The Entrepreneur Forum | Startups | Entrepreneurship | Starting a Business | Motivation | Success

Purchase a 36 room motel?? Good or bad idea?

Remove ads while supporting the Unscripted philosophy...become an INSIDER.

SnyCorp

New Contributor
Oct 30, 2007
35
1
9
Helena, MT
I have an opportunity to purchase a 36 room motel. The business does just about $360,000 per year and a property value of about 1.2.
What do you see as the real opportunity in a property like this?
 

Don't like ads? Remove them while supporting the forum. Subscribe.

nomadjanet

Contributor
Aug 28, 2007
310
54
26
TX
Russ is our hospitality expert perhaps he could advise.

The only site I could find off hand with any type of benchmark is listed below.

http://www.hotel-online.com/News/PR2006_1st/Mar06_SpasPKF.html

High labor cost & high fixed expense cost. Approx 35% profit on sales.

360000 x 35% =126000
1.2 million investment annual return 126000

anyone have anymore input?

have you actually seen the numbers?

what are the finance arrangements?

will it require your management or time?

is 35% return a resonable expectation or are your labor or fixed costs higher or lower than average?

more data would help you decide.

Janet
 
OP
OP
SnyCorp

SnyCorp

New Contributor
Oct 30, 2007
35
1
9
Helena, MT
Russ is our hospitality expert perhaps he could advise.

The only site I could find off hand with any type of benchmark is listed below.

http://www.hotel-online.com/News/PR2006_1st/Mar06_SpasPKF.html

High labor cost & high fixed expense cost. Approx 35% profit on sales.

360000 x 35% =126000
1.2 million investment annual return 126000

anyone have anymore input?

have you actually seen the numbers? Yes, overhead is around $150,000 per year including labor and maintenance of the property.

what are the finance arrangements? Still in negotiation.

will it require your management or time? Yes, My wife and I would run the motel.

is 35% return a resonable expectation or are your labor or fixed costs higher or lower than average?

more data would help you decide.

Janet
As a whole the motel has a gross increase of about 10% each year.As well room rates are still $30 per room less than the other motels that are about 30 miles away.
 

Yankees338

Bronze Contributor
Jul 24, 2007
1,829
136
81
28
NJ/MD
What is the area like?

Are there any other motels/hotels there? Are there any that are being built soon?

Is the area poised for growth which would attract more people to the area, and, thus, add to the number of potential customers?

Also, what is the condition of the property? Will it require updating or rehab in the near or distant future?

Does it have any addition space or features that you could use for your benefit? For instance, is there an used space on the property that would be better used as a retail space, restaurant, or cafe for guests and outsiders?

Just a couple things to consider. Didn't see you mention them, but you may have already studied these factors. Good luck. Keep us posted.
 
Last edited:

andviv

Gold Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
Summit Attendee
Speedway Pass
Jul 27, 2007
5,420
2,196
625
Washington DC
What do you know about motels? are you really planning to run it yourself? what's your experience doing this? I recall Russ saying his wife took a job managing a B&B before owning one so she could understand everything about the business. I am not saying it can't be done, just that experience is everything in this and any other business.
what do you know about the area? 30 miles is a long distance, so that will probably justify the difference in rates.

I see that you may have a chance to reduce costs, improve the property, improve occupancy rates and increasing the valuation for the business (nothing new, huh?). Any opportunity is great if you know what you are doing, and generally if you have to ask what we here think then it means that you are probably not ready to get into this opportunity.

Also, based on what I understand, this is not only an investment, it will also be a full time job.
 
OP
OP
SnyCorp

SnyCorp

New Contributor
Oct 30, 2007
35
1
9
Helena, MT
What is the area like? Montana...Motel is booked a year in advance for hunting season and has a trophy walleye lake just 4 miles away.

Are there any other motels/hotels there? Are there any that are being built soon? No

Is the area poised for growth which would attract more people to the area, and, thus, add to the number of potential customers? Main city is 30 miles away and has a growth rate of 46% in the next year or so.

Also, what is the condition of the property? Will it require updating or rehab in the near or distant future? Motel is in great shape.

Does it have any addition space or features that you could use for your benefit? For instance, is there an used space on the property that would be better used as a retail space, restaurant, or cafe for guests and outsiders? There is a grass lot that would come with the motel right next door. I was thinking of adding 6 more rooms. But I like yore ideas as well.

