Hotels?

Question

Hi everyone! It's been a long time since I've been on here! My husband and I have been trying to decide exactly how we want to secure our financial future and real estate just keeps popping up. I did tons of research on single family rentals but my husband is more drawn towards hotels. So I have a few questions, how crazy is it to start out in real estate investing with hotels? Is that completely stupid, should we be working our way up to that? We want to invest in the state we live in (Utah) but we have a few friends that own rentals and the market doesn't seem to be there any more. Are there any must read articles, books, etc that could give us a good  taste for what we are in for and what we need to do? I'm going to search the podcasts but I wanted to ask in the forums also. Thanks!

Joel Owens · Answer

Your profile from last year says seeking down payment money.

Do you have any money to put down  as an investment??

Hotels are more of a business and a full time job. What's involved will depend on an independent no name hotel or a flagged one with a brand.

REVPAR the revenue per day room rates is what makes or breaks a hotel. The hotels do best when the economy is fully humming along where new business starts have people traveling for business and consumers traveling with extra income.

It's getting better but hotels are still a ways off from a full recovery. The biggest thing with a hotel is location, competition within a certain mile ring radius, and if recently re-imaged and updated as that can be a whopper of an expense. If you do not re-image you room rates keep falling and clientele is rough that would stay there further eroding the asset.

If you buy a hotel that runs along a river or close to a park etc. then you have something that other hotels do not which is a plus.

I just do not want you getting the idea that hotel will throw off all this cash and you do not need to do much.

There or other assets in commercial more hands off but it takes money. If you do not have money or experience it's pretty much a non-starter.

Hope it helps.

Franklin Romine · Answer

Why didn't you just pull the trigger on a single family?  SFR's are simple and easy to manage.  If you put that much thought and time into researching SFR's I can't image how much energy it will take for hotels.  I would start at level 1 before you move to level 4.

Frank

William Hochstedler · Answer

I spent a few days kicking around Panguitch when there were 3 REO hotels (which should tell you something).  The asking prices were all 50% of the documented improvements and still getting no traction.  I found that the season was only 3-5 months for tourists.  Most simply closed for the rest of the year.  Hard to make it with 15 rooms at < $75/night.

An owner occupant B&B might be something to consider, but that is more of a lifestyle choice than an investment.

Also, my friend is considering a hostel up here in Logan, but hasn't found the right property.  This model makes a lot of sense for the outdoor recreation crowd.  Limited services with low overhead and a built-in, dedicated international community.  Her numbers seemed very viable depending on the RE.  Also, although there are dorm style accommodations throughout the state (think Alta), there are very few hostels in Utah.

Wm

Joel Owens · Answer

It's more buying a business.

Just like the food business people have an idea in their heads of what something will be. Then they buy something and it's a nightmare to them because it does not match up to what they had in mind.

This is why it is critical to work for somewhere for awhile in that industry to get a grasp on it or have some option period where the seller shows you the business but you have a chance to back out within the option period.

William Hochstedler · Answer

PC is a very different market than the rest of Utah.  There are a few BP members that are active there.  Hopefully they have more insight.

Good luck!

Nikki Jacob · Answer

@William Hochstedler thanks, you just answered another question I had about the tourist season at the parks. I wondered if it would be hard with the on season period being so short. I guess it isn't like Disneyland where people are always there. What do you think about Park City? Or is it already too saturated?

Franklin Romine · Answer

I think the best creative financing method is seller financing.  Good luck having the seller carry 100%.  Your going to need skin in the game.  If you don't have the cash you could give them interest in another property you own.

Nikki Jacob · Answer

@William

@William Hochstedler My husband has friends around our area that aren't having much luck with their single family rentals and are selling. He was all for it, but not so much now. We like to travel and thought that we could buy a small motel around some of the National Parks we have here in Utah and do alright. I figured it was probably out of our league right now, but I had to look into it just in case there was some hope

William Hochstedler · Answer

What about the hotel business appeals to your husband?

I can't, for the life of me, figure out how rural hotels in Utah (outside of Vernal) make any money.  And the urban ones are out of my league and tend to be sustained by the conference business.  Big bucks.

Wm

Mark Creason · Answer

Nikki,

Hotel financing is tough.  I see programs above 5 million on loans but hard to find something for less.  When we have underwritten a hotel loan, we are typically looking at the last 3 years profit and loss.  We will use a management factor to reduce income, as some owners might be owner-operators and do not include a management expense.  I would think there are significantly better investments available unless you have previous hotel operating experience.

Mark

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