Help with deal analysis - roadside motel

[Crystal Davidson]

So I need help with an analysis on a potential purchase.   The seller is elderly, foreign and is not working with a broker, so a lot of the financial work is not done for me, or he just can't answer my questions.   I have tried to get as much information as I can.

Looking at a roadside motel on a major road in a rural area.   15 miles away is a medium-sized college campus, and it's within 45 minutes of a big NASCAR venue, but other than that it is NOT a tourist destination - just rural area known for hunting, fishing, hiking, etc.   The owner rents the rooms for $40 a night.   He doesn't advertise online (besides having an extremely basic Facebook page) and the place isn't even on TripAdvisor or Google Reviews.  His current occupancy is a measly 16.5% annually (meaning $70k in gross revenue).   Fixed costs are relatively low as it's an owner/manager situation now.  $9,000 annually in repairs, maintenance, taxes and other costs, $29,000 annually in utilities.

He paid $350,000 for the property almost 30 years ago.   His asking price is $225,000 and it's been on the market for a long while so I could probably get him to be creative or even take less.

My strategy would be to rehab the place from a 1 star to at least a 2.5 star motel, market it appropriately, and raise the average daily rate.  3 star hotels in the area have an average 54% occupancy rate (according to a local broker) and an average rate of $78.

I've never bought a hotel/motel before and I want to know if I should ask anything else important that I've missed or if anyone thinks it's a totally terrible idea and I should run away now.   I appreciate your time!

[David Ptak]

Some thoughts... has it had any extended stay guests? Would you offer that? Have you considered a str report for the area? Are all the units rentable currently or will you need to do some rehab? What is your plan for financing or will you pay cash? Insurance may be quite a bit more than what he’s currently paying. You might want to get a quote on that up front so you know what that will look like. I own something that sounds a bit similar. I’d be happy to share more of my experience if you’re interested. Good luck!