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A Basic Guide to Buying Hotels

A Basic Guide to Buying Hotels

Buying a hotel can be a great investment as it opens a plethora of opportunities for the investor. Even better, having a hotel on your investment portfolio can guarantee you unlimited access to financing. Countries with booming tourism like Italy in Europe and Thailand in Asia can be great places to invest in as they have a high demand for hotels.

Things to Help You Buy the Right Hotel

Since buying a hotel comes with several contingencies, you need to approach things with care. Here are some tips to help you make the right choice.

1. Formulate a Basic Strategy

The first thing you need to do is to be 100% sure about what you are looking for in a hotel. Every buyer has their own reasons for making such a big move. Find your reasons and make sure you stick to them. This strategy needs to include everything from location to the way things will work. Make sure you know the answer to the following questions before purchasing.

  • Do you have the financial backing to run things in the short and long term?
  • What will be the IRR, Cash-flow, and cap value for the property?
  • Is the location strategic? And,
  • Will the hotel be run by you or a franchise? Why?

You don’t have to take the reins and start working in your hotel. Many investors purchase property in tourist destinations and let management service providers handle their work. There are several property management service providers you can approach.

2. Conduct a Thorough Due Diligence

Once a strategy is in place, you need to start working on gathering information about the property. In order for this to work, you will need a team of committed individuals to look at the different aspects of the property. Having lawyers, financial gurus, and surveyors will help your cause. Looking at the title and other finance-related issues will help you stay out of trouble. On the other hand, inspectors will help you get deductions on the price by looking for possible downers. Meanwhile, the finance team can crunch some numbers and give you details on the financial potential of the property.

3. Place a Calculated Bid

Bidding is another important aspect of the entire process. You can use the help of your team in this matter. When it comes to hotel valuation, you can follow the below-mentioned methods.

  • Discounted Cash-flow analysis.
  • Earnings Before Interest, Tax, Depreciation, and Amortization multiples.
  • Hotel sales in nearby areas.
  • Valuations by the surveyor.

Through the data, you will be in a better position to estimate the bid amount for the hotel.

4. Work Out Your Management Options

Running a hotel is not farce. There are so many aspects of managing a hotel that you will need to be on your toes if you want to take up things on your own. Therefore, it is advised that you figure out your management options. There are several hotel management companies that will take care of things for you. If you don’t want to go down this road, you can hand over the hotel to a franchise and let them deal with day-to-day aspects.

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