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

Discussion in 'General Entrepreneur Discussion' started by SnyCorp, Oct 30, 2007.

  1. SnyCorp
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    SnyCorp New Contributor

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    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?
     
  2. nomadjanet
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    nomadjanet Contributor

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    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
     
  3. SnyCorp
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    SnyCorp New Contributor

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    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.
     
  4. Yankees338
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    Yankees338 Bronze Contributor

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    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: Oct 30, 2007
  5. andviv
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    andviv Gold Contributor Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass Summit Attendee

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    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.
     
  6. SnyCorp
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    Thanks for all the great input.
     
  7. SnyCorp
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    SnyCorp New Contributor

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    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.
     
  8. Yankees338
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    Yankees338 Bronze Contributor

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    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?
     
  9. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    near what town in MT?
     
  10. SnyCorp
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    SnyCorp New Contributor

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    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.
     
  11. SnyCorp
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    SnyCorp New Contributor

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    Outside of Helena..
     
  12. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    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.
     
  13. SnyCorp
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    SnyCorp New Contributor

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    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>...
     
  14. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    How are things going on your project?
     
  15. Ausable
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    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.
     
    JesseO likes this.
  16. JesseO
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    JesseO Contributor

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    I like those ideas, Ausable =) ++
     
  17. Russ H
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    Russ H Gold Contributor Read Millionaire Fastlane Speedway Pass

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    Post withdrawn.

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

    Hence, incorrect advice.

    -Russ H.
     
  18. reipro
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    reipro Contributor

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    AMEN AMEN AND AMEN:hurray:
     
  19. SnyCorp
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    SnyCorp New Contributor

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    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:
     
  20. SnyCorp
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    SnyCorp New Contributor

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    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: Nov 18, 2007
  21. Yankees338
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    Yankees338 Bronze Contributor

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    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.
     
    Last edited: Nov 18, 2007
  22. SnyCorp
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    SnyCorp New Contributor

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    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
     
  23. Yankees338
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    Yankees338 Bronze Contributor

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    My pleasure. That would definitely make for some interesting ideas as well! The more creative you can be, the greater the possibilites become!
     
  24. AroundTheWorld
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    AroundTheWorld Be in the Moment Speedway Pass

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    Pack your warm clothing - it started snowing today!!!
     
  25. Russ H
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    Russ H Gold Contributor Read Millionaire Fastlane Speedway Pass

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    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.
     

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