Hotel Investment in Northern California

[Ankit Patel]

Investment Info:

Other commercial investment investment in Eureka.

Purchase price: $1,925,000
Cash invested: $577,000

30 Room Motel in Northern California. Franchised property bought from a couple that was retiring, the business was an owner-run property.

What made you interested in investing in this type of deal?

The CAP rate was high (10%) and I saw there was room to make enough to hire a manager.
I knew a bit about the hotel industry from family and friends and wanted to get into it.

How did you find this deal and how did you negotiate it?

I was taking a road trip and saw the property for sale on Loopnet. The next day I negotiated the price down with the owner by 40K.

How did you finance this deal?

Bank Financing - I found a local small bank. All the big banks did not want to lend on a small motel.

How did you add value to the deal?

I needed more time to close the deal but the owner was in the process of closing on a house, in good faith I bought the house with the down payment and extended my time to close. The buyers were VERY happy and are always helpful when I need it.

What was the outcome?

A great transaction, decent price, and good financing.

Lessons learned? Challenges?

Buy a bigger hotel...the challenges are the same as buying a small one. However, if you want to do risky things i.e. start a boutique, implement new technologies etc. Start small.

Buy a hotel with managers and not owners running the property. Owners usually do better in business than employees and this is not intrinsically seen on the P&L. If you buy the place and have a manager running it the business will go down then if you were running it.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes, David from Amber hotel group.