Tips To Consider When Buying A Hotel Or Motel
Hotels and motels can be great investments. The travel industry is not going away, and for this reason, there will always be a need for hotels and motels. While the investment in this industry is generally sound, not all hotels and motels are worth investing in. Here are some tips to consider when contemplating the purchase of a hotel or motel.
- As with any purchase of real estate, the condition of the structure should be checked, and inspected by a professional. Necessary repairs, as well as the need for updated furnishings, fixtures, equipment, and inventory should be considered. This information will help you in determining the market value of the property. Once the sale is complete, make sure that the owner gives you a separate bill of sale for all furnishings, fixtures, equipment, and inventory, as well as the deed to the property.
- Check with the county or state about planned changes and roadway construction. If the property is on a highway, and there are plans to build a loop, the property and business may not be as valuable as you thought it was.
- Stay at the hotel as a guest for a week. Try to do this before anyone is aware that you are considering the property. This will give you the opportunity to view the hotel or motel as a guest would.
- Avoid discussing price with the owner of the property. It is better to let the broker handle the negotiations with the owner. You should know in advance what the top dollar you are willing to pay for any property is, and disclose this information to the broker from the start.
- If the hotel or motel is franchised, read the franchise disclosure. Also, view the franchise agreement that the current owner has with the company, and find out if that agreement will be transferred to you, or if you will have a new agreement with the company. Find out what fees you will be required to pay to the company upon taking over the property.
- Check out the current competition, and consider the potential for future competition. Also consider the local reputation of the hotel or motel. If it has a bad reputation, it will be difficult to change the local opinion. A bad reputation drastically lowers the market value of the property.
- Look at the financial statements for the past two or three years. Also, check the occupancy rate. Look at room rates and expenses for running the business. Check the room rates at nearby hotels and motels for comparison. Verify all financial information.
- It is usual for the buyer to have a 30 day study period, and this is usually set down in the letter of intent or the agreement of sale. Use this period to check things out to your satisfaction. If you are not satisfied, you can back out of the agreement.
- Review contracts that the current owner has with suppliers, as well as customer groups. Find out if those contracts will be renewed or valid after you take over the property. Be sure that the contracts will be satisfactory for you as the owner of the property. If there are existing contracts that you may wish to cancel upon purchasing the property, make sure that you will be able to cancel those contracts without being penalized.
- Make sure that the hotel or motel is currently in compliance with governmental requirements. Also consider what licenses and permits you will need to get to operate the property, as well as the requirements and costs in obtaining those licenses and permits. Find out what insurance company is currently insuring the property and how much the premiums are. Do your own insurance shopping as well to see if you can get better coverage, or a better rate.
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