How do I make sure a hotel will stay profitable?

General Real Estate Investing
21

The difference between a really successful motel/hotel operator and a failing one is the difference between an owner that’s an administrator and a master salesperson.

If you’re not a master salesperson, go to apartment buildings or something else. I was looking at hotels/motels in Niagara Falls decades ago. There were a lot of failed ones, boarded up ones and a lot of successful ones. I had the good fortune to have listened to a very successful owner of one. You know why he was so successful in Niagara Falls while others were mediocre or failures?

He was an amazing salesperson, not an administrator.

Listening to you talk about statistics and how to look at them carefully sounds like you’re an administrator or bean counter and if that’s what you are comfortable being don’t get into motels and hotels because the numbers are not just about running a business. It’s about sales.

By being an amazing salesperson, I don’t mean spending a lot of money placing ads in magazines. That could work, but that’s going to seriously chip away at your overhead.

What made him the money were the “conferences”. He would spend a good chunk of his time trying to find heads of companies and organizations and convince them to hold a conference in his building. Booking a conference in his building got his rooms filled for those days. He even made referral commissions off the overflow when he ran out of rooms for that day and booked it in someone else’s building. That’s what distinguishes a mediocre hotel operation from a superstar.

Conrad Hilton was a master at schmoozing corporate heads to get them to hold conferences in his buildings and only then did his brand take off, but he still books conferences. Same with Donald Trump.

If you’re not really good in sales and you don’t enjoy seeking out heads and managers of corporations and associations on a daily basis to book those “conferences”, go into apartment buildings, plazas or something else. This is really an active sales business and it’s a lot of work if you want to make those high cap rates. That’s your “unforseen event” that could cause your hotel/motel purchase to tank. It’s a different universe from owning apartment buildings, plazas, or buildings houses, etc. It’s not about getting into price wars with random travellers passing through the city looking for a room for the night.

22

As an apartment owner, I can tell you it’s ALL about marketing, regardless of what the investment is.

A 30-unit Motel 6 and a 30-unit apartment complex may have different clientele, but both groups are there for effectively the same reasons; a place to live/stay that reflects what they can afford. However, when you got five similar competitors for the same customers, your marketing and presentation make all the difference to your bottom line. Somehow you try to differentiate yourself from the competition and emphasize that as much as possible. Meantime, it requires constant marketing pressure in print.

As an aside, we maintained a 1/4 page ad in the Penny Saver, until they went out of business about three months ago. (It’s like the Thrifty Nickel). We also advertise in the local Air Force Base paper, when they print. Which is irregular, at best.

FWIW

23

Good to know.

I could be a salesperson if I wanted to be. Bean counting is the easy part.

24

Do you own a Motel 6 or are you making stuff up about motels? What’s the cap rate? Where?

If it was just about marketing like an apartment building, I would have bought a motel or hotel a long time ago. It’s not.

25

I never said I owned any motels. So to ask where they’re located and their CAP rates is kind of beside the point, isn’t it?

Meantime, I don’t own any motels for several reasons including the fact that I don’t invest in commercial property, and I don’t want to operate a business like that. At the same time, I invest in apartments and SFR’s.

Notwithstanding, anyone with experience will affirm that apartments and motel operations are completely about marketing, if not management. In fact, any investor worth his salt is first a marketer, before he’s an investor, if not before he’s a manager. And this is obvious, having to market his units for rent, if not market to find units to buy.

Meantime, management IS marketing. And all of the management is effectively geared to make sure the ongoing marketing is effective. This includes the presentation of the building and individual units; adjusting to the competition; adjusting rents to compensate for the average running vacancy factor; and anything else that effects the bottom line. It is ALL related to marketing and marketability. Motel, apartment, or whatever.

Now, the owners that don’t understand this, are practically always the ones that end up giving me the bargain I need to consider buying.

The fact that you would disagree with this, makes me suspicious that you are neither an apartment owner, nor a motel owner.

Notwithstanding, of course, it can be a completely different kind of operation when we’re talking about single family residential investing. In this case, there’s lots of investors who are terrible at customer service; worse at marketing; and yet keep their rentals full …if simply because their rents are so low, they never hear a peep from their customers.

So, please tell me again how marketing is not the main issue with apartment and motel operations?

BTW, a motel operation is not necessarily an investment in real estate. I mean, there’s lots of motel operators that lease the land they operate on. The only one investing in real estate is the land owner. And that could be anybody.

26

Gentlemen

While we appreciate your involvement in the Forums, let’s stay professional. If you wish to use schoolyard name calling, please use the PM system.

Thanks.