Any Motel owner/operators?

[Larry Edgerton]

I am looking into buying a small motel in Montana as a way to make it through my "Golden Years" and would like to hear from any with experiance, as I know absolutely nothing about the business. I can however do all of the maintainance.

All view points welcome.......

[Neal Clayton]

i started working in hotels when i was in college and wound up in a middle management position in one of them right out of college for a few years, so here's my experience with them...

1) depending on the price of the place (small franchise hotel or high dollar 300 per night and per meal luxury hotel?) you need about 60% occupancy on average year round to make it worth your time. less than that you risk losing money on costs.

2) even if you make the 60%, that's kinda treading water, depending on the building. does it have a restaurant and bar? what kinda building is it? does it have a flat roof and large HVAC units for indoor heat and air or just a lobby with exterior entrances to the rooms? industrial sized heat and air units and flat roofs on large buildings are good for 10-15 years before you're looking at replacement, those are the two major expenses every decade or so for buildings that need such things. this is why big retailers rarely re-use buildings, and instead opt to tear old ones down and build new ones. the maintenance isn't worth the trouble unless you're making enough money to cover it. hotel restaurants in value to mid grade hotels are just for customer convenience, they don't make money, so you have to make enough on rooms to justify staffing them, add that to your minimum average occupancy. the bar can make money and help offset restaurant costs if it has one and it does a good amount of business, however.

3) do the rooms have window units or central heat and air? doing the maintenance is just that, repairing heat/AC units for 8 hours a day. you may think you can do it yourself, but you really can't, imo. every hotel i worked in had a dedicated and trained HVAC tech that did nothing but fix heat and air units all day long. it's just the nature of the business, if you have 200 units at least one or two will be constantly broken. in the last 200 room hotel i worked at, we had one maintenance supervisor who was also the HVAC tech, and he had two helpers in addition to himself, and they worked harder than anyone else in the place, to be honest.

4) what are they getting per room now? the cost when you figure staff, cleaning, maintenance, and franchise fees on a typical business traveler type hotel room (like a holiday inn or best western or similar) is about 30 dollars per night. if you're getting 80-100 a night and running 75%+ average occupancy, yeah you're making money. if you're getting 50 a night and running 50-60%, not really.

5) if it's a franchise, which one and what are the terms of the franchise agreement? you might buy the place and have the mother company come by the next day and say you have a mandatory TV upgrade coming, and require you to buy 200 new TVs before the end of the next quarter, or run data cables to all of the phones for internet access, etc. go over their franchise agreement with a fine toothed comb and find out how well in compliance with that agreement and the current service standard requirements the place is, if that applies.

i have a love/hate relationship with them. as far as efficiency from management on down to the women who clean the rooms, there are few businesses that are run more efficiently than a hotel. i learned alot about running a business from working in one. on the other hand, i quit after working in them for about 5 years because as an employee, even a management employee, it was long hours for no return on said hours, i made less as a salaried department head than my employees did per hour. and i'm not the only one who figured that out, that's another problem. whether you have good or bad management and employees, the turnover will be high. good employees get better jobs at bigger higher paying hotels, and bad employees wind up getting fired for the things bad employees do.

[Larry Edgerton]

Neal

Thank you very much for your lengthy reply. I will carefully consider all of your points.

The motel in question is small, twelve units and an apartment, as well as a seperate four bedroom house. I stayed there when I was in Lincoln, and it is a very nice place, with some character that the chains do not have, and very nice rooms in the middle of town. There is no bar or resturant attached, but the best on in town is next door. It is a very small town, maybe a 1000 souls, and there is little chance of a chain coming in at all, especially as they seem to be pulling in their horns as of late in rural areas. I do see a lot of failures of small motels in the past few years, but it seems to be in areas where chains have just moved in. Still, it concerns me.


It would provide good exposure for my woodworking products with its main drag exposure.

The owner stated that it grosses just over 100K, and expenses run from 40-60K depending on what is done as far as mainainance and improvements. Part of that figure is paying help as they are old and can not do all the work themselves.

Five years of books are on their way to me and I will request tax returns to see if they jibe if I decide to move forward. I will have my bookkeeper look the books over very carefully. The owner did say that the books may not reflect the occasional cash customer, but I am discounting that as an unknown and so not part of the data.

There are no living expenses at all with this arrangment as the house is part of the parcel, and as such all utilitys, taxes, interest, and maintainance are absorbed by the business, and can be written off.

I am not really looking for a profitable business so much as a way to have a home in a nice area that pays for itself and an small income besides woodwork/construction. I would not be interested in a B&B as there is not enough seperation for my sense of privacy. This is is a beautiful area and on a major resort highway that will probably never see an expressway, so no reroutes in my lifetime, just not that much traffic. It is Montana. Further it is in the middle of a long stretch of nothing both ways, so a logical and beautiful place to stop.

