This, or any other hotel?
http://www.loopnet.com/Listing/19338728/3300-W-Colonial-Drive-Orlando-FL/
How do I make sure the numbers they are quoting me are accurate?
Hi,
I would not buy this property as the price per room is too high in relation to property improvement project (PIP) costs, and in this properties case provided the price was right I would look to re-flag back into an Econo Lodge.
In order to know the answer to the numbers provided is you have to rebuild that data using your own data and rebuild the numbers, this could take a few hours, days or weeks depending on your data sources and the property size.
GR
How do you know how much it would cost to improve the property judging from that?
I will calculate some rough numbers and get back to you.
Yes, I would convert it back to a daily rental as well, not under the name “Econo Lodge,” but a name that I create.
Here’s some math… $55/room x 103 rooms x 95% occupancy = approximately $1,965,000/year
50% of this is about $982,500 profit/year.
What could go wrong there?
Why do you see that it would cost a lot to improve?
Also, I would go to zoning and see if I could add any rooms through new construction. The city of Orlando is not going anywhere. I’ll change it from a run down extended stay into the “Beverly Hills of hotels.”
Key factor is cash up front to make these improvements.
Hi,
Hotels do not operate under the 50 / 50 rule! It can cost in excess of $1m+ dollars to create and implement a private brand, much better re-flagging the property and since the property was originally build as an Econo Lodge it is easiest to reconvert back to that brand. By being a flagged hotel you have the advantage of nationwide advertising, having a live reservation system and being able to get expertise in management, design and marketing while getting discounts on things like linens, soaps, shampoo's, etc.
Your room rates at say $59 to $69 per night probable equates to a 65% occupancy rate. If you readjust income it is about $1.54m dollars per year. This is only provided you reflag to the Econo Lodge brand because private brand in this case means lower occupancy averages.
GR
Is there a rule similar to 50/50 for hotels? I have spent time comparing GSI to NOI of large corporations (Hilton, Starwood, etc) and they all hover at around 60%.
60% of $1.54 million is $924,000.
That’s more money than I’ve ever seen in my life.
Hi,
Hotel costs for 103 units bought for $2.99m grossing $1.54m yearly. This is estimated:
$350,400 Housekeeping with 20% burden
$131,400 Front Desk with 20% burden
$50,000 Manager with 20% burden
$37,500 Sales / Internet / Marketing with 20% burden
$124,800 Maintenance with 20% burden
$58,240 Security with 20% burden
$31,200 Landscaping Maintenance with 20% burden
$5,200 Pool Maintenance - Outside service
$6,000 Laundry Detergents
$6,000 Cleaning Supplies
$4,000 Toilet Paper
$4,000 Kleenex
$12,000 Uniforms & Uniform Service - 25 employees
$2,400 Internet Web Service
$10,300 Pest Control
$10,300 Bed Bug Service
$12,360 Television Service
$2,500 Internet Service
$20,000 Water / Sewer / Trash
$98,880 Electricity
$30,000 Credit Card Service Fee’s
$9,360 Bar Soap
$12,978 Shampoo
$18,540 Complimentary Coffee
$3,600 Legal Fee’s
$1,200 Licenses
$25,000 Maintenance Supplies
$15,450 Linens Replacement
$1,200 Office Supplies
$1,800 Complimentary Coffee (Lobby)
$1,200 Key Card Blanks
$15,400 Insurance
$15,000 Property Taxes
$1,132,208 Expenses? (I still think I am missing something)
$177,000 Debt Service $2.4m @ 6.25% - 30 Year Due in 10 (80% LTV)
$150,000 Prudent Reserve
$81,600 Net Profit
GR
So hotels follow the 5% rule instead of the 50% rule?
In that case, why does anyone buy them?
And a 2% cap rate?
Hi,
Actually debt service and profits would be together to figure cap rate and it's a 8.6 cap with a 13.5% cash on cash return assuming this was bought for $2,990,000 all inclusive of closing costs and was in Econo Lodge standards and flagged.
And if you either never tap your prudent reserves or you come close to spending less than 10% of reserves per year you could still have over $1m sitting in your reserves at the end of 10 years.
Keep in mind as a hotel is improved year over year and the room rates are raised the value of the property and cash flow improve.
GR
Okay but, in effect, the loan payment is an expense and that drives the cap rate down as far as what we see in the bank account at the end of the day. Unless you want to wait 30 years so that you don’t have to pay it anymore.
Also, kind of unrelated, what does it matter if the value of the property goes up if we’re not planning on selling it? If room rates go up, that’s good for cash flow, but how would it benefit us if the value of the property went up? (other than a higher tax bill).
From this post, other posts on this forum, and further research I did online… This would suggest that hotels are NEVER a good investment compared to apartment complexes.
I read that most hotels retain between 6 - 8% of their revenue as income, compared to the 50% rule for apartments.
Should I just avoid hotels? I am only interested in managed hotels, not “mom and pop” situations.