Before You Buy That Hotel: Are You Booking Profits or Inheriting Problems?

Acquiring a hotel can be an exceptional opportunity — a real estate-backed business with daily cash flow, asset appreciation, and multiple revenue streams. But in a post-COVID world shaped by labor shortages, shifting traveler expectations, and rising CapEx needs, buying a hotel isn’t just about brand flags and RevPAR.

Whether you’re eyeing a flagged limited-service property, a boutique hotel, or a multi-location portfolio, the difference between a performing asset and a money pit is due diligence.

1. Franchise or Independent? Understand the Brand Burden
Flagged properties come with recognition — and obligations. Know what you’re committing to:

• Franchise fees & royalties (5%–12%)
• PIP (Property Improvement Plan): What CapEx will the brand require post-sale?
• Brand performance standards (GSS scores, QA audits, required amenities)
• Term length, transfer fees, and re-licensing costs

Independent or boutique hotels give you flexibility — but put marketing and guest acquisition on your shoulders.

2. Top-Line Looks Good — But What’s the Bottom Line?
Too many buyers focus on Occupancy Rate (OCC) and Average Daily Rate (ADR) without drilling into:

• Revenue per Available Room (RevPAR)
• Gross Operating Profit (GOP)
• Flow-through of incremental revenue
• Departmental expense ratios

Strong top-line revenue means little if labor, OTA commissions, and utilities eat up margins.

3. Staffing & Labor Pressures
Ask:

• Employee turnover rate
• Will key team members stay post-sale?
• Use of temp staffing or outsourcing
• Average wage rates and minimum wage impacts
• Union contracts or labor agreements

Labor is both your biggest cost and a major guest satisfaction lever.

4. Revenue Mix: Don’t Rely on One Channel
Evaluate:

• Distribution: Direct, OTA, GDS, group, walk-in
• Segment mix: Leisure, business, group, extended stay
• Compression events and seasonality
• Transferable corporate or group contracts

A diversified revenue mix supports rate integrity and sustainability.

5. CapEx & Deferred Maintenance
Inspect:

• Roof, structure, and building envelope
• HVAC, elevators, plumbing
• ADA/fire/life/safety compliance
• Guestroom FF&E and required PIP items

Don’t inherit a capital drain disguised as a turnkey opportunity.

6. Tech Stack & Operational Systems
Evaluate:

• PMS, channel manager, booking engine
• Mobile check-in and digital keys
• Revenue management tools
• CRM and loyalty integrations
• Cybersecurity posture and PCI compliance

Guests expect seamless tech — outdated systems hurt NOI and reputation.

7. Reputation is a Balance Sheet Line Item
Check:

• Google and TripAdvisor reviews
• Brand GSS scores
• OTA ratings
• Social media sentiment
• Guest complaint logs

Rebuilding a bad reputation is slow, expensive, and painful.

8. What’s the Real NOI and Is It Bankable?
Break down:

• Owner compensation and add-backs
• Third-party or in-house management fees
• Real estate taxes and insurance
• FF&E reserves and capital plans
• Projected DSCR on new debt

Bankable NOI is reality — not pro forma.

9. Licensing, Zoning & Compliance
Verify:

• Business/lodging licenses
• Health inspections
• Alcohol permits
• Fire and building code compliance
• Zoning approvals or special use permits

These issues can derail or delay deals — especially in conversions.

10. What’s the Endgame?
Ask:

• Is this a hold-and-cash-flow or reposition-and-exit?
• Can the asset support higher-end branding?
• Is there upside in F&B, events, or amenities?
• Will stabilized NOI allow for refinance or resale at a better cap?

Buy with your exit in mind.

Final Thought: Buy Like a Hotelier, Underwrite Like a Lender
You’re not just buying real estate — you’re buying an operation. A hotel’s value lives in its team, systems, and guest experience.

Thinking about buying a hotel?
Let’s talk. We help hotel buyers evaluate deals, secure financing, and close with confidence.