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Tips To Consider When Buying A Hotel Or Motel

Hotels/pubs can be great investments. For this reason, the last few years has seen Investment & Financial Institutions including hotels/pubs in their portfolio. Large corporations like Woolworths and Coles are buying up pubs and pub owners are forming syndicates in order to buy several pubs. This drives demand for hotels/pubs upwards. Demand for quality hotels/pubs is not only in the metropolitan areas but also in regional centres and smaller country towns. While investment in this industry is generally sound, not all hotels/pubs will suit everyone, especially if you are thinking of buying your first hotel. There are lots of questions you will want to ask ranging from what type of property to buy and what is the best way to finance it. Below are some tips to consider when contemplating the purchase of a hotel, motel, tavern, nightclub or pub.

Before looking at hotel/pub to buy


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  • Know why you want to buy - for example, lifestyle, more profit, potential to improve the property's performance.
  • What are the expectations - family oriented, easy to run, return on investment, put in the hard work for a few years and move on, something with development potential, etc.
  • How much money can you afford or want to spend - can you borrow from a financial instution, will you need to put up your home as collatoral, do you need to go into partnership with friends or family members, etc.
  • Engage a hotel broker with experience and understand e.g. Gilchrist Business Brokers has had experience in operating hotels/pubs, been through the buying process many times over and has run successful hotels as well as selling.

Looking to buy and before making an offer Back to the top -buying a hotel, motel tips and guidelines

  • Talk to Gilchrist Business Brokers to determine exactly what type of hotel you are looking for, what your expectations are, any assistance required in regards to financing, market condition, etc.
  • Go through a list of hotels that meet your requirements with Gilchrist Business Brokers or if there is a hotel that interests you then ask Gilchrist Business Brokers to act as your agent in approaching the owner.
  • Stay at the hotel as a guest for a week. Try to do this before anyone is aware that you are considering the property. This will give you the opportunity to view the hotel or motel as a guest would.
  • Avoid discussing price with the owner of the property. It is better to let the broker handle the negotiations with the owner. You should know in advance what you are willing to pay for any property.
  • Check out the current competition taking into consideration otential for future competition. Also consider the local reputation of the hotel. If it isnot positive, it may be difficult or take time and effort to change local opinions. A negative reputation drastically lowers the market value of the property.
  • Look at financial statements for the past two or three years. Verify all financial information.

Making an offer & acceptence

Once you have found a property that best suits your needs and budget, make an offer through Gilchrist Business Brokers. If any negotiation is needed Gilchrist Business Brokers will mediate between you and the seller until the best possible outcome for both parties is reached.

After the offer has been accepted Back to the top -buying a hotel, motel tips and guidelines

  • It is recommended that due diligence is completed before exchanging contracts. During this period, Gilchrist Business Brokers will coordinate your request for documents and assist in arranging meetings with related parties such as lawyers, accountants, valuers, etc.
  • As with any property purchase, structural condition should be checked and inspected by a professional. Necessary repairs, as well as the need for updated furnishings, fixtures, equipment, and inventory should be considered. This information will help you in determining the market value of the property. Once the sale is complete, make sure that the owner gives you a separate bill of sale for all furnishings, fixtures, equipment, and inventory, as well as the deed to the property.
  • Check with the local government about planned changes and roadway constructions. If the property is on a highway, and there are plans to build a loop, the property and business may not be as valuable as you thought it was.
  • Review contracts that the current owner has with suppliers, as well as customer groups. Find out if those contracts will be renewed or valid after you take over the property. Be sure that the contracts will be satisfactory for you as the owner of the property. If there are existing contracts you may wish to cancel upon purchasing the property, make sure that you will be able to cancel those contracts without being penalised.
  • Make sure the property is currently in compliance with governmental requirements. Consider what licenses and permits you will need to operate the property, as well as the requirements and costs in obtaining those licenses and permits.
  • Find out what insurance company is currently insuring the property and premiums costs. Do your own insurance cost investigation to ascertain whether you may be able to secure more extensive and cost efficient coverage.

Exchanging contracts

  • If the offer is subject to finance approval, once that has come through, the owner's lawyer will draw up the contract for both parties' lawyers to go through. If all conditions are acceptable, both parties will sign and exchange contracts.
  • At the exchange of contracts, you will need to pay approximately 10% of the property sale value as deposit or a pre-agreed amount to the seller.
  • It is usual for the buyer to have a 30 day study period, and this is usually set down in the letter of intent or the agreement of sale. Use this period to check things out to your satisfaction. If you are not satisfied, you can back out of the agreement. However, you may forfeit your deposit or pre-agreed amount.

Settlement

On the settlement date, usually 30 days after exchanging contracts, you will be required to pay the seller any balance of the payments owed.

Congratulations!!! You are now the proud owner of your dream hotel/pub.

As you can see there are a lot of things to consider and information to absord when considering the purchase of a property. This is why it is highly advisable to engage a competent and trust worthy broker such as Gilchrist Business Brokers act on your behalf. If you would like more information, simply contact us on (02) 6369 1055 or complete the form at the top of this page and we will contact you at a time that is convenient to you. Back to the top -buying a hotel, motel tips and guidelines

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