Questions to Ask When Buying a Hotel
When you are purchasing a hotel or motel, the answers come from three places: the seller, the listing broker and, if the hotel carries a flag, the franchisor. The questions run in the order the checking usually goes: demand and rates, the financial statements, the franchise and its property improvement plan, the building and its systems, staff and legal matters, then the sale and handover. Take the franchise group to the brand directly, because the seller's agreement is not the one you would be signing.
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The questions
Each question, and why to ask it
Demand and rates
What were occupancy, average daily rate and RevPAR in each of the last three years and over the trailing twelve months?
Why ask it
RevPAR is rooms revenue divided by every room night the hotel had available, so it shows rate and occupancy in one figure. Ask for the monthly report straight out of the property management system and check that rooms taken out of service were not quietly dropped from the count. If occupancy rose while the average rate fell, ask what was discounted to get there.
Which employers, attractions or institutions send this hotel its guests, and is any of them shrinking, moving or closing?
Why ask it
Have the seller name the main sources and roughly how many nights each one brings. Then check them yourself: read the local business news, drive past the plant, ask the hospital or the college where it sends its visitors. Of everything on this list it is the answer a sale gives the most reason to soften.
How does the hotel compare with its competitive set, and can I read the benchmarking reports for the same three years?
Why ask it
Many hotels subscribe to a report that sets their occupancy, rate and RevPAR against a group of nearby hotels, with an index where 100 means a fair share of the market. Ask which hotels are in the set and who picked them, because a set of weaker neighbors flatters any property. A seller with no such report is not hiding anything by default, but you will have to build the comparison yourself.
Which nights of the week and which months fill, and which ones sit half empty?
Why ask it
A hotel that is full from Monday to Thursday lives on business travel, one that fills on Friday and Saturday lives on leisure, and the two need different selling. Ask for occupancy by day of the week across a full year. The empty nights are where a new owner's growth is supposed to come from and the seller can tell you what has already been tried on them.
Where do reservations come from: the brand's website and call center, online travel agencies, the hotel's own site, the phone or the front door?
Why ask it
The channel mix tells you what each booking costs to win. Heavy reliance on online travel agencies means a commission on a large part of revenue and guests who belong to the agency more than to the hotel. At an independent hotel, ask what the seller has done to move those guests to booking direct on a second stay.
What share of room nights comes from business travelers, leisure guests, groups, crews and extended stays?
Why ask it
Most property management systems tag each reservation with a market segment, so this should arrive as a report and not as a guess. Look for one segment that carries the hotel. If the seller cannot split it out, the rate codes on past reservations will get you most of the way.
Which corporate accounts, crew contracts or group blocks bring the most room nights, and when does each agreement end?
Why ask it
The ten largest accounts, with the nights and the rate for each, should fit on a single page. A construction crew or a single plant can hold up a small hotel for two years and be gone in a month, so find out which business is tied to a project with an end date. Then ask whether the negotiated rates are with the hotel itself or arranged through the brand.
What did the hotel pay online travel agencies in commission last year, and are those agreements in the hotel's name or the brand's?
Why ask it
Get the figure in dollars, then check whether revenue on the statements is recorded before or after it. Agreements negotiated by a brand generally sit with the flag, while an independent hotel's own listings and review history have to be moved to the new owner. Ask each agency how it handles a change of ownership before you count on the listings.
Who sets the room rates from day to day, and what do they look at when they change them?
Why ask it
At a small hotel the honest answer may be that rates move twice a year. That can mean easy gains for an owner who watches the calendar and the competition, or a market that does not reward the effort, and the benchmarking reports will show which. At a branded hotel, find out what the brand's revenue management service costs and whether using it is optional.
What are the hotel's review scores on the main travel sites, and what did the lowest ratings of the past year complain about?
Why ask it
Sort the reviews by newest and read the bad ones for repeats. Complaints about staff or cleaning can be fixed by management, while complaints about noise, the neighborhood or small rooms come with the building. Scores tend to follow a renovation up and neglect down, so look at how they moved over three years and not only at where they sit today.
What hotels have opened nearby in the last three years, and what is planned or under construction?
Why ask it
New rooms in a small market are shared among the same travelers, and the newest building tends to get first pick of them. The seller may not know or may not say, so ask the local planning office what has been approved and ask the franchisor what it has in its own pipeline here.
