It's popular to start a new business by owning a hotel.Thousands of people buy guest houses, hotels, and bed-and-breakfasts every year, ranging from the retired couple to the lifelong professional in the industry.With the right planning and professional assistance, it's easy to invest large amounts of money in a business.
Step 1: Make sure to pull together as much money as possible.
If you want to buy a hotel, you'll need to put together enough money to make a down payment.You will need money to run the hotel and close the sale.The value of the property and your business model will affect how much you need for each of these expenses.Start with your savings and investment accounts.There are plenty of other sources of financing you can use if you don't have a lot of money saved in those accounts.You can take out a home equity line of credit, a second mortgage, use a personal credit card, or ask for loans from friends and family to get more startup money.Think about how much you have saved in various accounts.You can take out a second mortgage for $100,000.You secured a $20,000 loan from a friend.You will get a total of $167,500 to invest in your hotel.
Step 2: Money should be taken out of a retirement account.
You may be able to withdraw money from your retirement account.Penalties will be incurred depending on your age and account type.Any money you take out of an IRA will be taxed at your regular income tax rate, and if you are under the age of 50, you will also be hit with a 10 percent penalty.If your hotel fails, you will have little or no money left in your retirement account to use later in life.Imagine if you were 35 years old and decided to take money out of an IRA to increase your hotel investment amount.You can take out $50,000.10 percent of the withdrawal's value, or $5,000, would be taxed at your income tax rate.You would be left with $32,500 after the penalty and taxes, assuming an income tax rate of 25 percent.This would give you a total investable amount of $200,000, which includes the $32,500 from the IRA.
Step 3: You can find other partners.
If you can find other partners, you will be able to increase your investment amount.Ask your friends and family if they are willing to make a bigger investment in your business in exchange for a share of the business's ownership and profits.You can find partners in local investment clubs or online.
Step 4: Money should be put aside for other costs.
25 percent of your investment money is a good rule of thumb.The costs include closing costs with the seller, legal costs, and working capital used to begin running the hotel.You can use the rest of the money to make a down payment.You would set aside $50,000 for the previous example.You have $150,000 left for a down payment.
Step 5: How much do you think your price range will be?
How much of a down payment the seller requires will affect your price range.At this point, you don't know how much this will be.Set several different price ranges that are dependent on the seller requiring different down payment percentages.You could afford a 5 percent down payment on a hotel costing $3 million if you used the above example.A 10 percent down payment is required for a hotel.A 20 percent down payment is required for a hotel.If you use a bank loan to purchase a hotel, 20 percent down payments are the norm.You can get the down payment percentage down to 5 percent with seller financing.
Step 6: Future earnings from the hotel.
If you want to buy a hotel, you need to make sure that it can provide you with enough returns to cover both your expenses and your cost of borrowing.Project the cost of your loan payments over the next few years.The assistance of your loan broker may be required.Project the costs of operating, property taxes, insurance, and utilities of the hotel.The hotel's projected earnings over the three to five year period will be compared to the sum of these expenses and loan costs.Make sure that the earnings cover your costs.Hotel expense and cost information can be estimated from looking at similar hotels in your price range.
Step 7: Do you want to buy an existing hotel or start your own?
If you're looking for hotels to purchase, you can either buy existing hotel properties or look for another property to convert into a bed and breakfast.You can choose a larger variety of properties if you set aside more money for renovations.This is the time to make a decision about the property selection process.
Step 8: The general area should be chosen.
You'll be spending a lot of time at your hotel, so make sure it's close to where you live or easy to get to.You may have to move a lot to make sure the hotel runs well.Having a familiarity with the local area and hotel market can be a serious advantage.
Step 9: Evaluate the market.
Try to get a sense of the hotel market in the area you've chosen.Ask the local real estate agents if they sell hotels for less or more than the asking price.The depressed market may allow you to come in at a lower price and work out seller financing with the seller.Cash flows from the hotel will be low unless you're expecting an economic turn around.Search online for relevant news articles about the national state of the hotel industry.
Step 10: Work with real estate agents.
Let the real estate agents in your area know that you are looking to purchase a hotel with a price range.They can show you properties currently on the market or let you know if new ones become available.They can show you properties that can be turned into hotels.If you are planning to update or restore your hotel, it's a good idea to drive around the local area and look for properties.If you find one, you can use the real estate records at the county seat to find out who owns the property.
