Work VERY VERY hard in this place for about 5-7 years, get the Gross and Net Income as high as possible… I mean milk that place… if it does not have a coin op washer and dryer, put one in… snack and drink dispensers, offer other services as well, like if no western union in town, see if it works for you… etc etc etc… get that income as high as you can, and then after the 5-7 years, sell it. If you did your job right you should be able to pocket a VERY nice piece of change, and walk away from what will basically be a ball and chain. But for 5-7 years, you can put up with just about anything. Then, find yourself a nice multi-family that is not so labor intensive and chill.
Motel in my lap, why shouldn’t I accept? - Posted by Dan Smith
Posted by Dan Smith on November 24, 2007 at 02:15:56:
I have developed a friendship with a couple who have owned an 11 unit motel in a great location for ten years and are wanting to sell and retire. They are incredibly emotionally invested in the property after all the work they have put into not only the business but the small farming/big spring-fall tourism based town. There is only one other hotel in town but by contrast we are talking Hilton vs. crack brothel. They have been dropping hints for a year now but just this week sat me down and made an offer with the contingency that I spend some training time under their scrutiny before we all commit. They are by default just as concerned with my success as I am, as they will be carrying a note for the entire purchase price and plan to be spending their retirement in other states that are at least 1000 miles away.
My background is in construction and I am the son of a general contractor so running a business and maintaining the property will be nothing new to me. Taking care of people and maintaining good customer relations is one of my stronger suits, which is of huge importance to the owners and is one of the main reasons they have approached me.
As for the beans; $650,000 appraised value, $600,000 price, $124,000 gross income last year, $122,500 so far this year (projecting $140,000-145,000 total this year). Expenses: $26,000 annual operating, $21,000 all taxes $6500 for one employee 2-3 hrs day janitorial duties. Occupancy: 14-20% occupancy in winter (great opportunity for growth), 65-90% occupancy spring through fall (tourism, hunting, fishing). Room rates: $45-$72 nightly.
The contract is zero down (exception: $4500 closing costs)$600,000 purchase (including their underlying $100,000 8% 3 year remaining term which they will maintain payments on) 15 year note at 8% fixed amt. I will take over after winter so that I have time to save during the high profit months and survive next winter, again they are wanting to ensure my success, and therefore theirs. My question is this; am I missing something here? I understand the commitment of living onsite as they have for ten years, but what are the other negatives? Am I fogetting something on the financial end? Is this the opportunity I see it as? I’m thinking of approaching a friend of the family with some experience in the field and offering a 5% equity for his advice through the first six months, any thoughts on that idea? Someone is wanting to entrust what is essentially their retirement and legacy to me and I don’t want to screw it up. I need a Charlie Munger on this one.
Thanks for reading my book, any input would be great.
~Dan