Motel business can help enhance your bank balance. However, there are certain essential things to consider before you buy a motel and start operating. This post will provide you with a few valuable tips on the same.
Tip
It is important to get the building inspected for any kind of repairs and maintenance to fixtures, furniture, sewage pipes, electrical equipment, etc., before you pay the entire amount.
Buying a motel can prove to be a very profitable business and a great investment, especially if it is situated at a strategic location and enjoys a good reputation. However, not every motel will rake in profits. If the motel lacks goodwill, it will not attract visitors. Not only this, but it can also turn out to be a loss-making venture for you. Hence, you should evaluate its financial records to get a better understanding about the business. Apart from the financial aspect, you should also consider if the property is a part of any legal conflict, as you may end up losing your money because of this. Hence, it is important that you must give due consideration to certain important things before you make a buying decision. This BusinessZeal article will give you essential tips for buying a motel.
Conduct Research
Conduct your own research, and find out why the owner is interested in selling the motel. In most cases, he will tell you that he wants to shift to another town or is interested in trying out some other business. Don’t depend on what he tells you, and investigate on your own to find the real reason. Make sure that there are no conflicts or lawsuits involved with the current ownership of the motel or its land. Inquire about the duration for which the current owner has been in charge of the motel. Verifying all the information that the owner tells you is important or else you may end up becoming a part of a loss-making venture. Corroborating the facts will help you take a calculated decision. Also, try to explore 2 to 3 motels, and weigh their pros and cons before zeroing in on the final one.
Occupancy Rates
You should check the room occupancy register in order to get a clear idea about the number of people staying in the motel every month. Also, take a look at all the expenditure. Ensure that the income is higher than the expenses incurred every month. This will tell you if the motel is getting visitors regularly, or whether it is running in losses. Also, try to compare the rates of this motel with those of its competitors to understand if the stay is priced appropriately. You may be surprised to find that it may either be overpriced or underpriced. You can then bring about the necessary change in charges, once you buy the motel.
Financial Records
It is important that you review the financial statements of the motel for at least 3 previous years to understand how it has been faring on the income front. It is better to hire a CPA to conduct the evaluation as he will be able to understand it better. Studying the financial records will also give you a fair idea whether or not to buy the motel. Do not forget to check the utility bills. If you find that the motel does not attract too many people and is running in losses, you can change your decision. Also, this can work in your favor during the price negotiations.
Licenses and Documents
Before buying the property, it is essential that you ensure that the motel has followed and fulfilled all the requirements of the state. It must have the necessary licenses and permits to operate the business. Make sure that the motel has paid all the necessary taxes and complied with the documentation regarding the same. Check if the property is insured and for how much. Calculate the amount of coverage and premiums. If you are not satisfied with the current insurance plan, you can switch to a better one. However, ensure that the insurance company is a reliable one. Find out if the motel or its owner is not in any kind of legal or tax-related troubles.
Financing Options
If you have a good credit score, then any bank will give you money for buying a motel. You may be required to mortgage the motel building or your home against it, but you can always pay back the loan on time and have the property back. Also, if you can provide paperwork which indicates that the income from the motel is good enough to pay back the loan, there won’t be any problem in availing one. As it is a business owner-occupied real estate venture, there are many banks who will offer SBA loans for the same. If you are a member of a credit union, you can also apply to it in order to get a loan for buying the business.
Stay at the Motel
It is advisable that you spend some time at the motel as a guest. Try to stay there before the owner comes to know that you are interested in buying the property. This will give you firsthand authentic information about the motel. The owner will only tell you about the ‘positive aspects’ of the motel and you must corroborate every fact. In most cases, the owner will ensure that the negative information does not reach you. Spending time at the motel will help you understand the place from a guest’s perspective. Things like rodent menace, water supply problems, electricity issues, leakages in bathrooms, dirty rooms, poor service, rude staff, etc., will only come forward when you stay at the place and experience it yourself.
Negotiate the Amount
Try to get a broker to mediate your negotiations. It is not advisable to conduct the negotiations on your own. Right from the beginning, be vocal about the maximum amount you are willing to spend in order to avoid any misunderstandings later. Make a proper offer with all the terms and conditions. You can negotiate on the price of the motel, final date of payment, and initial deposit amount. If you want the owner to conduct any refurbishment or repair work, ask him to do so before finalizing the deal. If you are going to take some time to get your loan sanctioned, make it clear to the owner right at the start.
Competitors
It is important for you to know about other players in the market. Find out about the rates and amenities they offer. If they are doing better than this business, try to understand why. Know about the reputation of the motel you are about to buy. Consider factors like existing and future competition, market demand, business boom, rate changes, etc., when trying to buy a motel.
Local Development
You must check with the local and state authorities if any major changes in the town planning, like road widening, bridge construction, building of an overpass, road construction, etc., are going to take place near the area of the motel. Also, check if any kind of construction in the future will affect the pattern of traffic which is directed to your motel. All these changes can have a good as well as adverse effect on the business. Hence, you should ensure that the change will benefit your motel and will not decrease your business in future.
Apart from the above-mentioned, review all the supplier and vendor contracts. Understand when they are expiring, and what are the renewal terms and payment amounts, etc. Try to impress the lender with your management and organizing skills to get your loan passed easily. Also, if your motel is a franchise outlet, review the agreement and read all the terms carefully. If you want to make a new agreement with the company, speak to the officials about the same.
