It will be hard to convince non-real estate business owners to buy even the most profitable establishments. Apart from having little to no knowledge about the sector, real estate purchases involve large amounts of money. As an investor, you want to know that your ventures will pay off the buy money at the least. Hospitality properties have no stable customer base but tourists, and they are not always around.
To someone new in the accommodation business, small motels for sale are a good starting point. They are obviously less expensive than hotels and if you find the right one, it will not take long before you earn back your money. But, as a novice in the motel industry, you should know how valuations came to be.
Doing the Math
When buying motels, rooms numerically matter in determining the valuation. It is not like a hotel, where they offer spa services, gym access and other profitable amenities that sway the value. The number of rooms is the major element of a motel’s value.
Previous Value, History, Etc.
Nowadays, valuation is more concerned as to how much a business cost today. Right now, a motel has a certain value. Tomorrow, it is likely that its price will change. No matter how the previous owner argues that he bought it with all his money, there is no justification for you to do the same thing. Its gross turnover also does not define its value.
Unless it is a historically important or an influential accommodation, a motel is just a motel. Even then, depreciation plays a big role in computing its worth. As profitable as they are, the presence of tourism will always be the biggest factor in a motel’s ability to make money.
Some sellers will also try their luck increasing the value by hiring a residential agent. They do this when they find a business broker’s valuation too low. Then, they also expect a ‘potential payment, an extra set premium you will be paying because of the success potential. Ludicrous, but it is true.
It would be best, as a business owner, to use your honed skills to know the good deals from the bad. You may be new to this sector, but your nose for making money honed from your business will serve you well.