Is building and owning a hotel even worth the money that it takes?
Is building and owning a hotel even worth the hastle? In my area, all real estate prices have increased and we have recently (last 5 years or so) had an influx of contract workers who stay year long. Most of these stay in trailer parks or hotels but it seems like the trailer parks have kind of died out and the hotels are becoming more popular. Also, we are right by the beach so people would hypothetically stay in hotels on a vacation to a beach. If they are profitable how much money will it cost to build a hotel?
Edit: just because I’m asking a question about getting into CRE today doesn’t mean I’m going to buy CRE today. I’m gathering information so I’m 2-3 years i will make informed decisions
[{"id": "hxlj8sg", "text": "Hotels are cool again. Model your development and study tourism/visitor demand. If demand makes sense and if your developer's profit exceeds your land value then do it (assuming you don't have another better investment). If developer's profit doesn't exceed land value then it may still make sense for a long term hold.", "replies": [{"id": "hxljyqe", "text": "Thanks! Do hotels generate good monthly cash flow?", "replies": [{"id": "hxlkg0q", "text": "Only if vacancy is low always. Margins are tight. Demand is everything. But like I said, people like hotels again.", "replies": [{"id": "hxlkqpn", "text": "Thanks for the help!", "replies": [{"id": "hxlkyx7", "text": "Anytime!", "replies": [], "depth": 5}, {"id": "hxlm00e", "text": "Also I forgot to mention. Having a General Contractor who knows what they're doing is everything. Otherwise things can fall apart real quick.", "replies": [{"id": "hxlm5xh", "text": "That\u2019s good to know! Thanks again!", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "hxq8le9", "text": "Such a rudimentary question means you shouldn't do it.", "replies": [{"id": "hxqb3rn", "text": "So, just because I ask a question doesn\u2019t mean I\u2019m gonna do whatever I\u2019m asking about the next day. I\u2019m gathering a lot of info about all of this so that I\u2019m 2-3 years I have the info to make smart decisions. I\u2019m sure you do the same thing", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hxlkjsi", "text": "&gt;how much money will it cost to build a hotel?\n\ndepends how big the hotel. Depends where but probably $5-$7 million-ish", "replies": [{"id": "hxlkoza", "text": "Yikes! I\u2019d only be able to put $200,000 down probably so my mortgage would be insane to finance that", "replies": [{"id": "hxlm7v9", "text": "you can use that for down payment on a small apartment complex in the area @ 70% LTV or to buy an existing hotel\n\nbuying a trailer park and renovating it is another option... \nassuming there's enough demand for housing construction workers", "replies": [{"id": "hxlmmec", "text": "True, good ideas. Sorry for all of the questions but is an apartment less expensive than a hotel? And do apartments have good cash flow?", "replies": [{"id": "hxlo3j5", "text": "it just depends on the apartment building, where it is, your rental market, does it need repair etc\n\ncheck on what's listed on Loopnet.com and you'll have a rough idea of what your market looks like as far as hotels and larger apartment buildings go. Check the MLS/Realtor.com in your area for any Duplex/Fourplex for sale, those can be had with conventional mortgage\n\nbuildings with 4+ units can be bought with loans that use the property's cash flow after expenses (DSCR loan - debt service coverage loan)", "replies": [{"id": "hxloc7b", "text": "Thanks for all of the help! You\u2019ve been extremely helpful! I appreciate it!", "replies": [{"id": "hxlp6rz", "text": "\nsure thing", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}, {"id": "hxmfrb9", "text": "There are some good books on multi-family (apartment) investing via Bigger Pockets that address both small and large properties.\n\nAlso, some good podcasts that are specifically oriented around multi-family investing, including Bigger Pockets (many, but not all episodes), Creative Capital (almost all multi-family episodes), and the Multifamily Insights podcast.