Local Budget Motel Problems

[Jason Bourne]

Hello everyone, I have this problem I am trying to solve for my parents. They own a local private motel in the state of Kansas and it is not doing good at all. My dad is having trouble with payments. There are no buyers, and my parents are tied down with their jobs.

What are our options? I understand private equity firms run properties and increase their value, but would they do that for a local motel property? 

[Chris Dawson]

@Jason Bourne, what city in Kansas is the motel in? In any situation where you have an under-performing asset, you have several options:

1) Sell the asset - You already stated that there are no buyers, but have you really tried to sell it? I don't see it listed on BiggerPockets. Is it listed with a local commercial broker? Is it listed on Loopnet and Xceligent? What about Craigslist? If you answered NO to any of these, then chances are you (or your listing agent) aren't doing everything you could be doing to get the property sold.

2) Improve the asset - If you can't or don't want to sell the property, have you thought about what kind of improvements you would need to make to the property to make it perform better? Before you can answer this question, you need to figure out exactly WHY the property is not performing.

Is the problem physical depreciation? If so, do you have the money to fix it?

Is the problem functional obsolescence? If so, it can probably be fixed, but it could be cost prohibitive.

Is the problem economic obsolescence? If so, this would be the hardest to fix (I'm not even sure you could fix it).

Is the problem poor management? This could be a touchy subject. If you suspect this is the case, you would probably need to hire a third party consultant to review the entire operations and determine the problem.

Once you figure out which of these is your problem, find out how much it will cost to fix it.  Can you afford this?  If so, move forward with correcting the problems. 

3) Talk to the Bank - Find out your options with the lender.  Can you refinance with lower monthly payments?  Can you make interest only payments for a period of time?  You never know until you ask.  Are you current on your payments?  Sometimes the banks don't become cooperative until you get behind in payments.

4) The Last Straw - If you have exhausted all other options then you might just have to walk away from the asset or depending on how your company is set up, you might have to file bankruptcy.  Obviously you need to consult with your financial adviser before you make this decision as it will have long and sometimes lasting affects on all parties involved.

I hope this helps.