What is your greatest dream? Everyone has a dream, and if yours is to own and run a hotel, you might think that it will always be just that; a dream. However, it could be a possibility if you can secure the financial lending for it. That may sound as though it is easier said than done, but what if you could do it? What if you could realize your dream? It may not be out of reach – here are some of the things a lender will want to see and know before loaning any money to you. Are you ready to take the next step?
Of course, the most important thing that a lender will want to know is the costs involved. There is the initial purchase, but there are also many ongoing costs such as hotel linen, cleaning, staff, food, entertainment, security, a website, marketing, and so much more. You need to be able to show that you have thought about them all and understand the outgoings. You also need to have calculated potential income so that you can offset the figures against one another and come up with the profit that you are hoping to make.
As well as this, you should consider whether any changes or improvements will need to be made – this is especially true if you are buying an older property or if you are buying a building that has not been used as a hotel before.
A business plan will help you with all of this when you want to buy a hotel. Most companies, including the hotel industry, cannot thrive in an internet age without a sound marketing plan. Relying on recurring business is not regarded as a viable long-term strategy, and lenders would be wary if this were the case.
The Initial Down Payment
It is highly unlikely that any lender will pay you one hundred percent of what you need to buy the hotel in the first place. Instead, they will lend you a smaller percentage, and you will need to pay a down payment to cover the rest. This is standard practice and is the same as buying any property, except that the down payment for a hotel is sure to be substantially higher.
The money can come from your savings, a remortgage on your home, or you could speak to friends and family to help you. It might even be possible to raise money through crowdfunding or by finding an angel investor. Selling a current business to pay for a new one could be a risky strategy, but if you can sell it for a larger sum than you need for the hotel, you will have money to live off while the new business grows.
In many cases, a lender will want to see that you have previous hotel experience before you buy a hotel. They will want to know that you can run a hotel efficiently and that you already understand exactly what it takes. If you do have previous experience, perhaps because you worked as a hotel manager in the past, this is an easy box to tick, but if you are starting fresh, what can you do?
The best thing to do is to have a good manager on board. If you can show that you already have an experienced person ready to start work and provide evidence to the lender that they have been successful in the past, they will be more likely to lend.
A Suitable Property
The lender will also want to know as much about the property you are hoping to buy as you can tell them. Is it in good repair? Is it in a good location? What has it been used for previously? Explaining all of this and determining exactly why you feel it would be a good choice to become a successful hotel will help them make their all-important decision.
The location of any hospitality or tourist firm will be critical to its success when you buy a hotel. A lender will look more favorably on a hotel company seeking financing if its proximity (for example, near transportation hubs, office buildings, and entertainment centers) is recognized as a key factor in affecting its profitability.
The profitability of a hotel is heavily reliant on occupancy rates. If revenue per available room (RevPAR) and average daily rates (ADR) are high, this will undoubtedly benefit lenders.
If you are purchasing an established hotel company whose RevPAR is presently lower than it should be, a lender will want to know what your business strategy is to increase this number in order to increase the hotel’s profitability.