How to analyze profit and loss with 20 rooms hotel/resort style STR

Question

Hello BP community,

i found a potential buy with dilapidated multi-family property which used to be hotel or resort and zoned for commercial use. Its on the lake and got couple of different size buildings which in total count about 20 rooms which can be renovated and rented out as STR for various occasions including corporate parties, weddings etc.

I have a robust excel spreadsheet model (graciously obtained from BP awhile ago) which i modified to fit my needs of evaluating single residence home with various parameters including ARVs, taxes, mgmt fees, financing etc. (see attached picture)

My question to you is how is the process or logic different in analyzing this potential project than what i am  or many of us currently doing for SRH?  Is it just a matter of scaling up by factor of 20 which is the number of rooms which can be rented out?

Some of the assumptions are i applied were: ADR (very conservative for the area), Occupancy rate (below 40% to be conservative), rehab cost is probably too conservative and will be more but still will make sense as we'll build value into project.

On paper, the deal looks sweet! But i know i am missing something here. What do you advise i take into consideration when evaluating this project?

thanks much for your help.

Daniel

Dave Stokley · Answer

There’s a hotel data company called STR (ironically NOT for short term rental!) that will run custom reports for you. We used it when we were considering buying a boutique hotel. Good data.

https://str.com/

Michael Baum · Answer

There is so much to unpack on this @Daniel Rozen that I am not sure we can really do it here.

I am fairly certain that you will need a commercial business loan of some kind. With a full business plan etc. This property doesn't really fall into the standard type investment category.

Check the zoning to make sure you can add a bunch of A frames to it. It is commercial zoned, but I would check that first.

Is it on city sewer and water? There might be limitations on what is going to the property vs what you need them to support.

Caroline Gerardo · Answer

Find out what city/county will permit first. It has city water right? What is access to a dock? Who owns dock or launching area? Construction money for units spec like this is very skinny today.

Daniel Rozen · Answer

Thank you @Caroline Gerardo, @Sarah Kensinger and @Michael Baum

I am actually not looking to run this as a full time hotel. What attracts me to this property is that its 8 commercially zoned acres on motorized sports allowed lake, only 2.3 hours from NYC. Im looking at it as airbnb type of business, not full pledged hotel endeavor. The biggest question is if my rehab costs will be too much (it looks like some buidlings on property are beyond repair), in which case i would negotiate just the land portion of it, and start putting up tiny A frames for rentals, make nice little community area, build a sauna etc and create ambiance and demand that is not found in regular type of hotel environments in upstate new york.

Problem is i am a long term renter in Florida and PA and never actually done any short term rentals so not sure what types of expenses can creep up. I can extrapolate from my experience in LTR. I can figure out pretty much advertising costs etc. Maybe you guys can suggest a ball park expense numbers or percentages on annual bases (thanks to @Caroline Gerardo i put in those categories in). I included link to my fully blown excel calc, feel free to use or adjust for your needs. I think looking at it rather than pic makes more sense. Taxes, utilities and insurance are in the ballpark already.

Gut feeling tells me, start small on that property (tiny house at a time) and learn and grow. But maybe not so.

Again, thank you for your time and contribution

Daniel

STR Calculator

Sarah Kensinger · Answer

You can and I repeat can run a small boutique hotel as a remote STR style with NO staff. We are in the process of working this out for our company and we're part of a group of STR hosts that have done it several times!

I would say to underwrite the expenses at 60% of the total projected revenue to make sure your stressing numbers enough. Otherwise, your numbers look good, although I would have occupancy at least at 45%.

If there's any questions I can help you with, please feel free to reach out!

Michael Baum · Answer

Hey @Daniel Rozen, I agree with @Curtis Porter. A property like this will require a full time staff. At least on site management.

We were close to buying a 25 room B&B in New Hampshire years ago and some of the costs really sneak up on you.

Curtis Porter · Answer

I’m not a Hotel expert but I think you’re underestimating your property management numbers.  Is that including all your contract labor et?  Are you going to have staff on site? Maintenance manager, landscaping, security etc. also how are you factoring your cleaning costs?  $75/month?  Do you need to factor in all consumables?  Again, I’m not a hotel expert but I’m heavily involved in STR so just tossing out ideas. You’re gonna have lots of maintenance costs.

Alex Scattareggia · Answer

@Daniel Rozen what was the final outcome here?  I am curious to see the progression on these kinds of deals.  Small multifamily with the intention of running a hotel/STR business is starting to make the most sense for me in my markets. I would love to touch base with some folks who are actually making it happen. Hope it went well, cheers!

Michael Baum · Answer

Hey @Daniel Rozen, so this will be a full time gig for you...maybe...

Plus as a more commercial property, it will be tougher to unload in the long term.

It could be a fun thing if you like providing hospitality.

Caroline Gerardo · Answer

Where are the costs to rehab? Air conditioning HVAC units? Furniture? Replacement beds when some get vomit on them? Linen service? Laundry room and service? Take a unit out for manager lives in one it will be necessary. Cost to run the front desk? Coffee service? Cleaning never runs at any profit, it will be a loss. You are missing many operating costs. License, city tax, pest control, security, down number of months to get up to operating, insurance cost is way too low, CPA or accounting costs, legal, advertising, supplies

How to analyze profit and loss with 20 rooms hotel/resort style STR

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