\n\ntl;dr Many investors focus on multi-family because it can be one of the most profitable sectors in real estate if you buy the right properties and manage them well.", "replies": [{"id": "hxms6gc", "text": "Thank you so much! I will definitely check out some of those podcasts!", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "hxp891g", "text": "Lol. Username checks out. You can\u2019t build a sf house for $200k.", "replies": [{"id": "hxqbv6e", "text": "What do you mean by that about my username? It was an auto generated one. I\u2019m trying to inform myself. I had no idea 200k wouldn\u2019t be enough. That\u2019s the whole point of me posting this post. To learn", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "hxllpw9", "text": "What about a 50 room hotel? Or is that too small?", "replies": [{"id": "hxlmv0f", "text": "that's a standard sized hotel but your numbers have to work out considering all the costs. \n\nFind out the square footage of a 50-room hotel, find out who builds hotels in your area and contact them to ask what the cost per square foot is finished and you'll have a pretty good idea\n\nbut before all that read the zoning requirements your city and county have for hotels. I was just looking at a location and city zoning for hotels included minimum rooms requirement of 100, minimum square footage per room, mandatory pool (I think they even demanded it be a certain size) and conference room space", "replies": [], "depth": 3}, {"id": "hxnbwgw", "text": "80 rooms 4 story is the most economical, especially if you want to sell to a REIT down the line. With current construction costs your looking at 10 million plus for something like a Hampton inn. Motel 6 would be the cheapest franchise to build out.", "replies": [], "depth": 3}], "depth": 2}, {"id": "izmu95o", "text": "for that cost a gas station may be far more profitable in the right area, especially something that caters to truckers/diesel/truck stop/truck parking", "replies": [], "depth": 2}], "depth": 1}, {"id": "hxlt6lp", "text": "Why not purchase an already built hotel? Hotels can absolutely be great investments. Especially mid tier ones. A 30 room hotel in the Midwest that costs 1.2-1.5 million can comfortably generate 300k-400k + in revenue. \n\nIf you can secure funding for a new build, provided it\u2019s in a good location- it may definitely be worth it. But it will take a while to officially recoup your costs of building, especially with how expensive building is right now.", "replies": [{"id": "hxlzt1k", "text": "Heard the Lazy O was for sale again", "replies": [], "depth": 2}, {"id": "hxmt2xo", "text": "That\u2019s a good idea! Unfortunately in my area, hotels don\u2019t go up for sale very often", "replies": [{"id": "hxmtmhn", "text": "If you\u2019re really determined\u2026..Make a letter or email, find contacts of a bunch of mid tier hotels (I\u2019m talking your super 8s and the likes) in the area and send them a letter saying you\u2019re interested in purchasing it and if they are considering putting their properties up for sale. Many of them are owned by single owners and they don\u2019t want to \u201clist\u201d their properties but would be interested in talking shop if an offer came along. \n\nSource: Fam is in the business and this is actually how they purchased one of their hotels!", "replies": [{"id": "hxmu4tl", "text": "That\u2019s awesome! If I bought the hotel (let\u2019s say a super 8) would I have to keep the name as a super 8? Or could I change the name to whatever I wanted and make it my own?", "replies": [{"id": "hxmvdqh", "text": "It depends on the situation and the franchise agreement! But typically yes, you can opt out and start your own brand / hire or operate your own management system. That\u2019s not too difficult to do. \n\nThe most challenging part is to find good management / help that you can trust, especially if you don\u2019t intend on living on site. Buying a hotel where this is already in place, is golden. Staff and having a great manager system is the most important and toughest challenge. If you can figure that out, the rest of it is a lot easier. A good solution is to rope someone in as a minority partner who would be willing to live and manage on site (very common for hotels like this to have an attached living quarter), and then pay them a bit of a salary as well.", "replies": [{"id": "hxnebe0", "text": "Awesome! Thanks for the advice and help!", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hxlxnx3", "text": "An old CRE acquaintance told me the third owner does very well on hotels. It's a joke, sort of. We own a 32 room hotel. Staffing costs are insane. I had an experienced operator tell me that staffing for 32 rooms is about the same as 100 but the income is much lower. 24/7 desk staff and a team of cleaning people is necessary and costs a lot. Need to keep occupancy consistently high.", "replies": [{"id": "hxmshgm", "text": "That\u2019s good to know, thanks!", "replies": [], "depth": 2}, {"id": "hyvlg69", "text": "What\u2019s average size of a hotel room? I have a 38,500 SF property zoned for a hotel, zoning only allows 40\u2019 so probably 2 levels, 77,000 SF total. Any idea # of rooms you could put on this property?", "replies": [{"id": "hywu56b", "text": "Would need a lot more information. Setbacks would dictate your shape of building. There is no \"standard\" really.