AdviceProperty

Top 10 tips for buying a hotel

Andy Frisby, divisional director and member of the London hotels team at leisure property specialists Fleurets, breaks down the process of buying a hotel

The first five tips will help you identify a suitable site and the latter five will assist you when securing your chosen site.

Sourcing Your Hotel Opportunity

  1. Location, Location, Location – Where do you want to be? Or, what is the next location for your portfolio? Location is pivotal, so research areas and understand your chosen location. Are there any developments planned? My advice is to go with what you know, and if you don’t know the area, get to know it. Often things are not as you expect.
  2. Do Your Market Research – Once you have pinpointed your location, shop around. Obtain information on comparable sites in the local market. This will give you a good idea of values, how far your budget will take you and understand what you can physically buy for your money.
  3. Self-Assessment – What style of business are you looking for? My advice is to pick an operation that suits your skills. Do you want to be hands on and run a B&B? Are you looking for a boutique tailored offering or something more generic and mass market?
  4. Know the Local Market – After you have identified these points, it is crucial to evaluate whether your target customer is in your target location. For example, would a boutique hotel thrive in Stratford? Has the market become too saturated? Or is there demand for another B&B in Scarborough? How is your idea different from the current offering and is the supply outstripped by the demand?
  5. Get Your Calculator Out – Doing your sums and understanding the financial aspects are crucial in acquiring a site, from inception right through to completion and in the running of your business. Planning in the early stages will help you to focus on affordable sites, as you will know what fits within your budget. It also forms the backbone of your business plan, which will in turn reassure potential financiers of your diligence and your ability to deliver. When considering acquisition costs as well as the purchase price you need to factor in stamp duty, agent’s fees (if you are using an agent), legal costs as well as a building surveyor and/or architects costs depending on your plans for the building.

If you are considering a leasehold site, you will probably need a security deposit of 3-6 months rent. Are you intending to do any work to the property? If so, you will need to factor in time for possible planning applications, costs for the employment of construction professionals, refurbishment and labour costs as well as have cash reserves for when the hotel is being developed and when it is up and running. My key piece of advice is to create a comprehensive time plan and cash flow detailing when you expect money to come into the business and understand all of the outgoing costs. Do you have enough money to see you through the set up phase before you see the fruits of your labour?

Having relayed the key points when searching for a hotel to buy, the next five tips will assist when you have identified the business you want to buy.

Securing Your Chosen Hotel

  1. Understand the Opportunity – Why is the property being sold? What levels of interest have there been? Have any issues been raised about the business or repair of the property? An agent should disclose this information, so do ask these questions. In order to understand the business itself, ask the marketing agent for the business accounts. What is the TUPE (Transfer of Undertaking, Protection of Employment) responsibility relating to the business? Is there a client database and is it part of the deal? My most important piece of advice is, if possible, go and view the site, explore the hotel internally and externally as well as understand the surrounding area. You not only need to understand the business but also the competition. Utilise online travel agents, such as Booking.com, to analyse the average room rates of local competitors.
  2. Planning Time – Having a sound business plan is essential when securing funds. Make sure you have detailed the accounts, timescales, refurbishment plans, predicted revenue as well marketing strategy. However, it is also wise to create contingency plans, just in case an element falls through, in my experience it is better to prepare for this from the outset.
  3. Show Me the Money – You will need to provide proof of your funds in order to continue with a purchase. If you are relying on bank funding to secure the property, then you may need to instruct a surveyor to carry out a valuation. This will need to be factored into the timescale.
  4. Call in the Professionals – You will also need to carry out a building survey in order to check that the property is structurally sound.
  5. Legals – I cannot emphasise enough the importance of instructing a solicitor who has experience in the licensed and leisure sector. We are happy to recommend specialist firms, who have experience within the hotel market.
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Shekina Tuahene

Shekina is a multimedia journalist who has lived in London all her life. She is an alumnus of University of Greenwich and Brunel. Shekina loves to read, travel, socialise and listen to music. If you have any story or feature ideas, feel free to drop her a line.

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