Financials
Can I have monthly profit and loss statements for three full years and the year to date, broken out by department?
Why ask it
The lodging industry has a standard chart of accounts that separates rooms, food and beverage, and the overhead no department owns. Statements kept that way can be compared with other hotels line by line. If the seller's are a single page from a tax preparer, have your accountant recast them before you rely on any margin.
Will you give me the lodging tax returns, sales tax returns and income tax returns that cover the same months?
Why ask it
Where a lodging or occupancy tax is charged, those returns are a record of rooms revenue that the seller paid money to create. Total them by month and set them beside the revenue report from the property management system. A gap in either direction needs an explanation in writing.
What is net operating income once a management fee and a reserve for replacing furniture and equipment are deducted, even if you pay neither today?
Why ask it
Lenders and appraisers commonly subtract both before they value a hotel, even when the owner runs it personally and sets nothing aside. So the income on a broker's sheet can be higher than the income your loan is sized on. Ask your lender which percentages it uses and rerun the numbers with those.
Which jobs here are done by you or your family without a paycheck?
Why ask it
At a family-run motel the owners may cover the front desk, the night shift and the repairs without drawing a wage. Have them list the hours each family member works, job by job. Price those hours at local pay rates and subtract the total, unless you plan to live the same way.
What does payroll cost in each department, and how many minutes of housekeeping does an occupied room take?
Why ask it
Minutes per occupied room lets you compare this hotel with any other and test whether today's staffing would hold at higher occupancy. Ask whether stayover rooms are cleaned daily or only on request, since that changes the figure a great deal. A number far below what other hotels of this type report deserves a look at the rooms themselves.
What have property tax, insurance and utilities cost in each of the last three years, and which of them will change the day the hotel sells?
Why ask it
The seller's tax bill may rest on an old assessed value, and how a sale affects it depends on where the hotel is, so ask the assessor's office directly. Get your own insurance quote too, because the seller's premium reflects the seller's policy and claims, not yours. Utilities are the one line you can mostly carry forward.
What income comes from outside the guest rooms: a restaurant or bar, meeting space, parking, vending, a leased shop or a rooftop antenna?
Why ask it
Ask for the revenue of each stream and its direct costs, since a hotel restaurant can add sales and still lose money. Leases to outside operators or cell carriers are contracts you inherit, so read them for the term and the rent. Vending and parking money taken in cash should still appear in the bank deposits, so trace a month of it.
How much has gone into capital improvements in each of the last five years, and what was it spent on?
Why ask it
Ask for invoices, not a total. Several lean years at a hotel with a brand flag often mean the bill has been saved up for the buyer, and it tends to reappear in the improvement plan. Compare the list with what you see when you walk the rooms.
Which equipment leases and service contracts would pass to me: televisions, the phone system, laundry machines, elevator maintenance, internet, linen?
Why ask it
Each one is a monthly payment on a term you did not negotiate. Ask for the contracts themselves and look for automatic renewals and early termination charges. Your attorney can tell you which ones may be left with the seller, and that has to be decided before the purchase agreement is signed.
Franchise and brand
Is the hotel under a franchise agreement, and how many years does it have left?
Why ask it
A flag with two years left is a different purchase from one with fifteen. A hotel near the end of its term may be one the brand intends to let go, so put the question to the franchisor as well as the seller: does it want this property to stay in the system?
Does a buyer take over the existing franchise or apply for a new one, and what does the application cost?
Why ask it
Do not assume the flag comes with the keys. Brands commonly treat a sale as a change of ownership that needs their approval, with an application, a fee and a new agreement on current terms. Call the brand's franchise development office early and ask for the steps and the usual timeline in writing.
Has the franchisor issued a property improvement plan for this sale, and what will it cost to finish?
Why ask it
The plan is the brand's list of what must be renovated or replaced for the hotel to keep its flag under a new owner, with deadlines attached. Get the actual document, walk the building with a contractor and price every line before you agree a figure for the hotel. Whatever it costs is part of the purchase price, whoever writes the check.
What does the brand charge in total: royalty, marketing, reservation, loyalty and technology fees, and what share of rooms revenue did that come to last year?