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hxm6f4v", "text": "If you need to ask these questions, don\u2019t build a hotel. Start with something else.\n\nAlso trailer parks are all the rage in institutional investing.", "replies": [{"id": "hxmsf0j", "text": "I feel like that\u2019s not a good argument. I\u2019m not considering buying a hotel right now. I\u2019m trying to learn all of this stuff before I do. I may never buy one but I would rather ask all these questions and get the information and feel more confident in case I am in a position to buy one", "replies": [{"id": "hxpn44a", "text": "Dm me if you want answers to more of your questions. I have been in CRE for 21+years as a developer in Hotel Acqusition for over 10. Your goals can be obtained with the right research and guidance with plenty of discipline too", "replies": [], "depth": 3}], "depth": 2}, {"id": "hxn7owh", "text": "I\u2019m not sure how you can ever build/develop a successful hotel without ever first asking these questions.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hxmpk8n", "text": "Research STR, get your hands on a report so you can RevPar and other analysis for the area you are considering. Go from there.", "replies": [], "depth": 1}, {"id": "hxmrrtw", "text": "Hotels are dangerous I own a couple I can tell you all about them but I am going to be honest if you have never been in the business do NOT jump in.", "replies": [{"id": "hxmry93", "text": "Can I DM you?", "replies": [{"id": "hxms0wi", "text": "Yeah sure", "replies": [], "depth": 3}], "depth": 2}, {"id": "j11swnh", "text": "I will second that.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hxmwv63", "text": "Hotel Dev guy here - hotels are great investments but are a hard place for someone to just break into. You\u2019ve got a ton of brands, a huge operating risk, and the volatility that comes along with the asset class. There are many ways to develop hotels to make a lot of money and many ways to develop hotels to lose a lot of money. Your best bet is to find a good partner who knows what they are doing on all of those fronts.", "replies": [{"id": "hxna5lh", "text": "Thanks for the advice!", "replies": [], "depth": 2}, {"id": "hyvllef", "text": "What part of the country?", "replies": [], "depth": 2}], "depth": 1}, {"id": "hxno3ra", "text": "If you\u2019re in the US, I would be very happy to stay in a place with this vibe: \n- 12 room boutique with modern decor\n- attached breakfast/brunch diner\n- attached full service dinner restaurant &amp; bar \nRestaurants would be open to the public and have high quality food/atmosphere. Hotel staff would be locals/super knowledgeable about the area so they could give me the inside info on what I don\u2019t want to miss while I\u2019m there.", "replies": [], "depth": 1}, {"id": "hxo16wi", "text": "Hotels are rough. There\u2019s a reason they\u2019re hard to finance. Most of them don\u2019t cash flow well", "replies": [], "depth": 1}, {"id": "hxpx7ir", "text": "Shoutout to all the comments on here that are actually educating the op regardless of his background in the space. \n\n@op if $200k is what you\u2019re looking to put down into that type of concept, I would focus on going the more boutique route in a high demand or seasonal market. Consider something you can put the rooms on both Expedia and Airbnb without having to franchise a brand to operate under. \n\nIf you\u2019re going the commercial lending route to fund the property- you\u2019ll need to be prepared for 20% down on a 15-20 year note. \n\nPersonally I would be looking at something already built, trailer park, or smaller multi family. \n\nLove the trailer parks, and you can always add your own Airbnb accommodations on the property to offset any dead real estate. \n\nA lender is going to want to see your experience in the space before agreeing to fund anything, and it\u2019ll be a lot easier getting approved if you\u2019re bringing them a property that\u2019s already generating cash flow.", "replies": [{"id": "hxqbljt", "text": "Thank you so much to trying to educate/ inform me! Some people are just bashing me for asking the question. I\u2019m asking the question so I can make informed decisions in the future lol.\nA lot of people have suggested trailer parks so it might be something I look into!", "replies": [], "depth": 2}], "depth": 1}]