How to Structure a Deal on a Motel

[Joshua Mccusker]

I am looking to purchase a 19 room motel, and we are looking to raise an additional 100K for renovations.  What would be the best way to do so? Below are some details on the purchase.

- Purchase price = $900K

-additional $ needed for renovations $100K

-Current owners Net Income 150K a year

-My forecast Net Income 250K after renovations

Since our all in would be one million dollars, if we raised 100K would that investor expect 10% equity, also would they expect 10% of net income each year as well? Should I take a management fee from there equity, since I am doing all the work?  I know you can structure a deal how ever you want, but any suggestions on a good starting point for a deal, so we can start propositioning people we know?

[Justin Bauer]

The best way to come up with the 100k is the current owner especially if it needs work. I would not be afraid to ask for 200k. Then verify there numbers for the last three years. I do not know of any hospitality  property's that has not taken  a hit last year.

Justin

[Joshua Mccusker]

Justin,  

Thanks for your response.  The seller has already came down in price a good amount to what I consider fair. I have enough money for the down payment and reserves, but not enough for renovations right away.  That is why I am looking for a little capital.  The numbers work fine as is, but some updates would definitely increase income.  I have never worked with an investment partner before on any of my deals, so looking for input on starting points for that.

[Philip Cook]

Have you looked into a construction loan from a bank? 

[Justin Bauer]

Do not be afraid to ask for more owner financing. You will never know until you ask. You are trying to solve there problem. 

[Reid Smith]

Quote from @Joshua Mccusker:

Justin,  

Thanks for your response.  The seller has already came down in price a good amount to what I consider fair. I have enough money for the down payment and reserves, but not enough for renovations right away.  That is why I am looking for a little capital.  The numbers work fine as is, but some updates would definitely increase income.  I have never worked with an investment partner before on any of my deals, so looking for input on starting points for that.

Hi @Joshua Mccusker,
Were you able to close on this property.  I am under contract on a similar deal...A little higher price but similar ratios and after improvement upside...Owner does not want to finance.  We are prepared to fund the rehab and have down payment $, but having a hard time getting bank financing in the Hospitality Sector right now.  Did you bank finance your deal?