Why ask it
The royalty is only the headline. Twelve months of the franchisor's invoices to the seller, added up line by line, show what the flag really costs. Then compare that total with the fee schedule in the agreement you would be signing, which may not match the seller's older one.
How many room nights does the loyalty program deliver, and what is the hotel paid when a member stays on points?
Why ask it
Loyalty members are much of what a flag is bought for and their share of occupancy should be available as a report. What the hotel receives for a points night depends on the program's rules and can differ from the rate a paying guest would have brought. Have the franchisor explain the formula and show it on a sold-out night and a slow one.
What would I owe if I left the brand early or the brand ended the agreement?
Why ask it
Franchise agreements commonly set liquidated damages, a fixed formula for what the owner pays on an early exit. Get the formula and work it out in dollars for this hotel. Then have a hospitality attorney read the default and termination sections before you sign, since this is the clause that can turn a bad year into a debt.
Is there a protected area around this hotel, and could the franchisor approve one of its other brands down the road?
Why ask it
A large hotel company owns many flags, and protection against one of them says nothing about the rest. Ask to see the clause and the map that goes with it. If there is no protection at all, ask the franchisor what applications it has received within a few miles.
How has the hotel scored on brand quality inspections and guest satisfaction rankings, and has it ever received a default notice?
Why ask it
Request the last three inspection reports along with any letters from the brand. Repeated failures can put a franchise at risk and will shape the improvement plan a buyer is handed. Read the guest comments attached to the scores, because they name the rooms and the problems.
What does the franchisor require of a new owner: hotel experience, an approved management company, training, a personal guarantee?
Why ask it
A first-time buyer may be asked to hire an experienced manager or a management company as a condition of approval, and that fee belongs in your projections. Find out before you make an offer. A requirement you cannot meet ends the deal after you have already paid for inspections.
Which brand standards are scheduled to change in the next few years, and what will each cost this hotel?
Why ask it
New signage, bedding, breakfast programs, door locks and reservation technology arrive as mandates with compliance dates. They sit outside the improvement plan, so a buyer can finish the plan and still face another round. Put the question to the franchisor's representative, and ask the seller what has already been announced to current owners.
If the hotel is independent, or if I wanted a different flag, which brands would take it and what would conversion involve?
Why ask it
A brand will say fairly quickly whether a building of this age, room count and location fits one of its flags. Ask two or three of them, since each will send its own list of required work. At an independent hotel, also ask the seller whether a brand ever turned the property down and why.
Building and systems
When were the guest rooms, bathrooms, lobby and exterior last renovated, and what was done each time?
Why ask it
'Renovated' can mean new carpet or a room stripped to the studs. Ask for the scope and the year for each area, then open rooms on different floors to see whether the work reached all of them. Hotels are often renovated one wing at a time and photographed in the newest.
Can I have a list of the major systems with the age of each: roof, guest room heating and cooling units, water heaters or boilers, elevators, laundry machines and parking lot?
Why ask it
Multiply any per-room item by the room count before you react to its price. A hotel with an individual unit under each window replaces some every year, so ask how many were swapped last year and how many spares are on the shelf. For the roof and the elevators, ask for the last contractor's report.
How many rooms are out of order today, and what is wrong with each?
Why ask it
Most hotels have a room or two down for repair on any given day. A dozen closed for months points to a leak, a pest problem or an owner who stopped spending, so ask to see inside them. Also ask how out-of-order rooms were treated in the occupancy figures you were given.
What water damage, mold or pest treatment has the building had, and which rooms were involved?
Why ask it
The pest control company's service log and any remediation invoices show which rooms and how often. Bed bug treatment at a hotel is ordinary; the same rooms treated again and again is not. On your walk, look at ceilings below bathrooms and at the corners of top-floor rooms.
Are the fire alarm, sprinklers, elevators, pool and kitchen hood current on inspection, and is any violation open?
Why ask it
Each of these has its own inspector and its own certificate, and the seller should be able to hand over the latest of each. Then call the fire marshal and the building department yourself and ask what is on file for the address. While you have them, ask whether a change of owner brings a fresh inspection there.
What condition are the mattresses, furniture, carpet, televisions and bathroom fixtures in, and when was each last replaced across the hotel?
