Main difference between mom and pop hotels versus larger hotels?

Question

I want to get into hotel investing, but I don't want to be on site all the time. I notice some hotels have the owner on site every day, while others do not. I want to buy a hotel where I can hire managers to be on site.

What is the main difference between these two types of businesses? Is it just a matter of size? The larger one can afford to pay managers because they take in so much more revenue? Is it ever possible to convert a "mom and pop"into a hotel where you hire managers?

Justin Bauer · Answer

I have been a owner/operator of a small motel property for the last 20 years. A hotel or a motel is not the same thing as investing in real estate its a business.The value of it comes from the revenue it all depends on what you want to accomplish.My little motel gives me 10 times the revenue as same value as my single family homes of the same value.It also gives me the time to continue learning and net working.

I am at the point that I would like to put a manager in my property and my wife would just as soon sell it than have some one try and manage it.There is no one that cares more than a owner and it shows. I have stayed at 300 dollar a  night hotel that are filthy because some one did not care.

It does not take very long to ruin a reputation of a property and a long time to restore it.

I hope this helps

Kyle Johnson · Answer

@Patrick Philip Yes you can.  There is no reason you as a potential owner would need to run the operations of the hotel, unless you really want to.  Running things yourself to save money is never the approach you want to take when looking to invest in the hospitality industry.  Having a dedicated professional team leading the hotel is what is going to make the hotel profitable and is imperative to building its reputation.

I have operated hotels and resorts for the past 25 years and now I own my own management and consulting company.  There are management companies such as mine that will customize our services and fees to make it equitable for assets of all sizes and types.  Like having a good property management company for rentals, having a good hotel management company is a must.

Jeff Kehl · Answer

@Patrick Philip I also have no experience with hotels other than to have gotten fairly close to buying one at auction... In my research though I found that they're a lot like multi-family in some ways and different in others. For instance, you can own the real estate and manage yourself or you can own the real estate and hire someone else to manage it. Also, you can buy a small, non-standard, lower tier property or you can buy something investment grade. And you can combine those categories to gain or lose a lot of money.

For example, I have seen tons of small 10-20 key motels in rural areas for sale that are just obsolete and should probably be bull-dozed. However you maybe could make a living self-managing a small hotel in a beach area.

But to really make them work you need to buy larger, flagged as a major chain  and preferably in a growing area in a major metro area. When you get to that type of property you really have no business managing it yourself unless you have some experience. Check out some of the decent Hilton, Marriott, etc hotels near you. They are probably owned by a large company and managed by a separate large company.

If you want to try out hospitality without a major investment why not try a STR property on AIRBNB? I tried that and learned that I hate the operational side of hospitality.

Ryan Struthwolf · Answer

I'm not a hotel owner or investor as of yet but I've done a lot of research on them and been to classes because I think they're a cool niche. I personally enjoy running businesses so I'm okay with the idea of day to day operations, but if you're looking for a super passive investment hotels are probably not the answer. Hotels are businesses, and even if you have a great full-time manager you need to be cognizant of how well your manager is running your operation because, as @Justin Bauer mentioned, a business's reputation is easy to destroy and hard to fix.

That said, how many doors a hotel has is only a partial component as to whether or not it's viable to have a full-time manager. The income and expense numbers are more important.

It doesn't matter if it's a flagged hotel or an independent hotel owned by mom and pop. The latter may not know how to hire or perhaps they've just always done the work themselves, but at the end of the day, there's nothing other than numbers preventing a mom and pop hotel from having a full-time manager.

Account Closed · Answer

Flagged hotels (branded) are easier to finance than non-flagged.

Mike Jacobson · Answer

@Patrick Philip From my experience in the Midwest, not a resort/ocean front hotel/mom and pop, my number would be no less than 50 rooms to be able to fund a "GM" to run the property.

Adrian Stamer · Answer

As Jeff said, most hotels have a company owning the real estate and a hospitality company running

Patrick Philip · Answer

What did you hate about the operational side? Was it about hating stocking soap and toilet paper between every guest?

Because that gets back to my point about hiring a manager.

Patrick Philip · Answer

Okay.

So are you at the desk checking everybody in? Are you cleaning every room and doing all the laundry?

What work do you hire out?

Main difference between mom and pop hotels versus larger hotels?

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