When you are looking to buy a motel, you must do your due diligence.
As you know, not all businesses are worth what the owner is asking so it is important that you one, know what makes a good motel and two, understand how it should be priced.
Going into the transaction knowing the difference between a great opportunity and an ok opportunity could make a big difference in your bank account so here's what you need to know to choose the best motel for sale.
Hotel vs. Motel -- Know The Difference
Many people use the terms hotel and motel interchangeably. While they are both businesses that operate with the same concept in mind, providing overnight accommodations for travelers, by definition, there actually is a difference between the two.
If you are looking to buy one or the other specifically you need to have a good understanding of what the differentiating factors are. For starters, look at the location. Motels are typically located along highways or within a few miles of highway access points. Hotels are typically found near attractions, tourist destinations or other points of interest.
The next difference is usually the amenities the establishment offers its guests. Motels typically offer fewer amenities than hotels. Most motels give guests access to food, cable and other basics while most hotels pride themselves on providing every amenity possible. When reviewing motels for sale, you probably won't find many that have pools, fitness centers, business centers or any of the options you find common in most hotel chains these days.
The other big difference between the two is that motels are typically not rated on a star system as hotels are and motels are usually rented for less per night. It important to know the difference between a hotel vs. a motel because you need to understand what you are buying. You are going to market a motel differently than you'd market a hotel and your expenses will also be different. Plus, you don't want to pay Hilton prices for Econo Lodge profits!
Is It What Customers Want?
Part of doing your due diligence is to thoroughly examine the motel you are considering. Before you make your interest known, I would suggest scheduling an overnight stay at the motel to see what kind service you receive. Motels that offer poor customer service and have uncomfortable accommodations will not do well without a complete business overhaul. Also, while you are there, check on the quality of the facility. For starters, is it clean? Nothing is worse than a dirty motel!
Next, look at the quality of the furniture in the room, the linens, and the décor, everything your customers will see. Determine if it is outdated or in good condition. Lastly, I suggest you take a walk around the building and see what you can find. Look for things that would need repairing. Doing a little secret shopping will help you determine if the motel you are considering has what customers want or if you'll have to do a lot of work to improve its quality. Whatever you find, make sure the price you pay reflects it.
Get A Good Price
It is quickly becoming a buyer's market when it comes to motels on the market. With the recent economic meltdown, many motels suffered declining sales and profits. For a buyer, this is actually a good thing because we have been seeing prices for mid-market properties and below, dropping.
When it comes to price, there are several ways values are established in this industry and most often a broker will use several methods before actually arriving at a price. One popular calculation is the Performance Index Method in which a table is developed that illustrates the:
* Cap rate percentage
* Economic value
* Value per room
* Multiple of room revenue
* Multiple of total revenue
With these figures you can determine the economic value by selecting either the desired cap rate (which in my opinion is the best method) or the per-room rate, or the times room gross or times total revenue to establish a price. Other calculations commonly used include the income approach, excess earnings, discounted future earnings, discretionary cash, book value or the market value.
Taking each of these items into consideration as well as the quality of the facility, its location and the competition in its market, you should be able to determine if they are asking a fair price for the motel. I strongly recommend you work with a hotel and motel broker to purchase a motel for sale because as you can see there is no "one size fits all" evaluation method for establishing a price which can make things confusing.
Having an expert in your corner to help you evaluate the opportunity is critical in choosing the best motel for sale.
More Info Regarding How To Buy & Sell California Motels:
Motels For Sale & Wanted To Buy In California - Requests:
Business Brokers, Agents Who Assist With Buying And Selling Motels:
Motel Business Resources To Asssist You With Consulting, Financing, Due Diligence:
Detailed Articles And Blog Posts Regarding Buying And Selling California Motels:
One more thing . . .
Let me know if you need any assistance with either buying, searching for, or sell a California motel or hotel - I will point you in the right direction. If you have a specific question about buying and selling a motel or hotel contact me and I will get an answer for you.
About The Author: Peter Siegel, MBA is the Founder of BizBen.com and the Director of the BizBen Network - Online Community/Forums etc. If you are searching to buy a California hotel / motel make sure you are a part of the BizBen ProBuy Program and get the word out about your search criteria to all business brokers and agents throughout California that sell motels and hotels. If you have a question about the BizBen Network or BizBen.com's ProBuy or ProSell Programs please feel free to phone Peter Siegel direct at: 925-785-3118.
For over 25 years Peter Siegel, MBA has been providing niche business purchase financial advisory and loan placement services with SBA Loans, Non SBA Financing, Retirement Plan Conversions, Note Restructures, etc. Call me regarding business purchase financing and to get pre-qualified: 925-785-3118.
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