Again, thank you for you time, and I would love to hear anything else you have to add.

Larry Edgerton

[mike holden]

Larry,
If you have never owned a business before; consider that you will be *married* to the business. Vacations will not exist unless you have someone you trust to take care of the place while you are gone. A motel is a 24 hour a day proposition, actually all businesses are, but a motel more so. How do you deal with, to put it politely, ignorant customers? Can you smile, take the nonsense they dish out? Lots of emotional stuff goes on. What about discretion in a small town? You will get people you know, renting rooms, for what can only be ... well, you know. Can you keep quiet?
If you have the temperament for it, it could be a nice way to supplement your income; or it could be something that just gets on your nerves.
Lot to think about beyond the dollars here.
Good Luck with your decision,
Mike

[Steven DeMars]

Let's see, two or three every nite to truck drivers, one to the guy at the bank that is cheating on his wife, one to the "poor" sole who has no where to stay & it's cold outside, two to the hunters that trash the room by bringing in there kills to finish dressing out on your vanity, one to the 12 teenagers that get their "cool" mom to rent the room for a party away from her house, one to the traveling business man who "^%itches" all nite because it is not the Hilton & no room service, and don't for get the "working" lady who has a different friend every couple of hours . . . .

Oh yes, don't plan on your wife cleaning the rooms . . . you will never believe what some so called humans will do in a room or leave behind . . .

See, there is 60% plus . . .

Oh yea, if you finally get it to where it looks prosperous, you can always sell it right before the Indians open one across the street . . . . No, not woo woo Indians, the ones from India that own every hotel with less that 100 rooms all over America . . .

Above written in a sense of humor, based on a friends experience with a small "retirement investment" in a small hotel in Mississippi . . .

Steve

[Neal Clayton]

Neal

Thank you very much for your lengthy reply. I will carefully consider all of your points.

The motel in question is small, twelve units and an apartment, as well as a seperate four bedroom house. I stayed there when I was in Lincoln, and it is a very nice place, with some character that the chains do not have, and very nice rooms in the middle of town. There is no bar or resturant attached, but the best on in town is next door. It is a very small town, maybe a 1000 souls, and there is little chance of a chain coming in at all, especially as they seem to be pulling in their horns as of late in rural areas. I do see a lot of failures of small motels in the past few years, but it seems to be in areas where chains have just moved in. Still, it concerns me.


It would provide good exposure for my woodworking products with its main drag exposure.

The owner stated that it grosses just over 100K, and expenses run from 40-60K depending on what is done as far as mainainance and improvements. Part of that figure is paying help as they are old and can not do all the work themselves.

Five years of books are on their way to me and I will request tax returns to see if they jibe if I decide to move forward. I will have my bookkeeper look the books over very carefully. The owner did say that the books may not reflect the occasional cash customer, but I am discounting that as an unknown and so not part of the data.

There are no living expenses at all with this arrangment as the house is part of the parcel, and as such all utilitys, taxes, interest, and maintainance are absorbed by the business, and can be written off.

I am not really looking for a profitable business so much as a way to have a home in a nice area that pays for itself and an small income besides woodwork/construction. I would not be interested in a B&B as there is not enough seperation for my sense of privacy. This is is a beautiful area and on a major resort highway that will probably never see an expressway, so no reroutes in my lifetime, just not that much traffic. It is Montana. Further it is in the middle of a long stretch of nothing both ways, so a logical and beautiful place to stop.

Again, thank you for you time, and I would love to hear anything else you have to add.

Larry Edgerton

if that's the case, it might be worth it. my experience is with larger hotels in the new orleans area, the competition was fierce, the expenses large, and yes as steve said, you would be surprised at what people will do to a bedroom that isn't theirs during mardi gras or new year's .

in your case if you just want to own the building for the character of the building, and it makes enough to pay for the taxes, the grounds, and the work on the building, that's a different situation imo.

the only thing that comes to mind with older hotels converted from old boarding houses and mansions and such like you're talking about is insurance and the risk of fire. in new hotels every room is isolated by fire walls on all 4 sides and completely finished with fire retardant materials, down to the bed sheets. and even then, there's risk. we had one fire in the last hotel i worked at, around 5:30 in the morning, and if the security guard hadn't been walking past the room it started in, the woman in the room above that one would have been killed, even with all of the materials precautions involved. when the heat got high enough to break the front window out of the room that the fire started in, the flames wrapped around the room above's entrance door and basically fused the door shut. that was a multi million dollar lawsuit in the making, and all it took was a guy dumping an ashtray with a lit cigarette in the garbage on his way out the door in the morning.

in an older building you might not necessarily have the fire isolation designed into the structure as you would in a new hotel, so that's a big concern. either way, it goes without saying that you shouldn't own it personally, own it under an LLC to (try to) shield yourself from some of that liability. if you're the operator and management it still might not do so, but it's at least a first hurdle for any potential plaintiff.