Why ask it
Furnishings wear out on a shorter cycle than the building, and replacing them is priced by the room. Lift a few mattresses to find the date tag and sit in the desk chairs. If the brand's improvement plan already calls for new furniture, the old set should add nothing to the price.
What does the hotel run on, from the property management system to the door locks, guest internet, phones and televisions, and is any of it out of support or due for a required upgrade?
Why ask it
Door locks and guest internet are priced per room, so an unsupported system is a large bill that no roof inspection will find. Ask who owns the hardware, who holds the administrator passwords and whether the brand requires a particular vendor. Guest reviews that mention the internet are a quick outside check.
Does the hotel have the accessible rooms, routes and features it is required to have, and has anyone filed a complaint or sent a demand letter?
Why ask it
What is required depends on the hotel's age, its renovations and the rules where it stands, so have an accessibility consultant or an attorney look instead of accepting a yes. Ask about the website and the reservation process too, not only ramps and bathrooms. An open claim should be settled or priced before closing.
Is the land owned outright, or does the hotel sit on a ground lease or depend on someone else's parking, sign or driveway?
Why ask it
A ground lease brings rent increases and an end date that a lender will read closely. Shared parking or a highway sign on a neighbor's land can be an agreement on paper or a habit, and a habit can stop. Raise it with the title company, whose search should show which one you have.
Will my engineer and contractor have access to every floor, the roof and the mechanical rooms, and are there earlier condition or environmental reports I can read?
Why ask it
Older reports show what the seller was told and when, which is useful beside the repair invoices. Commission your own regardless, since a report written for someone else's loan was not written to protect you. A seller who limits access to a sample of rooms should be asked why.
Staff and legal
Who runs the hotel day to day: the owner, a general manager or a management company?
Why ask it
If it is a management company, ask for the agreement and whether it ends at a sale or binds the buyer, and at what cost. If it is the owner, you are buying a hotel that loses its manager at closing. A general manager who has run the place for years and wants to stay is worth meeting before you make an offer.
Can I see a staff list with each person's position, hire date, hours and pay rate?
Why ask it
Long tenure at the front desk and in housekeeping suggests a hotel that runs itself on an ordinary day. Compare the pay rates with what nearby hotels are advertising, because wages held below the market are a raise you will have to give. Ask when and how the seller plans to tell the staff about the sale.
How hard is it to hire housekeepers and front desk staff here, and which jobs are open right now?
Why ask it
Unfilled housekeeping jobs show up as overtime, agency labor or rooms that cannot be sold on a busy night, so find out which of those the hotel has been leaning on. Where the staff live and how they get to work matters too, since a hotel at a highway exit can be a long way from its labor. If any employees live in rooms at the hotel, ask on what terms.
Is any part of the staff covered by a union contract or a written employment agreement?
Why ask it
Whether such an agreement follows the hotel to a new owner depends on how the sale is structured and on the law where the hotel is. Get a copy and give it to an employment attorney before you sign anything. Ask too about accrued vacation and promised bonuses, which someone has to pay.
What has to be licensed or permitted for this hotel to operate, and which of those approvals stop at a change of owner?
Why ask it
Expect a longer list than you think: a lodging or business license, food service, the pool, the elevators, signage, and alcohol if there is a bar. Do not rely on the seller's memory of what transfers. Each issuing office can describe its own process and how long it takes, and those lead times belong in your closing schedule.
If the hotel serves alcohol, how does service continue between closing day and my own license?
Why ask it
Liquor licensing differs widely from place to place, and in some a new owner cannot pour until approved. Ask the licensing authority whether a temporary permit or an interim arrangement with the seller is allowed. If the bar matters to revenue or to a brand standard, make the closing date depend on the answer.
Are any guests living here long term, and on what terms?
Why ask it
Weekly and monthly guests are steady income at motels and extended-stay hotels. In some places a long enough stay can give a guest rights closer to a tenant's, so ask a local attorney how it works there. Ask to see how these stays are recorded and how lodging tax was handled on them.
What police calls, guest injuries, insurance claims or lawsuits has the hotel had in the last five years?
