Buying & Running a Motel - Any Tips?

Question

Let me start by saying I dont have any experience with motels but I like the idea as a future project and Im trying to figure out some basics now. Im looked specifically at unflagged motels in semi seasonal resort type towns. Any info is appreciated!

Does anyone have any experience running these on their own?
Maybe managing a staff from a far?
What are standard loan terms for a small motel?
Where is the best place to get a loan - local bank, is SBL possible, etc?
What is the ideal expense ratio?
Recommended vacancy rate in a seasonal area?
Many that I come across also have a restaurant/bar, I would want to rent this space to a restaurateur.
Biggest hang ups you've come across?
Is it worth self managing a project like this at all? My guess is that this is preference and a lifestyle choice...

This is all hypothetical, I love learning about these things and have an interest. Thanks in advance for the info!

Collin Hays · Answer

I managed a hotel for 4 years. In a small unit, I do not think there would be sufficient margin for absentee ownership. Everyone I know who owns a motel is also heavily involved in daily operations by necessity.

Paul Sandhu · Answer

Some absentee owners had a motel in this town. The front desk would offer customers a credit card rate and a cash rate that was lower. Those customers declined both offers and stayed in a STR where they could cook, do laundry and sleep in their own room for less money than the cash rate. The absentee owners never saw the cash. That motel has been closed for a few years now.

Ryan Sarka · Answer

@Elisse Garner I wasn’t able to move forward with it. The property was it terrible shape and needed a massive amount of cap ex, with the owners not willing to negotiate much on price it didn’t make sense.Are you working with locals banks, SBL or something else? If it’s performed poorly over the last few years have you been able to create the business plan and proforma for the coming years that clearly show the ability to cover the debt and expenses? Other than that I would try to bring in someone that has experience, many times that could be the difference for a lender. Perhaps you could do owner financing, stabilize the property and refi with a lender in 2-3 years paying the seller. It’s definitely a big project. If I can help somehow let me know. Good luck!

Elisse Glasco · Answer

Hey @Ryan Sarka just following up with you on this, did you ever end up buying the motel? I’m also looking into a similar investment, Wondering how it went? Pulling together a last minute opportunity ourselves to get hotel In a really desirable location that’s been poorly managed. Trying to get financing has been difficult with poor performance. Any tips? Hope it worked out for you. It’s definitely overwhelming looking into an investment like this!

Ryan Sarka · Answer

Hey @Justin Bauer I appreciate the response and your perspective on it. My goal here is to get out of the rat race as well, at the same time move to a more appealing area (for me), make some money, build some equity and hopefully run a business that I enjoy. Thank you for all of those tips, I will have to do some more research into all of them including the financing.The property I am currently focused on reminds me of value add apartment deals I work on but in this case its a value add motel. Its been in the same family for 25 years and it looks that way, they never brought it to its potential. From an outsiders perspective so much can be done to improve the property and boost occupancy. The difficult part will be purchasing at the right price. The owners of course want a premium (who could blame them) but the income does not justify even half the asking price. Of course there is some intrinsic value with its location and buildings, including a SFH on premises. I will look more into different financing methods as you mentioned, so far I have only spoken to local banks and credit unions. Thanks!

Justin Bauer · Answer

I have owned a Motel and run it as an owner/operator for the last twenty years. Like others have said its a business it has its draw backs at times but it got me out of the rat race from working for someone else so I thought. I just end up working for a banker that does not know anything about running a motel. There are so many benefits to owning a business than there are just for investors. You can right off a percentage of the purchase early deprecating half the cost of the business and the list goes on. One thing I think about all the time is I have a single family home that I rent out for a thousand dollars a month with a value today of 200k today and I get the same rent for a 300sq ft room at the motel. The biggest thing I have learned is how to become my own banker.There are many ways to fiancé a property and if I were you I would study all of them before I asked a government banker.https://infinitebankingwithjus...

Ryan Sarka · Answer

Thanks @Collin H. I appreciate the feedback and I've heard similar from a few people now. It makes me second guess but Im still interested. Thanks again for the perspective!

Collin Hays · Answer

I have a friend who owns hotels here in Amarillo, each around 80-100 units, as well as a friend in ABQ who owns several units. All of them are franchises. It is all-consuming. There are lots of moving pieces in the hotel business and it never closes.

Ryan Sarka · Answer

@Bill Cereske I will certainly watch. Thanks for mentioning it!

Bill Cereske · Answer

For a list of things NOT to do, watch a series called "Hotel Impossible". It's a treasure trove.