Purchasing a Hotel? Here are 5 Things Worth Considering
July 25, 2022
Whether you’re a seasoned real estate investor or an aspiring, passion-filled hotelier, you probably already know that investing in a hotel is a big decision. Before you sign on the dotted line, though, there are several things to consider – including location, amenities, price point, and more.
Here are five things worth considering before you purchase a hotel:
1. Location, Location, Location
The first thing to consider when shopping for a potential hotel is location, location, location. If a hotel doesn’t have the right location, it can be difficult to succeed. This can be true even if everything else about the property is perfect; if it isn’t located in an area where people want to stay or visit, then nobody will want to stay there and it’ll go out of business.
The perfect location doesn’t necessarily guarantee success
On the other hand, having the perfect location doesn’t necessarily guarantee success either—a great spot can turn into a terrible one overnight due to shifts in demographics and tastes.
The location of your hotel should be a highly strategic decision. It’s worth noting that a hotel located in the middle of all the action isn’t always the best choice. Many hotel investors are actually seeking out locations that are more “off-the-beaten-path”, as a unique differentiation — especially in recent years as travelers are looking for these types of accommodations more and more.
2. What’s the Layout?
The layout of your hotel is important for a variety of reasons. This includes the number and size of rooms, the layout and amenities in each room, as well as the layout of the lobby and common areas. For example, you may need to consider whether there are going to be enough public spaces available on-site for flexible programming needs. In addition, if you plan on hosting brand activation events at your hotel (such as a seminar or trade show), then it’s important that there be sufficient space for this purpose.
When considering the layout of your hotel, you’ll also want to take stock of any existing infrastructure. For example, you may want to make sure that there are enough electrical outlets in guest rooms and public spaces for charging phones.
Think about how the layout of your hotel can affect the guest experience
It’s also important to think about how the layout of your hotel can affect the guest experience. For example, if you have a large kitchen or meeting space, then this may make it easier for guests to stay connected with family and friends. In addition, if there are more kitchen appliances such as refrigerators and microwaves in each room, this could enhance the food and beverage options available at your hotel.
3. Assess Your Competition
The third thing to consider before buying a hotel is to research the competition. It’s important to know how your competitors are performing and where they might be going wrong that you could capitalize on. You should know their strengths, weaknesses, and pricing strategy.
Know their strengths, weaknesses, and pricing strategy.
Know their marketing strategy, website content, and social media presence (if they have one). You should also learn about their staff’s experience with customer service as well as their reputation in the community.
You need to find out if there are any future plans for development or changes within their business model that could affect yours negatively or positively.
4. Know Your Numbers
Your deal should work even if you’re dealing with a conservative, “worst case scenario.” For example, if your deal pencils out assuming $100,000 revenue per month, but the model breaks if revenue is just slightly below at $90,000, then your margin of error is too thin. Either the deal doesn’t make sense, or you need to take another look at your underwriting.
In order to be able to evaluate deals this way, you’ll need to know your numbers. You should have a basic understanding of what’s happening behind the scenes at every single hotel you look at.
Are you looking at a P&L statement that’s meant to show you the best-case scenario, or is this an actual reflection of what happened during a given month? What debt load are you adding to the hotel? How much cash flow does that create for you as an owner? Is it enough to cover your costs and make a profit, or will it just break even? If the deal doesn’t work with less-than-ideal circumstances, then it might not be worth doing.
5. Consider the Services, Amenities, and Space Programming
What amenities will your hotel offer? Are there fun activities for guests to enjoy? Will you have a restaurant on-site, or spa services that guests can take advantage of during their stay? These are all important things to consider when looking at hotel properties.
Flexible space means that you can activate the spaces in your hotel with events and activities, which encourages guest engagement, adds value to their stay, and allows you to educate them about what makes your property unique. Flexible space also allows for different event types (i.e., conferences vs weddings), so if one type of event isn’t working well then you’ll still be able to use other portions of the building during those times.
If you’re considering purchasing a hotel, make sure to do your research before making any decisions — there are plenty of other considerations beyond what this article discusses. Hotel ownership is really unlike any other type of real estate asset, and it’s worth the extra due diligence to ensure you’re making a good decision. I hope this article helped inspire you to ask thoughtful questions and to consider things that you hadn’t considered before.
Partner at Longitude°
Jeremy is the author of Future Hospitality and Brand Strategist at Longitude°. As a member of the Education Committee for The Boutique & Lifestyle Leaders Association (BLLA) and a content contributor to Cornell University’s Hospitality Vision and Concept Design graduate program, he is a committed thought leader in hotel branding, concepting, and experience strategy.