The hotel industry is booming, and many investors want to get in on the action. Unfortunately, the buying process can be complicated if you don’t know what you’re doing. Here are five things to look out for before making that big purchase:
Assess your finances and liquidity
Buying a hotel is a serious financial undertaking. Before buying, you need to clearly understand your personal finances, including your liquidity and current cash flow.
It would help if you also had a plan for how you’ll fund the purchase of the hotel and pay back any debt incurred in doing so—and how you will cover ongoing costs like property taxes and insurance.
You should also consider your ability to manage the hotel. Are you willing and able to devote the time, energy, and resources necessary to keep the property running smoothly? If not, it may be better for your finances—and your sanity—to rent out a portion of the building instead.
Suppose you decide that buying a hotel is right for your financial situation and personal goals. In that case, it’s time to start looking for one. You can find properties on the market through real estate websites like Zillow and Trulia or by searching local newspapers.
Consider your competition
Before buying a hotel, you must understand your competition. After all, you want to make sure that the property has enough loyal customers to support your investment and growth. You should ask yourself:
- What are my competitors’ strengths?
- What are my competitors’ weaknesses?
- How can I use this information to my advantage?
Suppose you’re looking to open a new hotel in an area with a lot of competition. In that case, you may want to wait until some other properties close down or move away. This will give you more room for growth without having to compete with established hotels right off the bat.
Confirm all assets being sold
Before buying a hotel, it’s essential to confirm that all assets included in the sale are present and accounted for. This includes checking that all equipment is in good working order, free of liens or encumbrances, and free of legal issues.
It also includes confirming that you’re getting what you expect from the deal—if there are any indications that this may not be true (for example, if there are no recent photos available), then tread carefully.
Finally, be sure to scrutinize the location before making your purchase. Is it located close enough to restaurants? Has it been around long enough to establish itself as a go-to spot? Does it have parking available nearby?
If you’re looking for a hotel that’s already built and established, check out the competition first. It’s essential to know how many hotels are in your area, what their prices are like, and whether there is enough demand for another one nearby.
Understand the management contract
Before you decide on an investment, you must understand the management contract in detail. The length of the contract should be as long as possible, and it should be renewable.
It’s also desirable for the management contract to be exclusive and include a termination clause, non-compete clause, and any other specific clauses that may arise from your negotiations with the hotel owner.
The management contract should also include the terms and conditions for the manager’s compensation. This can be a flat fee, a percentage of revenue, or some other form of payment.
It’s important to remember that the management contract is a legally binding document, so you should make sure that both parties sign it. You’ll also need to keep a copy of this document for your records.
Check if exit-device is installed
Exit devices are one of the most critical safety features in a building. They help to ensure that people can get out quickly and safely during an emergency, such as a fire or power outage. This will ensure that there is no question about whether the building has been appropriately prepared for emergencies.
Exit devices are crucial for hotels, which often have large numbers of people inside at any time. With the proper implementation of commercial doors with panic bars, you can ensure the safety of the building and everyone in it.
You can also use panic bars to install alarm systems. The security alarm sounds if someone enters or exits through an unauthorized entrance. Suppose you’re planning on buying a hotel one day. In that case, checking if an exit device is installed before investing is essential.
Your decision to buy a hotel should be driven by your passion for hospitality, not the potential to make money. The industry is cyclical, and it’s hard to predict what lies ahead for the economy. If you decide to invest in hospitality, ensure you have a plan for when times get tough.