I’m trying to buy and hold on my first deal. The numbers look good: It’s a recently renovated motel that brings in 98K NOI and is selling for 329K. I’d like to partner with an investor as I have no money of my own to invest but being that operating expenses are at 15K a year, that’s 83K split 60/40 it looks good. If I am right I should look at private money lenders to fund the deal.
Looking for some/if any advice.
Thanks to all who can assist!
Start by asking the seller to finance you 100%, in return for a full price offer.
If he won’t do that, ask him to carry 30%, while you go to a commercial loan broker and see if you can borrow the rest through him.
If he can’t find you a lender willing to allow a 2nd, have the seller secure the second against something else you own.
Anytime, you involve 3rd party financiers, they’re gonna want to see some reserves to cover any operational hiccups, and that’s in addition to your down payment (which will likely be $100,000 plus another $20,000).
Anyway the partner idea is good, as long as you take time to spell out the agreement with the level of detail you’d find in a prenuptial agreement.
There’s endless options, but without a good, verifiable, performance history, you won’t be getting financing from anyone, except the seller.
I don’t believe the expenses are this low. You need to prove that every last income and expense detail is accurate. Tax returns often say something different than the seller is telling you.
FWIW
Hi,
As an owner of multiple hotels there is no way operating expenses can be $15k per year. Independent operation of a motel requires a desk clerk 24 hours a day seven days a week, and then when you add house keeping at maximum 12 rooms per person and figure you need a washer / dryer linens person if you have more than say an average 15 to 20 clients per night.
Then you need a maintenance guy at least part time and need a landscape attendant to at least mow lawns and pull weeds and trim bushes and tree’s. You have water, sewer, gas, electric, cable and phone to pay every month. You have property taxes, insurance, employer contributions, cleaning chemicals, laundry detergent, pest control, legal, office supplies, key replacements, operating incidentals, web site set up and maintenance, etc, etc.
How do you pay your mortgage payment, hold reserves, keep a maintenance budget or keep replacement capital??
Just your desk clerks and one house keeper would run $300 per day at $8.50 per hour. That’s $109,500 per year before paying anything else. This little motel might work for a husband and wife operation but there is no way this makes an investment!!!
GR
Hi,
The owner told me this is a “mom and pop situation”. Recently, he gave me an expense estimate with more detail: it came to 19,800 to be exact. But I think he left out the income the tenant acquires because here are the numbers after more due diligence: the average daily rate is $55 dollars and the occupancy is 75% ($55 x 7 days x 4 weeks = 1,540 x 12 months = 18,480 x 10 rooms @ 75 percent occupancy is 75% of 14 which is 10) = 184,800, am I to assume that the difference between 184,000 and 93,700 (the NOI) is the tenants income?
Thanks again and wish me luck. I acquired a nice investors list with people that live in my area! 
Le Roc
Hi,
The problem is a fool and his money are soon parted! With that said you either want to be a real estate investor or you want to be an employee of a motel, but it can't be both!
Are you implying that guests receive money rather than pay money? What is tenants income? Please explain?
Let’s look at the numbers:
$329,000 Price
$ 6,580 Closing cost
$ 82,250 Down Payment
$ 9,870 Points
$246,750 New 1st TD @ 8% Plus 4 points average
$1,856.10 Per Month Mortgage Payment on $246,750
$ 400.00 Estimated Insurance Premium Payment per Month
$ 200.00 Estimated Property Tax Assessment per Month
$ 5,760.00 Front Desk Clerk Wages per Month
$ 576.00 Payroll Burden per Month - 3 per Day Desk Clerks (10%)
$ 4,320.00 Housekeeping Wages per Month
$ 864.00 Payroll Burden per Month - Two Housekeepers Week (20%)
$ 200.00 Cleaning Chemicals and Rags - Month
$ 80.00 Laundry Detergent and Fabric Softener - Month
$ 150.00 Water and Sewer - Month
$ 300.00 Garbage Service - Month
$ 1,000.00 Electrical Service - Month
$ 200.00 Gas for Hot Water - Month
$ 150.00 Phone System - Month
$ 125.00 Internet Service - Month
$ 250.00 Cable TV Service - Month
$ 200.00 Umbrella Liability Insurance - Month
$ 75.00 Linens Replacement Budget - Month
$ 200.00 Toilet Paper and Kleenex - Month
$ 100.00 Legal Budget - Month
$ 50.00 Office Supply Budget - Month
$ 10.00 Key Replacement - Month
$ 25.00 Website Maintenance - Month
$ 100.00 Landscaping - Lawn Mowing - Trimming - Weed Control - Month
$ 50.00 Pest Control - Month
$ 30.00 Termite Control Program - Month
$ 75.00 Carpet Cleaning Service - Month
$ 750.00 Remodeling Rooms Reserve 10 Year Cycle - Month
$ 100.00 Exterior Painting Reserve 5 Year Cycle - Month
$ 35.00 Roof Replacement Reserve 25 Year Cycle - Month
$ 100.00 Major Mechanical Replacement Washer / Dryer / Water Heater - Month
$ 100.00 Replace Wall Heater / AC Units 10 Year Cycle - Month
$18,431 Per Month
$221,172 Per Year
And although my list is fairly complete I did not factor snow plowing or snow removal and my numbers are theoretical so actual numbers may vary. There also is no cash on cash return for $98,700 dollars down!
Since this is a real estate investors forum gazillionaire your decision to invest should be on factual numbers. Running it yourself and living on site is not investing it is employment and if as I suspect someone is sub-leasing this property with tenant income as you see from my list all you would be doing is running a slum as there is no way to take care of this property for less than my list!
If your going to be in the hospitality industry have some respect for those guests who pay to stay with you!
I also would not count on occupancy as presented as it’s easy to exaggerate % of guest stays!
GR
That’s a pretty sober look at expenses.
Wow.
This thing is certainly a disaster on paper. You’re not gonna get anyone to partner on this financial death trap.
I agree that this is not an investment, but at best a self-employment “opportunity.”
In this case, this “opportunity” will bankrupt you.
Hi,
Thank you GR and Javipa! I appreciate your time in taking to respond to my question.
Blessings,
billionaireroc
There are 4.3 weeks in a month. Not 4.
That can make a big difference when calculating over a long time.
Not to make this particular motel profitable, but I’m just pointing out flaws in your accounting.
There are 4.3 weeks in a month!!! Sorry, pet peeve. It makes such a huge difference when calculating over long periods of time, why do people consistently say that there are “4” weeks in a month? And if you want to get more exact, there are 52.17 weeks in a year.
I am way past the days of going people’s math problems for them, but your calculations should look like this…
($55 * 365.25) = $20,088.75
20088.75 * (14*0.75) = $210,931.875
…which is $26,131.875 more than what you had.
See the difference a little accurate math makes?
Now, you just need to figure out where you’re going to get that “hay penny” from.