The lodging industry is a mammoth one that stretches around the globe. There are hotels and motels that cater to almost every demographic aspect of humankind. Room rates run a wide spectrum. and as one would expect, a well-run and moderately financed hotel or motel can be a cash cow” that produces a steady income. This industry tends to go through same major swings in development, though this is less so for the high-end properties that continue to maintain their position through constant upgrades and frequent remodeling. The Ritz Carlton and other five-star hotels around the world can, however, fall on hard times when their location is compromised due to some crisis that affects travelers to the area. The more modest hotels that are not full-service properties but have limited amenities for their customers proliferate in areas where the market for high-end properties is already met by one or more five-star properties and the predominance of customers fall into the “sleep and leave” category.
Interstate properties that fill up every night and are empty by 11:00 in the morning have certain inherent management problems in dealing with a heavy turnover on a daily basis. Nonetheless, a novice real estate investor can find this kind of business a nice way to go because historically the hospitality business is nearly etched into stone. There are franchises one can purchase that pretty much ensure a measure of success If the location is approved. Operation of a hotel is not overly difficult if the hotel Is a limited service type food and beverage service is one area that can create many problems to the novice investor, and except for a buffet type of breakfast that many of the “Express” hotels and motels offer, food and beverage service is best avoided.
Advantages of Lodging Investments
If the investor’s principal goal is to work for himself or herself, then work is what you will find in any hotel or motel, Even small operations can hire an entire family. including in-laws. In virtually every part of the country where there is substantial population there are hotels and motels for sale. Many of the smaller ones, say fewer than 100 rooms, are an older category that fits into the limited service line. Older hotels or motels often have single-loaded corridors, which are rarely built today. as the rooms are designed back-to-back and have a single window and door in front that open out to the corridor. People walk in front of the window, which forces the room’s inhabitants 10 keep the drapes closed to maintain privacy. Investors should avoid investing in hotels that have single-loaded corridors. Double-loaded corridors are the typical design where rooms are accessed through a door that opens to the corridor and have windows in the wall opposite the door that can provide a view to the outside-of the ocean, for example-or open to an interior airshaft. Some properties may have a mix of both single- and double-loaded corridors.
Disadvantages of Lodging Investments
The biggest disadvantage in investing in hotels or motels is the inability to control competition. The ideal location on an intersection of two major interstate highways that happens to be five to eight hours’ driving time between four major population centers might seem perfect for a new franchise hotel. Unfortunately, eight other hotel companies may have thought exactly the same, and suddenly there may be eight new hotels looking for customers that only occasionally fill five of them up to a 70 percent level on an annual basis.
Hotels can be very hard to finance, especially if the investors have little experience in their operation. This forces a motivated seller to hold a purchase money mortgage, which can be good for the buyer, hut those kinds of financing are often for short terms and at a higher interest than the business can support.