All Forum Posts by: Jimmy Klein

As others mentioned its all on location and asset class. The less riskier, the lower the cap rate. Multifamily has seen caps in the 3.5%-6% range in strong markets. Hotels typically have the highest rate of return because there is an operating business inside of it and cash flow tends to vary greatly each day.

Lol its funny you mention the Patel name. I am actually invested with a Patel family, though they do larger deals. They've done well for me and continue to invest with them. I have also assisted with renovations and their revenue management team as well. In regards to acquisitions, your right, not alot of sellers getting rid of the good properties.

Financing is tough especially if you got no experience. 

Branded is good in certain markets and in others it adds no value. You have to do enough research to see if its worth it. The renovations that brands require cause serious brain damage.

These assets have significant overhead and require significant energy as well. If you need more info, PM me.

@David Ptak

My group buys hotels all the time. Typically yes its 30-45 days due diligence. Too be honest, before your putting money down, you should already have a good idea about it and the lending options you have available. The main items would be the appraisal, PCA, ALTA, etc. These can be done in 30 days if you time everything accordingly, but you should just have language in there that states you can get maybe an extension if the bank's third parties fall behind since you have no control over them. 45 days to close after is fine. As for earnest deposit, 2.5% on smaller dollar value is fine, larger deals would see the percentage drop. I recommend not only looking for a lawyer in the state, but a lawyer that's in the county.

Are they only looking in Georgia? I'm involved with multiple hotel groups and they may look at selling, but I don't think they got any in Georgia.

@Robert Leonard

I think you're overthinking this. I have done this on multi-million dollar deals. We offer a little bit more and tell the seller to carry back. This is NOT fraud. Everything is recorded as a lien and with the city. The bank is not only fully aware of the situation, they have to sign off on the seller note since it has to be subordinate to them. All parties are legally communicating with each other. There are very little tax implications as the seller piece is a loan and as Cody mentioned, you pay taxes on the net. 

@Patrick Philip

First off, the BRRRR strategy doesn't work for hotels because unlike houses, banks are not going to let you pull out a million dollars within a year. In the hotel business, the rehab and sell method has been around for ages, but the difference is that it takes years. Unlike a house, that you can rehab and rent within six months, hotels that are rehabbed take about a few years to realize that value. People don't just start staying at your hotel within two weeks of rehab, it takes marketing, sales effort, retraining of staff, etc. You have to eliminate years of negative perception about the property from people's minds. This isn't done overnight.

Second part, not to sound rude, but if you are not planning to be involved in the business and think a GM will solve everything, let me stop you right there. If you cannot commit your own blood and sweat, you will lose your shirt. Either your completely involved in the business or you are not in the business. This isn't multifamily or retail where you collect rent and relax. Here you have daily turnover, you have a housekeeping team, maintenance team, front desk.

Books won't help you in this business, you need to experience the business and if you think this is a passive investment, I would recommend you find another interest. I still recommend you get a job at a hotel front desk to learn the ropes. I am sorry for being harsh, but I think you need to do a lot more research just based on the questions you are asking.

There is a reason why hotels have the highest returns out of all real estate asset classes...it requires the most time and energy.

@Patrick Philip

You need to observe the local markets ADR and Occupancy. You need a STAR Report. If we are building, we have a professional company that does only hotel studies. They cost around $5k, but are easily worth it to determine if it makes sense to build.

Syndication is tough as someone above mentioned. It requires a lot of paperwork. Our hotel company are structured like your normal partnership, everyone gets a % of equity based on their commitment, they are tied to all documents. We then pay distributions accordingly. Also, it seems like your trying to provide a pref return or fixed interest rate. Typically if they commit equity, they get their cut. So for us we try to at least push for 15-20% cash on cash return, but in no way would we say that we will give you 15% fixed because then there is a blur between equity and debt. 

I wouldn't honestly say losing your shirt about every business or investment. Hotels are probably your riskiest industry type in real estate, hence the cap rates. I rarely heard about multifamily buildings where occupancy fell 40% in short time frames. However I have seen that with hotels. 

We have done value add deals and we have done stabilized as well. You touched on the main points exactly, knowledge, hard work, and capital are key in this business. 

@Patrick Sears Let me first start off by saying the companies you are referring to, where the owners went from a small mom & pop to a large investment company certainly exist. However, this business is not about your pedigree. Graduating top of your class from Cornell doesn't guarantee you to be a huge hotelier. In fact, this business is about blood and sweat. Its not an office business where you can sit on a high cap rate. Your management decides the cap rate. I know many large hotel owners and almost 99% have no formal college education but they worked hard. So don't think a degree will help you manage hotels. Managing hotels will help you learn to manage hotels. 

Regarding 3rd party management, yes companies can run it and reposition it for you, but depending on the deal you may not have much left. My suggestion is that you invest your money with a group because you mention you really don't have much of a plan to manage anyways. Most people that want to have exposure to the hotel business don't buy hotels, but rather park their money with investment groups or even invest in REITs. I always say that this business is not for everyone and if done incorrectly you can lose your shirt.