Motel purchase - Posted by Terry

Posted by ray@lcorn on January 09, 2004 at 17:13:58:


I can’t really comment on the deal without seeing the operating numbers. Usually three years of operating statements are necessary to evaluate a deal like this, but a quick read is possible with the gross sales and expenses for the last twelve months.

Be aware that a motel is a business, not a straight real estate investment. This is a small property, and the potential audience to sell or lease it to as an exit strategy is comparitively small as well. That’s why the majority are owner financed just as this one is offered. In many cases it is equivalent to buying a job rather than being an investment.


Motel purchase - Posted by Terry

Posted by Terry on January 08, 2004 at 15:53:58:

I am considering purchasing a motel for sale in my area. It includes a 2000 square foot restaurant and 20 motel units. The restaurant is leased out for $2,000.00 per month. The seller has been opening the motel sporadically. A nearby (across the street and half a block down) motel rents units out for $35.00 per night. The owner just undercuts the other motel by $2.00 to get the customers to stay and it works. The asking price is $379,000 with $30,000 down. The seller will carry the note for 15 years at 8%. Does this sound like a profitable deal? We would run it ourselves. If worse came to worse, what would someone be willing to lease the motel business from us for? It is in a commercial area where property values are rising.

Re: Motel purchase - Posted by David Krulac

Posted by David Krulac on January 13, 2004 at 07:28:50:

on small mom and pop operations the profit is often skimmed. ask to see the tax return for the last 3 years besides what the owner tells you. occupancy rate is important are they 50%,60%, or 98%. I’d reiterate what Ray said it is a business, and if you manage it you or somebody needs to be on site 24-7. When you go on vacation you need somebody to manage the place. For most mom and pops they do all there own management, saving the costs of an employee but are literally on call 24-7. Somebody I know lived on site and were often awaken in the middle of night when the “NO VACANCY” sign was lit up being asked if they really didn’t have a vacancy. They are often owner financed for first and second mortgages because the income shown on their tax return does suppoort the asking price they want for the property, because the tax return income is understated, but the asking price is overstated.

David Krulac
Central Pennsylvania

Re: Motel purchase - Posted by Terry

Posted by Terry on January 09, 2004 at 18:18:33:

Thank you, Ray. Your answer is sound and it brings up what should have been obvious to me from the start. I have invested in rental properties and a few commercial properties and have done well so far. Although my initial intentions were to run the businesses myself, I have always found that leasing the properties is more profitable (not to mention less headaches) Unfortunately, I tend to close my eyes to the reality of a worse case scenario, again, thanks for the comments. I will be getting those figures tomorrow.