The decision to buy a motel is often about more than earning profitable returns. Many motel owners say they really enjoy the lifestyle. They are able to live where they work, can usually reduce their cost of living and enjoy working with the public. If after a few years you decide to sell in order to upgrade or move on to something else, there is always a market for motel sales. Before committing yourself to buying a motel, though, there are some practical approaches you need to take.
Prove to a lender that you are capable of running a motel. Even if you are interested in purchasing a small motel, in addition to general management skills, you will need to understand basic bookkeeping and accounting concepts, be able to create a budget, keep accurate financial records, promote a favorable public image of the motel and communicate well with people.
Find out as much as you can about the motel you are interested in buying. Ask how long the motel has been in business and how long it has been under the management of the current owner. Ask why the owner is selling. Ask for the motel’s financial records for at least the past three years.
Get the advice of an accountant or attorney who can examine any financial documents related to the day-to-day operation of the motel. Choose someone knowledgeable in the hospitality industry who can help you determine the value of the business. Take a look at other motels in the area. Educate yourself as much as you can about the local competition.
Make an offer once you verify the financials. Make the purchase contingent upon you getting the financing. Know what you can afford going in. This is also the time to specify any other conditions of sale. For example, you might request that the current owner make certain repairs or alterations before the date of closing. The overall condition of the property is a critical factor in determining the price.
Negotiate a sale price, amount of deposit and a settlement date. A sales contract signed by the seller gives you the option to buy the motel subject to each of the conditions as specified in the contract. Don’t be afraid to negotiate the selling price. While most sellers expect to receive offers lower than what they are asking, be both realistic and fair in the offer you make. Although the final price a seller will accept varies in each situation, some sellers will accept as much as 20 percent lower than the asking price.
Secure financing. Even though a lender will consider the motel itself as one form of collateral, you may have to put up your house as additional security. Aside from having good credit, the lender will want to see proof that the motel will generate enough cash flow each month to pay the bills, including any loans secured to purchase the business. If you can show that the motel takes in more income each month than the money it pays out in expenses, you should be able to qualify for a loan. Lenders typically consider the motel industry a safe investment.
Contact the Small Business Administration for more information regarding alternative financial lending programs. You should also compare interest rates offered by traditional lenders. Just a percentage point or two can add up to significant savings over the lifetime of the loan.