from sleeping there. But because of the beachfront location, the business is still ok, although it is not profitable. For example, it is still fully booked during  the spring break (although a major reason is significantly under priced nightly rates due to lack of experience and pet friendly policy)

To turn this motel, we are thinking about two strategies: the first is to incrementally improve the place, i.e., replacing all these nasty mattresses and beddings, re-caulking bathroom tiles, adding some nicer furnitures, etc.. But kitchen, bathrooms, paint and floor eventually all need to be redesigned and redone. The second strategy is to keep most of the units untouched and operate them as is, to generate some cash flows. In the mean time, we totally gut and renovate one or two units at the same time. 

So what will you experienced investors do for such situations. Since it is a long-distance investment, we do want to keep certain cash flow to reduce the risk. Are there major points that I am missing?

Thanks in advance!

Lee 

Potentially a nice idea but not without problems:

1. Many people rent Airbnb instead of hotels/motels because it is actually cheaper if you have a large group. Motels usually come with smaller single room.

2. They like fully stocked kitchen for cooking, which can be challenging to cadd in a motel room

3. Motel taxes seem to be higher than those of short-term rentals, which can kill your profits quickly. 

4. Most motels are not built in great areas, which may limit your nightly price as upgraded Airbnbs. 

Best

Lee

Hi, Fellow STR Operators

I have a question about collecting/remitting sales/tourism taxes for short term rentals. For one of our units in downtown Atlanta, according to Airbnb, we are charged six types of taxes close to 20% of accommodation fare and cleaning fee. Since only about 60% of our income is from Airbnb and another 40% comes from VRBO, booking.com and our own website. My question is: for those bookings from booking channels other than Airbnb, do we need to pay all six types of taxes? If so, where to pay them? 

Thanks in advance!

Lee 

Quote from @Greg Scott:

Seems to me you have the cart before the horse.

When one party of a syndication is ONLY involved in raising fund, it is a potential violation of SEC laws unless they have certain licenses.  I'd reach out to an SEC attorney now for advice, and use that advice before you agree to a structure. Then have your SEC attorney draft the documents.

Greg

Thank you for the advice! It is probably not exactly accurate that they ONLY involve in raising fund, it is more like that they are looking for a partner and co-supervise the projects with this partner, so that they could expand faster and with less people management and overheads. 

Hope that clarifies. 
Lee

Hi, Fellow BPers

I have a quick question on partnering with a company on acquiring, renovating and managing commercial properties (hotels, vacation rentals) as a contractor and wonder whether you more experienced investors could give some advice on that:

I am currently working (as a contractor) with a syndication company that has very strong capability to raise funds (they raised close to $100M last year). After some initial collaborations, they saw that I am really into real estates and demonstrated some track records on improving some of their current portfolios. Since they are a start up company whose real strength is in raising capitals, they mentioned the possibility of partnering with me on all hospitality related projects. Basically, they would like me (and the team I build) to search, acquire, renovate and manage all of their hotels and short-term rentals and split the profits with my team. This way, they will have less overheads on employees and are also less distracted from their main focus, i.e., raising capitals and other RE projects. 

The conditions they provide are quite nice for a relatively new investor like myself, basically splitting (almost) 50% what a GP generally has in a syndication deal plus 20% management fees. As I really enjoy working with the team and the company, but also know that a good contract will avoid lots of drama in the future, I wonder what points that I need to especially pay attention to when drafting such a partnership contract. Once I have the outlines for the contract, we will hire a lawyer to draft it. 

Thanks for you inputs in advance!

Lee

Quote from @Joe Splitrock:

@Leon Lee it is more active and there is more volatility/risk since a motel/hotel is used only for travelers. A motel/hotel is an active business with employees. I would not compare it to SFH or MFH. The good news is you should be able to review operating statements that are far more accurate than a SFH or small MFH information.

Be aware you have many more expenses like payroll, cleaning, common areas, parking lot, advertising, pool, breakfast area, etc. Motels/hotels have taken a hit through COVID with people choosing short term rentals. Hotels have struggled to reopen to full capacity, as finding employees and getting customers back has been difficult. 

Joe

Thank you & That makes total sense! If I should not compare CoC return and cap rates for hotels with those of MF and SFH, how should I evaluate a good deal among three potential deals? What are the standard terms accepted by experienced hotel owners/operators?

Thanks again!
Lee

Hi, Fellow investors

I am relatively new to commercial REs and currently looking at motel/hotels. One thing I noticed is that compared to multi families or residential SFHs, the cash on cash return for motels/hotels are relatively high (can easily reach >10% in many deals). The only reason that I could think of is that it is more active than other types of commercial REs, but are there something else that I am missing?

Also, when doing due diligence on purchasing a motel/hotel, what are key points (or additional points that are not common in the due diligence for MF and SFH) that the buyer needs to pay attention to?

Any inputs will be greatly appreciated!

Lee