Why ask it
Have the seller request a loss run from the insurer, which lists every claim, and ask the police department for its record of calls to the address. A pattern at one hotel affects what your insurance costs and who will lend against it. An open lawsuit needs your attorney's view on whether it could reach a buyer.
Sale and handover
Why is the hotel being sold now, and what would you do with it if you kept it five more years?
Why ask it
The second half is the useful one. An owner who would renovate and reprice is describing your to-do list, and one who cannot think of anything may be describing a hotel at its ceiling. Check the stated reason against the franchise term, the loan maturity and the improvement plan, any of which can be the real one.
Has another buyer had this hotel under contract, and what stopped that sale: the financing, the brand's approval or something in the inspections?
Why ask it
A deal that died at franchise approval or on the improvement plan will meet you at the same point. The broker may be limited in what can be shared, but the stage at which it ended is usually something they will say. While you are there, find out how long the listing has run and whether the price has moved.
Do you own, manage or plan to build another hotel in this market?
Why ask it
Hotel owners often hold more than one property in a town, and corporate accounts and the best staff can follow a seller across the street. If the answer is yes, your attorney can say what a non-compete or non-solicitation clause is able to cover where the hotel is. Check the answer against the planning office's list of approved projects.
How was the asking price reached: a price per room, a multiple of rooms revenue or a capitalization rate on net income?
Why ask it
Ask the broker to show the arithmetic for whichever method was used. Then run the other two yourself, since a price that looks fair per room can look steep against the income. Recent sales of similar hotels in the region are the check on all three, and your appraiser will have them.
Which of these come with the hotel at the asking price: the furniture and equipment, linens and supplies, the shuttle van, the name, the website and the phone numbers?
Why ask it
Have an inventory attached to the contract. The shuttle van, the lobby art and the laundry machines are the usual surprises, either leased or claimed as the owner's own. How the price is divided among real estate, personal property and goodwill can affect taxes on both sides, so bring your accountant into that conversation.
Is this a purchase of the hotel's real estate and assets or of the company that owns it, and which old liabilities come along either way?
Why ask it
The two structures treat old debts, tax bills, employee claims and lawsuits very differently, and the rules vary by place. Do not settle this with the broker. Take it to a hospitality attorney first, along with the question of whether unpaid lodging tax can follow the hotel to a new owner where it is located.
How long is the due diligence period, and is my deposit returned if franchise approval or financing falls through?
Why ask it
A hotel takes longer to investigate than most property because the franchisor, the lender and the licensing offices each run on their own clock. Ask for enough time to receive the improvement plan and a loan commitment, and for both to be written conditions. A deposit that turns non-refundable before the brand has answered is a risk you carry alone.
What will a lender expect on a hotel loan: the down payment, operating experience, reserves, a letter from the franchisor?
Why ask it
Put this to two or three lenders who finance hotels, and to the broker, before you offer. Lenders tend to treat a hotel as an operating business as much as a building, so one may ask about your experience or your manager's and may want the brand to confirm the franchise in writing. Their answers show what price the hotel can actually support.
Is there a loan on the hotel that I could assume, and would you carry part of the price yourself?
Why ask it
Some hotel loans can be taken over by an approved buyer and some charge a heavy penalty for early payoff, which changes what the seller needs out of the price. The loan documents say which, not the broker's summary. A seller willing to hold a note has some confidence in the figures, though one who declines may simply need the cash for the next purchase.
Beyond the price, how much cash will I need at closing and in the first ninety days?
Why ask it
Write it out: the franchise application fee, improvement plan work, opening supplies, the first payrolls, utility deposits, insurance, licenses and a cushion for the slow season. Ask the seller what the bank balance has to be to get through the weakest month. It is easy to budget for the purchase and forget the opening.
Which reservations and group contracts fall after closing, and how will advance deposits, the guest ledger and closing night's revenue be divided?
Why ask it
The on-the-books report by month, with rates, doubles as a preview of your first quarter. Deposits the seller collected for stays you will host should come across at closing. The night of closing has guests in beds on both sides of midnight, so agree in the contract who gets that revenue.
Will the reservation system data, guest history, corporate account contacts and online listings be handed over, and in what form?
Why ask it
At a franchised hotel much of this lives in the brand's systems and its transfer is the brand's decision, so ask the franchisor what a new owner starts with. At an independent, get the logins, the domain registration and the listing ownership moved before funds are released. A sales manager's contact list kept in a personal phone is not a handover.