Just a couple things to consider. Didn't see you mention them, but you may have already studied these factors. Good luck. Keep us posted.

Thanks for all the great input.
 
OP
OP
SnyCorp

SnyCorp

New Contributor
Oct 30, 2007
35
1
9
Helena, MT
What do you know about motels? are you really planning to run it yourself? what's your experience doing this? Well this is the time I mention that my uncle runs and owns the motel. He feels with my experience running construction companies that this should come with little effort. He will still be working with me until we feel comfortable.
what do you know about the area? see reply above.

I see that you may have a chance to reduce costs, improve the property, improve occupancy rates and increasing the valuation for the business (nothing new, huh?). Any opportunity is great if you know what you are doing, and generally if you have to ask what we here think then it means that you are probably not ready to get into this opportunity. The reason for the question is I want to see if I'm might be missing a detail, when your waist deep sometimes you miss the small stuff.

Also, based on what I understand, this is not only an investment, it will also be a full time job.
I have a business right now that is taking me away from my family, I think this would be a great way to merge my two passions together.
 

Yankees338

Bronze Contributor
Jul 24, 2007
1,829
136
81
28
NJ/MD
Thanks for all the great input.
Glad to help. In response to your replies:

Hunting season is only during a certain time of year I assume. Have you decided how you're going to market the motel during the other times?
 
OP
OP
SnyCorp

SnyCorp

New Contributor
Oct 30, 2007
35
1
9
Helena, MT
Glad to help. In response to your replies:

Hunting season is only during a certain time of year I assume. Have you decided how you're going to market the motel during the other times?
I just got off the phone with my Uncle, The motel is booked pretty solid from May-Nov
and slower come Dec-early March. If you look at the entire year he stays at a 68% capacity. He also filled me in on what has been done in the last year, roof, beds, new phone system and a couple other major items I can't remember off hand. The other fact I liked is the only loan he has every had to get was to purchase the motel, other than that the motel has always pay'd for all it's own repairs with little effort.
 

AroundTheWorld

Be in the Moment
Speedway Pass
Jul 24, 2007
2,909
1,874
550
.
Okay - here are some of my comments.

It sounds to me as if your objective is to run this puppy yourself. If it were me, I would go spend a month working with uncle just to see all the sh** yourself - you will have a much better idea about what you are ACTUALLY getting into.

The other thing I would do for sure is get a copy of the financials and go over them with a fine tooth comb. I know it is your uncle, but you need to be really objective about what your actual expenses and actual income really are. Go straight to the source when you can.... Look at the merchant service records. Look at the tax returns. Look at the bed tax returns. Are there employees? Make sure all those related taxes are in the financials.

Once you have a solid feel for the financials, you can come to your own valuation.... not your uncles - not an appraisers --- yours. A ma and pa type Motel in Montana is valued off a higher cap rate.... Maybe 10% to 14% depending upon the quality of the motel. A higher cap like this means a LOWER VALUE.... You definately don't want to overpay on something like this.
 
OP
OP
SnyCorp

SnyCorp

New Contributor
Oct 30, 2007
35
1
9
Helena, MT
Okay - here are some of my comments.

It sounds to me as if your objective is to run this puppy yourself. If it were me, I would go spend a month working with uncle just to see all the sh** yourself - you will have a much better idea about what you are ACTUALLY getting into.

The other thing I would do for sure is get a copy of the financials and go over them with a fine tooth comb. I know it is your uncle, but you need to be really objective about what your actual expenses and actual income really are. Go straight to the source when you can.... Look at the merchant service records. Look at the tax returns. Look at the bed tax returns. Are there employees? Make sure all those related taxes are in the financials.

Once you have a solid feel for the financials, you can come to your own valuation.... not your uncles - not an appraisers --- yours. A ma and pa type Motel in Montana is valued off a higher cap rate.... Maybe 10% to 14% depending upon the quality of the motel. A higher cap like this means a LOWER VALUE.... You definately don't want to overpay on something like this.

I thank you for your input.. This is what we are starting to go over right now. The purchase price so we are all clear is not going to be 1.2 that is just what the property appraised. As for a set price we are working out the details but I assure you to happen it will be much lower than 1.2 MUCH>...
 

