Hotel Due Diligence

[Jennifer Stauth]

I am looking into purchasing a hotel. The numbers and cap rate look good. I am getting a copy of the bank statements and taxes. I have the occupancy rates. What else do I need to look at before I send an offer. Management is onsite.

Thanks

[Joel Owens]

Just have to make sure and pay for that site inspection by an engineer and get the phase one environmental survey along with the cost reserve stable.

All of that will cost you in the thousands of dollars.

Drive the area at night and see how bad it is. Look up the crime data and violent versus non-violent crimes and any increase in frequency. Make sure there are not any special property tax assessments or mill rate increases coming. Look at the water department water and sewer rate usage per gallon and see if a big hike by the water authority is coming soon.

Look at labor costs for the staff and make sure you are competitive for the area. Often times when a property is taken over they promise staff things when it gets turned around and then they sell and you get left with the aftermath.

Costs go up and income then goes down. The 50,000 sounds like lipstick (carpet and paint). Just like a car I do not care how pretty the outside looks I care about the guts on the inside. The guts is what keeps the machine (hotel) going and costs the most to replace and severely affects performance (returns).

Make sure you give at least 30 to 45 days for due diligence. Do not spend money on inspections, appraisal, survey, lender, etc. until you have verified tax returns and actual profit of the property. Immediate repairs need to be taken off the purchase price with an addendum during due diligence. No legal advice