4 Things to Know About a Commercial Hotel Investment
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When investing in real estate, why not go big? A hotel can be a highly rewarding purchase, particularly if it’s in a popular area. It comes with its own unique challenges, so you’ll want to be prepared.
As evidenced by this very helpful guide, there are many hotels for sale. When looking for your next commercial investment, it may seem overwhelming, but this endeavor can be just as successful as your other businesses if you use the right criteria for purchasing a hotel and lay out a solid plan for success.
Be prepared for what lies ahead. Here are a few issues that are likely to come up as you go about investing in a hotel:
1. The Business Plan
A hotel investment may be the largest purchase you make in the commercial real estate district. There are many, many moving parts to this acquisition, and depending on your role in the venture, you may need to produce a highly detailed business plan in order to acquire funding.
A good business plan will detail your strategy for making money, including all the little pieces that will lead to your ultimate objective. You’ll need this plan when gathering other investors and/or soliciting the bank for a loan.
If you’re entering this venture with partners, and the business plan has already been written, read it carefully before putting up your portion of capital. Be sure that it justifies the numbers that the writers are claiming.
2. The Loan
With your own capital in place and a good business plan to back it up, the next step is finding someone to back your loan. A hotel is a huge purchase, and it can be difficult to find a conventional lender willing to loan the full amount. Apply to national or international banks with plenty of capital in reserves.
You may also ask the seller of the hotel to finance some of the prospects. Many former hotel owners are happy to put up backing in exchange for a percentage of equity or a high interest rate so that they’re still making money, even after they’ve sold the hotel.
No matter where you get your financial backing, be sure that the cash flow from the business will be enough to cover all of your operation expenses as well as the loan. If the numbers don’t work on paper before you’ve made the purchase, don’t waste your time pursuing it further.
3. Your Investment Team
Some real estate investments are a one-man job, but a hotel purchase is not one of them. You’ll need an experienced and fully equipped team backing you through the entire process.
Here are a few team members to include in your purchase:
- Lender or broker
- Real estate broker
- Architect, engineer, and/or contractor
- Real estate attorney
- Marketing consultant
- Manager and hotel staff
Vet the members of your team carefully to ensure a successful venture from start to finish.
4. The Location and Guest Demographics
If you’re considering the acquisition of a hotel, you know what it means to thoroughly examine the real estate market before making a purchase. Ensure that the market you’re considering can sustain a hotel, whether you’re building it or buying an existing property.
You’ll also want to consider the guest demographics. Will you be mostly attracting vacationers or business travelers? If you’re buying an existing building, do you plan to keep the clientele the same or reach for a different market?
You may need to adjust your current marketing plan or update your property to match the needs of your demographic. These costs should be absorbed at the start and adjusted as necessary to ensure a happy audience.
These issues will come up at the purchase of a hotel, and you’ll want to have answers ready when the time comes. With your careful preparation, you’ll be prepared to seal the deal on an excellent investment that can maintain strong profits and avoid diving into a faulty investment.
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