Investing In Hotels
I spoke to my uncle’s friend today. Apparently he had a few liquor shops and recently got into the hotel business.I’d been wondering what the numbers are in that business and I actually got some concrete numbers today.
Ideally you should pay 4 times the gross income or less. The bank requires you to only put down 20% of the purchase price. If you buy a chain (instead of running a mom & pop joint), the bookings are done through a central reservation system so its NOT a cash-based business. This means you can hire a manager or a management company to run it for you and be sure that you’re not being robbed. Normally hotels should net you atleast 15% cash on cash or better.
Sounds like pretty good numbers to me. He’s promised to include me (with my puny investment capital) in his next investment. Hopefully I will have free capital at that time.
I’ve heard of hotels in San Diego being sold for 7 times the gross and I guess making money on your investment isn’t always the criteria for investing!!! But, there are a few people who pay CASH for their multi-million dollar hotels and so whatever they make is a profit to them.
Anyway, if I can buy a hotel in partnership this year, I’ll be very happy. I might even put together a Private Investment Fund for investing in a hotel.
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February 5th, 2007 at 2:57 am
I’m always looking for hands-free business investments and this hotel chain deal sounds like something I would definitely be interested in. So, if your uncle’s friend has a bit of investment room available, definitely gimme a shout.. When you say 15% cash-on-cash return, are you talking about the return based on a 20% downpayment?
February 5th, 2007 at 9:48 am
I myself would like to go into the hotel industry in the near future.
But like you I only have a puny amount to invest.
I give myself 5-7 years to get into the market.
It always good to know people in good places. You have a good start by knowing someone in the industry.
February 5th, 2007 at 7:15 pm
If any of you are interested in being informed of this opportunity (if it ever arises) shoot me an email at emptyspacesinc@gmail.com and I’ll add you to a list.
February 5th, 2007 at 8:04 pm
Recently I was reading an article about the hotel business in the US in some economics journal. Now I forgot which one…. probably Journal of Economic Perspectives. One interesting aspect is the very strong Gujurati presence in the US hotel business
Does this ethnic connection give some advantages? I wondered why so many are in this business.
February 5th, 2007 at 11:10 pm
Not sure, maybe its genetic!
Actually Monish Pabrai of Pabrai Funds had a talk on this about 2 years ago. He thinks its because they got into this business early on and they’ve helped subsequent Gujarati immigrants to buy motels(from where they subsequently graduated to hotels) by lending them money and offering sweat equity.
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