When thinking about your next big business move, the hospitality industry may come to mind. After all, hotels are a thriving enterprise in the current economy. In the last year, the U.S. hotel industry generated $208 billion in revenue with a record-breaking occupancy rate of 65.9 per cent.
As the U.S. economy continues to recover from the 2008 recession, people will continue to have more disposable income and spend more money on travel. However, just because the hospitality industry is doing well doesn’t mean that each and every hotel is successful. Consider these tips to ensure buying a hotel will be a lucrative investment.
Determine Your Ideal Hotel Type
When buying and operating your own hotel, you have two major hotel property options. The first is buying an existing hotel or hotel franchise and putting your own spin on it. The second is buying a different business or property type with the intention of converting it into a hotel. The former is likely easier on your wallet without the added costs of construction or renovations.
However, if you find the perfect hotel-to-be property in a high-traffic area there’s a strong argument for the latter as well. Determine the amount of effort and money you want to put into the building itself and decide from there. A real estate broker can show you viable options for both.
Solidify Your Financing
When you shop for a hotel it’s important to hire professional financial assistance. Ensure you have both an experienced accountant and business broker to help you assess your current and prospective financial situation.
A down payment on a hotel normally ranges from 20-25 per cent, but putting more down up front will lower your future interest rates. Hotel asking prices can range from $10,000 - $100,000,000, so there’s a lot of room to find the right fit.
Additionally, consider the amount of money you’ll need for initial hotel costs, staff salaries, renovations, and any upgrades you’ll want to make to amenities, furniture, or offerings.
What to Look For
When buying an existing hotel it’s important to look through years of previous records to indicate whether the location, property, and market have been successful. This is also an easy way to determine why the property is up for sale. Obtain the hotel’s financial and occupancy records from the past three years. If possible, collect the same information from competitive hotels in the area for comparison.
Additionally, check that the hotel is currently in compliance with all state and federal regulations and review these with an accountant or an attorney for additional support. This is all necessary information you should cover before even considering buying a property.
Once you know the property is profitable, popular among
If possible, do some in-person reconnaissance. Check in at the location yourself for a night to get a firsthand experience of the food, guest room quality, and staff. This will help inform opportunities for improvement.
One of the most important — yet often overlooked — aspects of buying and operating your own business is licensing and regulations. Other than getting standard businesses licenses and permits, you may need a specific hotel license on the federal, state, and local level depending on your business’s location. If you plan to serve food or liquor in your hotel you will need separate licenses for each of those as well.
Buying a hotel is no small task. It requires an exceptional level of detail, an unwavering commitment to your guests and staff, and a keen sense of market value. However, by taking the appropriate steps and considering the purchase from all sides, a hotel can set you up for a fulfilling financial future.
If this doesn't seem like the ideal industry for you, browse through other sectors and find the perfect business for you in your future.