BUYING A HOTEL
Do you want to buy hotel?
Which locations are the best to buy a hotel?
First you need to clarify why you are buying a hotel and what guests you are targeting:
- Do I want tourists?
- Do I want business travellers (corporates clients)?
- Do I want to host weddings?
- Do I want a wellness hotel?
- Do I want a restaurant in the hotel?
Then choose a location that matches your plans, or one you know well and believe in.
“The value of a hotel is about location, location, location. Nowadays, marketing can be targeted so well that location may not be the most important factor.”
However, the purchase price depends greatly on location.
Those who have a good plan can buy a hotel for a good price, in a location that may not be attractive to others.
How much will the hotel earn?
This depends on having a good marketing plan, the right staff and properly managing the hotel.
- Individually, or with the help of an experienced hotelier, you can calculate the revenues and costs. Additionally, it can be helpful to have a professional consultant prepare your budgets.
- The consultant will plan your ADR (average daily rate), occupancy and other revenue streams. Of course, he or she will also provide you with a comparison of your competitors (benchmark) and calculate all costs.
- Most investors who buy a hotel use a bank loan to finance the purchase. In every case, the bank requires a flawlessly prepared 5-year business plan. JAN Hospitality has successfully realized such business plans and prepared projects many times in the past.
- Of course, the hotel’s performance (profit) will also be influenced by whether you run the hotel yourself, lease it or hire someone to manage it on your behalf (management contract).
- Another possibility is buying a franchise for your hotel, which usually has the benefit of higher occupancy and higher average prices. Costs must then include fees for use of the brand name and marketing.
How do I avoid being duped and buying a building in poor condition?
- We ALWAYS recommend a building audit, structural survey and appraisal by an architect before purchasing a hotel.
- Request building approval certificates and documentation for all previous renovations/alterations.
- Bring an experienced hotelier or professional consultant to the inspection to examine all of the hotel’s operational details.
- We recommend paying particular attention to logistics, such as housekeeping, supplying the restaurant and serving food, parking facilities, night operations.
- Get a calculation of the costs of renovating the rooms and lobby.
- The look of the hotel must match your marketing plan: this is the only way you will nurture loyal guests who like to stay at your hotel.
How to best finance the purchase?
- Nowadays, bank loans are so cheap that it’s better to borrow than to invest your own resources.
- The bank usually requires a down payment of 25% – 40% of the purchase price using your own resources (your equity), but this amount can be less.
- To get a loan we recommend working with a professional consultant who has executed the purchase/sale of several hotels.
- Other sources of financing can sometimes be used to buy a hotel – for example, inviting co-investors or taking advantage of a loan from a cooperative society.
- We recommend checking the eligibility of European funds.
- An essential step for getting a good loan is a well-prepared project with a five-year budget.
Is it worth hiring a professional advisor when buying a hotel?
If you don’t know what steps to take an advisor can help with:
- determining the correct price to offer to the seller
- to find defects, whether structural, architectural or legal
- to calculate revenues and costs
- to calculate your return on investment
- to prepare a list of job positions and their valuation (personnel costs)
- to prepare a marketing plan
- to set target groups for the hotel
- to recommend a form of hotel management and administration (own management, franchise, management contract, lease, etc.)
- to prepare a project for the financing bank
- tax and accounting considerations into account