Turn Small Hotel into Monthly Rentals - good idea? Bad idea?

[Anna Christie]

I am looking into a 16 unit hotel that has lots of deferred maintenance and has been renting rooms by the month. Needs roof, paint, flooring, pool is unusable. Location is great, right off freeway and has its own billboard. Besides fix up costs what hidden costs or issues should I be aware of for a old hotel? Are insurance, licensing, or city fees a problem? I have only rented out a single condo before. My intention is to fix this place up unit by unit and ideally rent to traveling professionals.

Any input/guidance is appreciated.

[Joe Splitrock]

Originally posted by @Anna Christie:

I am looking into a 16 unit hotel that has lots of deferred maintenance and has been renting rooms by the month. Needs roof, paint, flooring, pool is unusable. Location is great, right off freeway and has its own billboard. Besides fix up costs what hidden costs or issues should I be aware of for a old hotel? Are insurance, licensing, or city fees a problem? I have only rented out a single condo before. My intention is to fix this place up unit by unit and ideally rent to traveling professionals.

Any input/guidance is appreciated.

 In my area these rent by the week or month motels are occupied by the less desirable tenants. Lots of ambulances showing up due to crime, suicide and overdoses. You may get some traveling workers, but expect more blue collar types. Business professionals are going to stay at extended stay hotels or AirBNB.

[Danny Randazzo]

@Anna Christie what is the current property reputation like in the community? Sometimes it can be very difficult to change the reputation to attract different residents

[Justin Bauer]

It all depends how much time you  are willing to spend running it. This kind investment is not a passive investment its a business. We have run one for 20 years and it has been the best investment I have made.

[Brandon Vukelich]

Interesting idea but my first thought is... what would you plan to do for kitchenettes/tenant cooking?  If they are renting by the month vs the night, my guess is they would want an area to cook including a fridge, range, microwave. Most small motel/hotels units don't have a cooking area and I'm guessing the cost to add property venting, etc would be a challenge in addition to carving out "kitchen" space in the small units. Please repost here if you move forward with successes and mistakes. Best wishes!

[Philip Cook]

@Anna Christie

I was looking into doing something similar. My original plan was to turn it into long term rentals, but the rezoning probably wouldn't have happened. The backup plan was to still add the kitchens and combine some of the units so that they were more apartment like. I found PM that liked the idea and thought they could find a keep good tenants. I was thinking about targeting traveling workers like nurses and construction with a couple of the units. My offer wasn't accepted, so that's as far as I got. 

As @Danny Randazzo mentioned, reputation is something to consider. The place I was looking at was the only rent by the hour place and also rented to the jail when there wasn't room for parolees. Overcoming the stigma can take time and effort. Or you could embrace it and be the place that will rent to anyone that has the cash. There are people that will pay $600+ a month for a hotel room with no amenities and stay for a year or more because there is nowhere else for them to go. Understand your target client and their needs/wants and make sure your business model fits. 

Also make sure you fully understand the state and local rules that come with a hotel license so that you are following them. You will have more overhead with licensing, insurance, and maybe taxes than with a regular apartment building. 

[Pat L.]

We have one near us that is basically a 1/2 way house BUT he gets $845/month/unit or $40/night, I'm sure there's a couple of by the hour suites as well, (a friend does his books). They only have micro-waves as he says "that's all these people eat". He's the epitome of a slum-lord who inherited it from the parents & the place is in dire need of maintenance, yet he seems immune to code violations.

Most of the little strip motels (there were many) have been forced into bankruptcy/foreclosure by a deluge of microtels that cropped up 2016-2019, then Covid hit, so most have 90% vacancies. Some are scheduled to be converted into elder housing.

One of the new (2008) microtels, that definitely fell on hard times, caught fire last month, rumor is it was an insurance job.