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Here are some "Rules of Thumb" in valuing a Hotel:
Independent older exterior corridor properties are frequently are priced at 1.5-2 times annual room revenue. Moderate level Franchises 30-70 rooms 2-3 times room revenue. Larger, well known, franchise properties with 70+ rooms 4-5 times room revenue. (Beach properties typically go for 3.5 to 5 times total sales)
Hotels should be priced only after taking into consideration the (FF&E) furniture, fixtures and equipment reserve of 4 to 5 percent of gross revenue. Plus add an allowance for repair and maintenance for a total of 8-9% of total sales.
Whether or not the property is an extended-stay business hotel or resort will also effect value.
Anticipate third-party financing of 60-70 percent of the purchase price and a debt coverage ratio of 1.25-1.5 Some banks will lend based upon ADR and Occupancy and others will lend on some base times gross revenue factor.
The trend is toward Limited Service, manageable properties under 80 rooms. They are able to be Owner Operated with limited staff. Also changes in the economy do not affect these properties as readily. The economy segment is projected to achieve the highest increases in value.
Tip: Many properties turn a mediocre profit. The appreciation in property value is usually the benefit. Many buy a property, maintain it for 3-5 years and then sell.
Final Note: Nice economy franchises are in demand as well as independent properties. There is less need for a pool and restaurant on site. Most people are busy and just need a clean place to lay their heads and then be on their way.
Rules of Thumb when Valuating