How to Value a Motel - Denver Colorado

[Adrian Tilley]

Hi,

I have a lead on a 28 unit motel near Denver Colorado (actually in Commerce City).  It's in rough shape, but the owner states that the units stay rented.  They are about half 1/1 and half studio, all with kitchenettes.  Apparently the studios rent for 800/month, and the 1/1's for 850/month, or they rent for 220/week.  Apparently most of the tenants have been there for years.  I've never heard of this model.

I have an asking price from the owner, but I have no idea how to evaluate.  Does anyone have any knowledge in this area, or if you're local, does anyone have a connection who may be interested in partnering on or purchasing this deal?  If I can make it work, I would be happy to just flip this property.

thank you,

Adrian

[NA NA]

Hi Adrian,

If you are looking to operate the property as a motel you are definitely going to need a lot of time. It is a daily grind, and not as passive as being the landlord of an apartment complex, or other commercial property. If you are really interested in this property, and the numbers make sense I would reccomend you find someone with experience that is willing to manage it full time and live on site preferably a husband and wife team or a family unit that you can partner with. 

A little secret about the motel/limited service hotel industry is that most properties are owned by people of Indian ethnicity. The reason that they are so successful is because they buy their first property and manage it as a family. They then call their cousin/brother etc and tell them “hey I’m looking to buy another property, you manage it and I’ll give you equity plus a small salary.” Now this person gets an asset, free living (because they live at the motel) and a salary to boot. Plus they have incentive to work hard and do what’s best for the property since they have equity.  The cycle then continues as each person calls their cousin/brother etc offering the same thing. The reason I gave this example, is because if you want to partner you can make a similar deal with someone who’s willing. Also be careful with what the broker/owner is telling you in terms of revenue because motels of this size are generally all cash businesses.