Ausable

New Contributor
Nov 12, 2007
18
3
10
Des Moines
I can think of a couple of things you can add to the motel.
1) You might be able to team up with a local taxidermist/butcher and offer guests that stay in the motel a discount of there services, and you would get back a portion of the discount as a referral fee. That way it wouldn't cost you anything to add this service.
2) Or on the empty lot, you could add a meat locker, and lease out the facility to said taxidermist/butcher, and make money two ways: on the lease and maybe a referral fee for add business.
3) Depending on the snow fall, you might be able to offer some kind of snowmobiling packages to guests, to cover the slow months. I know this is a big thing in North Michigan in the winter.
 

Russ H

Gold Contributor
Read Millionaire Fastlane
Speedway Pass
Jul 25, 2007
6,556
1,295
381
58
Napa Valley, CA
Post withdrawn.

Reason: Advice I gave was based on lack of information/false assumptions.

Hence, incorrect advice.

-Russ H.
 
OP
OP
SnyCorp

SnyCorp

New Contributor
Oct 30, 2007
35
1
9
Helena, MT
First off, Thank you to you all for you input and concerns!
Update:
There has been discussions for days on end with my wife and I; We've come to the conclusion that we will be moving to MT sometime early next year. Not as owners but as Students, We have talked to friends and family and yes with you guys and gals as well.
We will be on a one year crash course feeling out the biz and over looking all the books. The great news is the price to us is going to be very friendly if we decide to pull the trigger on this deal. (500,000 or less) is what's on the table now.
Now some of you have said that this is not really an investment, but rather a job. I'm looking at this in 2 ways: Yes, it will be a full time gig for my wife and I for the next 2-3 years. We are excited because it will allow us to work side by side in building the foundation for other moves we have planned out.
The 2nd is with the numbers I have right now, Their is a lot of room to increase margins and make the Motel much more profitable. Which we feel will allow us to hire a full time manager after our 2-3 year job is up. And yes purchasing the property at almost half of what we thought should make this hole process much easier.

Please fell free to post any more questions or comments that I may have missed.
Thanks again..:eusa_clap:
 
OP
OP
SnyCorp

SnyCorp

New Contributor
Oct 30, 2007
35
1
9
Helena, MT
On a side note the Motel has done 320-340K per year for the last 3 years. It has also taken care of all it's own repair cost without any out of pocket or loans of any kind in this 3 year period. Repairs have been some of the more costly items you can do without a complete re-model: New roof on both Motels, New beds in all units, new phone system , and it has paid for permits and blueprints already for a possible expansion. There is an empty lot next door that comes with the Motel as well. :thumbsup: I might have forgot one other thing, My Uncle purchased this property 3 years ago for 700K and has paid an extra 1-2000 per month on the Mortgage. He is selling it due to the fact my Aunt is very ill, and they would like to spend more time together while they can.
Last thing I think, The motel is staffed with 3 housekeeper's, My uncle doing some repairs and working the desk, and 1 person that works the early shift doing all the books and bills, along with any check-out that may come in. I hope this clears up some thing I missed the first time. Thanks SnyCorp
 
Last edited:

Yankees338

Bronze Contributor
Jul 24, 2007
1,829
136
81
28
NJ/MD
If you're up for all the work, I think it'd be a great investment. Yes, I said investment, not job. It will definitely be a labor intensive investment, but it will pay off in the end. If you claim it's worth about $1.2M with the financials how they currently are and you'd be purchasing for $500k, then you'd have $700k in instant equity. Combine that with the fact that you see room for improvement in terms of management and profitability, and you've got plenty of upside in this deal. You'll be paying down your mortgage and cashflowing as long as it's run well, and you'll put yourself in excellent position for the future. The only concerns I would have are the amount of work this would require and whether or not you'll have enough income to live off of during the time you'll be working there.

Good luck and keep us posted!

P.S. Having the open lot next door should make for some interesting opportunities for the future.
 

Don't like ads? Remove them while supporting the forum. Subscribe.

Last edited:
OP
OP
SnyCorp

SnyCorp

New Contributor
Oct 30, 2007
35
1
9
Helena, MT
If you're up for all the work, I think it'd be a great investment. Yes, I said investment, not job. It will definitely be a labor intensive investment, but it will pay off in the end. If you claim it's worth about $1.2M with the financials how they currently are and you'd be purchasing for $500k, then you'd have $700k in instant equity. Combine that with the fact that you see room for improvement in terms of management and profitability, and you've got plenty of upside in this deal. You'll be paying down your mortgage and cashflowing as long as it's run well, and you'll put yourself in excellent position for the future. The only concerns I would have are the amount of work this would require and whether or not you'll have enough income to live off of during the time you'll be working there.

