The ABCs of buying a hotel
When entering the hotel property sector, there are some factors to consider when buying the property itself. Here are a few important considerations to avoid falling into any investment pitfalls.
H is for hospitality
There are a series of questions you need to ask when on a property viewing. These include:
- How many rooms are there?
- What’s the average occupancy rate?
- What’s the main client base and what are the important demographics to consider?
- Are there any key members of staff you will need to retain?
- How much does food contribute to overall turnover?
- What could improve the current hotel service?
For customer satisfaction, hospitality needs to be focused on. For luxury hotels in particular, which demand a high level of service, staff costs need to be considered.
O is for occupancy
Considering the figures is simply crucial. One important piece of data is the revenue per available room (RevPAR), which will take into consideration that not every single room will be occupied at any one point. The higher the RevPAR, the more profitable the business venture will be, so be sure to check this figure against both local and national averages to see if the property will be a good future investment or not.
Check all past account books for the last three years and if the seller refuses to do this, alarm bells should be ringing. By focusing on profit margins, cost control and wages, you can make an informed decision.
T is for talks
Like any business transaction, you will naturally need to negotiate. Try and not rush the deal as you will miss out on anything else that you could gain from the transaction. Typically, businesses will sell between ten and 20 per cent less than the initial asking price so do not agree to the first quote given. Find a right balance between being firm with your stance but also being slightly flexible and accommodating. Sometimes, you will find that through negotiations, the deal will fall so you should avoid getting too attached to a property early on.
E is for education
The key to successful hotel ownership is education and research. Nobody says you have to be an expert on market trends, but being familiar with what is going on in the sector is a major advantage.
Put together a list of all suitable businesses on sale to cover all bases. Check local and national trends for the past quarter so you know if it is the perfect time to buy or sell. This is not just a financial issue but also a practical one as there may be limited lending occurring in the market or you may have less leverage when negotiating.
L is for location
This is probably the most important aspect of all. In a large town or city, you can essentially be guaranteed customer traffic all year round hence the many hotels for sale in London, while other areas, such as coastal towns, may only be seasonal. Consider nearby attractions, any competitors in the area, transport links and general security for your visitors. If the location is solid, so will be the customer base.
Generally, you will need to consider how a hotel investment will impact your life and if you will genuinely be able to dedicate a vast amount of time and money towards what usually is a long-term investment. If you can’t, your finances and health will only suffer. However if you can, it won’t be long until you start raking in the profits.