All Forum Posts by: Dax Desai

In California you should be able to get financed with the $2mm counted towards your 20% down. You'll have to get it appraised for the bank. There are hedge funds that will finance you with CMBS loans very aggressively. There are a lot of funds out there now that have hotel loans as 10-15% of their securities for an added income boost.

They key as another person posted is the developer/operator's track record.  If you don't have experience with hotels, you should partner with someone who does to get the deal done.  The bank will look for the ability to carry the project if it is slow to ramp up in the form of cash reserves.  They will also look at other hospitality projects you've done or managed to judge the feasibility.

Hotels I consider as a real estate heavy business.  That being said there is fundamental value in the land, but as for the building you really have to look at income and cap rate to assess the value of the overall property.  Based on your numbers if you bought it at 10mm you're looking at a 10cap rate.  This is probably an average to better than average deal.  Cap rates of course will vary based on how strong the location is ie does this location prosper even during downtimes when other nearby areas suffer more?  Does the site have any inherent competitive advantages over other properties (ie oceanfront, proximity to convention center).   

Things to watch:

• How much time is left on the franchise agreement.  Once you become independent expect revenue to drop like a rock.  This hotel is presumably grossing around 3mm.  If it loses the Holiday Inn Express moniker expect that to drop at least by half due to lower rates and lower occupancy.
• How much PIP?  You want to assess what the PIP is (property improvement plan). Whenever there is an ownership change the franchisor (Holiday Inn Express) will require some repairs/remodeling to keep to their prevailing standard at the time of transfer. Sometimes it can be negligible. Other times it can mean a $1mm+ renovation. Furniture and fixtures quickly add up in hotels. Doing the remodel will not typically be rolled into your loan. You will either have to pay cash or find FFE financing for a shorter term typically with a higher interest rate.
• Competetive landscape Are there new competitors coming into the market?  For example if you have a 12 year old property built to the prevailing trends 12 years ago you will have an Express that is a little more country style in appearance both external and internally.  Newer Express will have a modern/Euro look with a different style of exterior, lobby, and space planning for guest interactions.  You could feasibly have another hotel open 4miles away from the same Express brand which will canabalize some of your sales.  These flagged properties do have loyal guests, but that doesn't mean they won't go to the next one if it is closer to their needs.
• AGE/QUALITY?  The age of your product will effect your operating numbers.  As the property gets older certain things will go out.  Multiple room HVAC units at $600 a pop, your pool pumps, your servers.  Things will need replacing.  Make sure you are equipped to budget for these things.  Make sure you track down the vendors you will use ahead of time so you aren't scrambling.   
• Management Encumbarances Is the property under a management contract? This is important because you want the right management company at the property. Some management companies specialize in REO properties. These type of companies are really just keeping the lights on. This is not who you'd want. You want aggressive management to put "heads in beds" as the industry refers to filling rooms.
• Market Cycle/Valuation?   Hotels have cycles. We are in the midst of a rather long upcycle. I would not suggest paying top dollar at the cusp of an upcycle on an older property. You may pay 10cap and pay $10mm, but what if a downcycle hits and your NOI drops to $600K? Now at 10cap your value would be only $6mm. In fact it would probably be less because in down cycles the cap rate typically expands so you may only get 11 or 12 cap on your property. So an exit in that scenario can be difficult if you paid top dollar. Market timing is tricky. Anyone will tell you you can't time the market. Experience helps here.

While I would not discourage you, I will say that a hotel can make much better returns than multifamily.  At the same time I will also say it is very easy to lose money in hotels as well.  This is due to the business nature of it.  It is a more active area of real estate and typically the more active/management intensive it is the higher the returns.

Please do feel free to ping me anytime.  I do have an interest in coincidentally a Holiday Inn Express and actively developing.  If you have any questions or if you need any clarification feel free to message me.

I know this is an old thread, but the numbers don't seem to make sense.  The gross margin in this deal is over 65%.  Typically hotels are near the 40% range in operating profit.  Of course it depends on the volume, ADR, OCC, etc.  Just saying the expenses seem light.

I'm doing mine through Champions near the Galleria.  I believe I paid around $1,000.  You can do online or in class or a combination of both.  I tried to do online and though the material is fine, I'm not disciplined enough and it took too long.  That's me though.  I started going to the teacher-led and it is a lot faster because you have to allocate the days to go to class and take the tests.   I'm not half way and I have to say the instructor-led is the way to go.  You get to network with other students and potential new realtors as well as benefit from the interaction/questioning with the instructor.  This is a people business and I think you should get the practice of networking whenever/wherever possible.

If you have any questions about my experience feel free to connect.  Like I said I'm not done yet, but I should be done by March.

I'm Dax Desai and I'm a real estate investor.  I have lived in Dallas, TX most of my investing/working career, but now I live in Houston as of 2 years ago.  I've invested in other business besides real estate.  I've partnered in a mail services store, a wireless store, a hotel, and a web marketing business in the past.

While in Dallas, I flipped a few properties.  I started with my condo that I was living in.  I sought out a unit that needed a lot of work so I can make it my own and still make a profit when I eventually moved.  The net effect was I lived in the condo for 4 yrs effectively mortgage free when I take into account the profit I made when I sold.

My next property was a typical investor trap.  I bought a low-priced property for $17k [See pics here:  https://flic.kr/s/aHsjn3PkLv].   I spent another $23k on it and ended up owner-financing the property to someone who worked on the construction crew for $65k.  While I am cash-flowing, it wasn't my objective on that deal.

My next real estate investment was a house built in the 1920's [see pics here: https://flic.kr/s/aHsjrX5af8] I wish I still had the after pics. This house turned out beautiful. We purchased the house for $70k and put in $80k on foundation, framing, moving the kitchen, adding HVAC, rewiring the knob and tube, redoing the hardwood floors, and exterior. Our ARV when we started was a solid $350k, but the market moved against us and we quickly sold at $260k.

I also invested in a turnaround hotel deal (very small partner) and now I live in Houston and I'm looking to rekindle the house-flipper flame.  I'm also interested in multi-family, but have not dipped into that pool yet.

I've been assessing my investments, and I feel I need to turn up my real estate investing.  I would love to connect with Houston real estate investors, wholesalers, and agents and network.

I wish you all a fruitful investing year,

Dax Desai

Houston, TX

Can anyone recommend a good property manager in the Pasadena, TX area?  I'm looking to buy 4 properties out of my current area and need a good local property manager.

This is my first post so please excuse me if I'm posting in the wrong area.