As the world reopens after the pandemic, many industries are experiencing substantial increases in profitability. The hospitality industry is starting to grow leaps and bounds as many people are traveling after spending a year at home. If you are a savvy investor looking for a great opportunity to make money, then buying a hotel is a great idea.
The hotels in the United States alone generate over $194 billion worth of revenue annually. The key to having success with this type of investment is finding the right hotel to purchase. Below are 5 things you need to consider when buying a new hotel and making it profitable.
Get to Know the Competition
Inexperienced investors are usually surprised to learn just how many hotels are currently for sale. Once you get a shortlist of hotels for sale in an area, you need to start market research. The more you know about the area where a hotel is located, the easier it will be to make an educated purchase.
Getting to know the competition a particular hotel has is very important. This will give you an idea of how well a hotel will do. It also gives you information about the potential earnings in a particular market.
As you start to look at competitors, be sure to find out things like the rates they charge and the demographics they serve. With this information, you can begin developing a plan to make your hotel investment more profitable.
Choose a Hotel With a Solid Revenue Stream
When trying to narrow down a list of potential hotel purchases, there are specific metrics you must consider. Smart investors realize buying a hotel with a solid revenue stream is a great way to hedge their bets. Ideally, you want to buy a hotel with plenty of loyal customers and a high growth rate.
Some investors think buying a hotel with money problems is a good way to save money. In reality, this can lead to you inheriting a money pit. Speak with an agent about the pros and cons of buying distressed properties to ensure an intentional strategy if this is your plan.
Assess the Overall Condition of the Property
Once you start to narrow down your shortlist of potential hotel investments, schedule tours of each property. It is hard to make a good decision about which property to purchase if you haven’t seen them firsthand. Before you head out to take these tours, be sure to jot down a list of things you want to check.
In most cases, hiring an experienced contractor to accompany you on these tours can be beneficial. These professionals can spot problems involving structural issues, mold, and roofing leaks. If you find multiple repair issues when touring a potential hotel purchase, you need to understand what your operational strategy will be.
Determining a Fair Price
Finding a good deal on a hotel is something most investors are adamant about. Educating yourself about what similar hotels in the area have sold for is also essential before purchasing.
You also should look at the long-term revenue a hotel could potentially generate before deciding to buy it. If you have to pay a bit more for a hotel that has consistently grown year after year, then it may be worth the extra money invested.
Before buying a hotel, you should also take time to assess the construction cost of building a similar property from scratch. There may be an instance where building a similar hotel from scratch in a new location makes more financial sense. This is why taking your time and looking at every angle before buying a hotel is important.
Location, Location, Location
Another factor to consider before buying a hotel is where it is located. Choosing a hotel near major tourist attractions, convention centers, or airports is a smart move. In most cases, a great location can help you make a hotel investment profitable.
Be sure you are working with a commercial real estate agent regardless of your familiarity with an area these real estate professionals will give you in-depth information about specific areas and some context about how well other hotels in this area have done in the past. Having this kind of professional assistance is invaluable when attempting to make the right hotel investment.