Step 11: Evaluate several options.
You may get offers to sell through your real estate broker or the property owner you've contacted after searching for properties.Information about the hotel's amenities, financial performance, market information, competition, and information about seller financing will be included in these offers.If the offer is missing contact the seller and request it.Once you have an offer to sell, make sure the hotel you choose meets your requirements in price, location, repairs or renovations needed, and style.If it doesn't happen, tell the seller you're not interested.If you have a lot of offers, it's a good idea to compare the benefits and drawbacks of each one.
Step 12: The hotel should be valued by an expert.
Acquire the services of an appraiser who has experience with hotels.It's a good idea to use someone with experience in the area where your hotel is located.The hotel may be worth less than the asking price.If it isn't, let them identify areas where you could point out problems or damage that you can use to get the seller to back down on their price.
Step 13: The hotel's books should be reviewed by an accountant.
The hotel's financial records can be examined by a qualified accountant.The hotel's cash flows, assets, and other financial positions can be found in this information.The accountant will be able to assess whether or not any of this information was mishandled or mis reported, and can give you a more accurate picture of the hotel's financial health.
Step 14: A financial consultant is a good idea.
Future earnings from the hotel can be projected by a market or financial consultant.They will be able to combine an analysis of local markets, the hotel market overall, and other trends to identify your hotel's growth and earnings potential over a number of years.They can help you identify marketing goals, find ways to increase profits, and write a business plan.
Step 15: An engineer and an architect are looking at the hotel.
The building will be examined by two professionals to make sure it complies with local building codes.The condition of utilities, machines, plumbing, and electric work in the hotel will be determined by the engineer.This will help you find areas that are in immediate need of repair or renovation.It can help you figure out how you will modify an existing structure to meet your hotel's needs and get an estimate on how much those renovations would cost.
Step 16: To meet regulatory guidelines, you need a lawyer.
The only way to make sure that your hotel business complies with all local, state, and federal regulations is to hire an experienced real estate or hotel attorney.The lawyer will look at everything from environmental regulations to taxes and trademarks to make sure that your business doesn't face legal liability down the road.The same lawyer can help you out later in making sure that your purchase of the property goes through as planned and that the purchase contract is written in accordance with the law.
Step 17: A fair price for the property can be determined.
Take the asking price of the property and subtract your down payment.Depending on whether or not you secure seller financing for the property or use a bank loan, the down payment percentage will vary.You have to adjust your offer based on the hotel market.If the market is not very active and you don't have much competition for the property, you may be able to subtract another 10 or 20 percent from the price in your initial offer.If you want to make sure you get the property, come in at the asking price or above, minus your down payment.
Step 18: You can make an offer.
Once you've determined a fair price for the property, write the seller or work through your real estate broker to submit your offer.If the seller offered seller financing in the original offer to sell, make sure to include it in your proposal.The amount of your down payment will be specified in your offer.Your offer should be short and to the point.You need to include in your offer a set amount of time to inspect the property for damages or necessary repairs, as well as a requirement that you look through the hotel's books to confirm their financial information.
Step 19: Talk to the seller.
The seller is likely to respond to your offer with a counteroffer.Try to stick to your original offer when you negotiate with the seller.You may be able to get the seller to pay for improvements, repairs, or renovations.In addition, be sure to work out details like keeping key suppliers and employees, as well as how long the seller will work with you to transition the hotel's management.If you and the seller can work out a mutually beneficial deal, this negotiation process will be worth it.Make sure you get promises for additional payments from the seller in writing and that they are included in the purchase contract.
Step 20: The purchase agreement should be completed with a lawyer.
The seller will most likely write the purchase agreement, but you should hire a real estate attorney to review it.A lawyer will make sure that the agreement is in your best interests.You should use a lawyer who specializes in real estate law.If you need additional financing, your lawyer can shorten the approval process to give you more time to find it.You should be able to get out of the purchase until the closing date without penalty.
Step 21: The time before closing is a good time to take advantage of.
Before your closing date, you will have some time after your purchase agreement is agreed upon.To learn the hotel's business model and make changes to your own business strategy, use this time to work with the seller.When you take control of the hotel, double-check your revenues and expenses to make sure you don't have any surprises.