Good luck and keep us posted!

P.S. Having the open lot next door should make for some interesting opportunities for the future.



The best part about the lot is you can do so much with it, their is a corner lot next to it that was for sale late last year for 170K. I could own the entire block if I time it all right, that could lead to some major ideas. But one step at a time. Thanks for all you help Yankee
 

Yankees338

Bronze Contributor
Jul 24, 2007
1,829
136
81
28
NJ/MD
The best part about the lot is you can do so much with it, their is a corner lot next to it that was for sale late last year for 170K. I could own the entire block if I time it all right, that could lead to some major ideas. But one step at a time. Thanks for all you help Yankee
My pleasure. That would definitely make for some interesting ideas as well! The more creative you can be, the greater the possibilites become!
 

Russ H

Gold Contributor
Read Millionaire Fastlane
Speedway Pass
Jul 25, 2007
6,556
1,295
381
58
Napa Valley, CA
SnyCorp said:
I might have forgot one other thing, My Uncle purchased this property 3 years ago for $700K and has paid an extra 1-2000 per month on the Mortgage.
Yes, this is critical information. I have withdrawn my earlier post, as it was based on a series of incorrect assumptions.

SnyCorp said:
The reason for the question is I want to see if I'm might be missing a detail, when your waist deep sometimes you miss the small stuff.
I've noticed that you are parsing out details to us as the thread progresses. Please understand that this is not a good way to get accurate feedback, as our answers will be based on lack of information and (most probably) incorrect assumptions. :)

-Russ H.
 
OP
OP
SnyCorp

SnyCorp

New Contributor
Oct 30, 2007
35
1
9
Helena, MT
Yes, this is critical information. I have withdrawn my earlier post, as it was based on a series of incorrect assumptions.

I've noticed that you are parsing out details to us as the thread progresses. Please understand that this is not a good way to get accurate feedback, as our answers will be based on lack of information and (most probably) incorrect assumptions. :)

-Russ H.
Russ, I sorry for the broken story line, I should have found out all the detail prior to posting anything. But I do thank you for your incite on the B&B Biz. Thanks:smxF:
 

AroundTheWorld

Be in the Moment
Speedway Pass
Jul 24, 2007
2,909
1,874
550
.
Sooo.... did you pull the trigger? Are you in beautiful MT? Are you neck deep in motel fun?
 

Russ H

Gold Contributor
Read Millionaire Fastlane
Speedway Pass
Jul 25, 2007
6,556
1,295
381
58
Napa Valley, CA
Ya might wanna ping him, Sonya-- he hasn't been on the forums since last December . . .

-Russ H.
 

fanocks2003

Banned
Mar 31, 2008
1,324
176
0
Sweden
I have an opportunity to purchase a 36 room motel. The business does just about $360,000 per year and a property value of about 1.2.
What do you see as the real opportunity in a property like this?
You need to give these number in order for me to help you:

-Annual earnings?
-Selling price?
-Fixed Cap Rates you could possibly get from a lender?
-How much Loan to Value?

If you know the numbers you can do some calculations back and forth and discuss your thoughts with the bank. Discuss the options. You really need all those 4 bases covered in order to discuss the deal from a financial stand point.
 

Create an account or login to comment

You must be a member in order to leave a comment

Create account

Create an account on our community. It's easy!

Log in

Already have an account? Log in here.

Sponsored Offers

  • Sticky
MARKETPLACE Lex DeVille's - Advanced Freelance Udemy Courses!
Thanks for sharing. I want a course to optimize for other than Google engines.
  • Sticky
MARKETPLACE You Are One Call Away From Living Your Dream Life - LightHouse’s Accountability Program ⚡
Welcome to 2020, I wanted to add in a quick note about gratitude for the new year...


Don't like ads? Remove them while supporting the forum. Subscribe to become an INSIDER.

New Topics

Fastlane Insiders

View the forum AD FREE.
Private, unindexed content
Detailed process/execution threads
Monthly conference calls with doers
Ideas needing execution, more!

Join Fastlane Insiders.

Top Bottom
AdBlock Detected - Please Disable

Yes, ads can be annoying. But please...

...to support the Unscripted/Fastlane mission (and to respect the immense amount of time needed to manage this forum) please DISABLE your ad-block. Thank you.

I've Disabled AdBlock