Will you stay through a transition, and can I meet the general manager and the sales manager before we close?
Why ask it
Get a set number of weeks in writing, with what will be covered: vendors, key accounts, the quirks of the building. Meeting the managers early tells you whether they plan to stay. A seller who refuses until closing is usually protecting confidentiality, so offer to sign whatever makes the meeting possible.
How to check a hotel before you offer
Practical guidance for the conversation itself
Who can answer what
Read the seller's records, then meet the seller
Ask for the system reports, statements and tax filings before the first long conversation, under a confidentiality agreement if the broker requires one. A meeting held after you have read them is spent on the months that look odd. One held before is spent listening to a summary.
Use the listing broker for the market
The listing broker knows what similar hotels sold for, which lenders are active and how long the brand takes to approve a buyer. That is useful, and it comes from someone who is usually paid only if the sale closes. Ask how agency works where the hotel is, and consider a hotel broker or consultant of your own.
Go to the franchisor yourself
The brand's development representative is the only person who can say whether you would be approved, on which agreement and with what improvement plan. Make that call early. Sellers sometimes describe the flag as transferring when what transfers is the chance to apply.
Let lenders and advisers test the rest
A hotel lender, a hospitality attorney and an accountant who has read lodging statements will each ask things this list does not. Taxes, liability, labor rules and licensing differ by place, so treat any answer on those from the seller or the broker as something to confirm.
Testing the hotel's figures
Rebuild RevPAR from the room nights
Take rooms sold and rooms revenue by month from the property management system, divide by rooms available, and see whether you reach the figures in the listing. Count every room for every night unless the hotel was truly closed. The exercise takes an afternoon and catches most flattering arithmetic.
Set three records side by side
System revenue, lodging tax filings and bank deposits should tell one story month by month. Small timing differences are normal. A steady gap means either revenue that was not reported or revenue that was not earned, and both are problems for a buyer.
Charge the hotel for what you will pay
Put in a manager's salary or a management fee, a furniture reserve, market wages for unpaid family hours, the new franchise fee schedule, your own insurance quote and the property tax as it may stand after the sale. What is left is the income you are buying.
Price the improvement plan before the hotel
Have a contractor who has done hotel work price each line of the brand's plan, and ask the franchisor which deadlines can move. Add that total to the asking price and look at the sum per room. That is what the hotel costs.
Seeing the property for yourself
Stay a night as an ordinary guest
Book through the channel a stranger would use and say nothing about buying. You will learn how check-in goes at ten at night, how the room smells, whether the hot water lasts and what breakfast looks like at its busiest. Read a year of reviews beforehand and see which complaints you can confirm.
Pick the rooms you open
On the formal tour, choose from the room list yourself: top-floor corners, rooms beside the elevator and the ice machine, the ones marked out of order, the ones over the laundry. Left to the guide, a tour tends to stay in the newest wing.
Walk the back of the house
The laundry, the boiler room, the electrical room, the housekeeping closets and the roof say more about maintenance than the lobby does. Look for labeled shutoffs, logs on the wall and spare parts on shelves. Disorder back there usually matches what the repair invoices show.
Count the parking lot
Drive by on a midweek night and a Saturday night and count cars against the occupancy you were told. It is rough, and crews and tour buses skew it. Still, a lot that is a third full on a night reported as nearly sold out is worth a question.
When to slow down
Reports that never arrive
A seller who offers a typed summary but not the system printouts, the tax filings or the brand's inspection letters is asking you to buy a description. Keep the deposit refundable until the source records are in your hands.
An improvement plan nobody has seen
If the price was set before the franchisor issued its plan, the price is missing its largest unknown. Wait for the document, or make the contract conditional on the plan coming in under a figure you name.
One account holding up the hotel
When a single employer, crew contract or project supplies a large share of room nights, value the hotel as if it had left and see whether the loan still gets paid. Then, if the seller allows it, hear from that customer how long it expects to stay.
A closing date ahead of the approvals
Franchise approval, the loan and the licenses each take as long as they take. A seller or broker pressing for a date that outruns them is asking you to close on a hotel you may not be allowed to operate the way it runs today.