How to Invest in Hotels Without Money or Experience
53:11 Share

Do you think that you need millions to own a hotel? Today's guest used an SBA loan and a few friends to buy a 75-room property and now manages a portfolio of brands like Hilton and Marriott.

If you've ever thought hotels were out of reach for rookie investors, this episode is your blueprint. That's right. Today's guest is a hotel investor and operator who's breaking down exactly how a rookie can go from a single family home or duplex to a full-blown hotel entrepreneur. ♪

This is the Real Estate Rookie Podcast. I'm Ashley Kerr. And I'm Tony J. Robinson. And let's give a big warm welcome to Sujay Mehta. Sujay, thank you for joining us today, brother. Hey, thank you both so much. It's an honor and a pleasure to be here. Obviously, you know, BiggerPockets has touched so many lives. So the pleasure is all mine.

Well, I want to start off with what are some of the biggest misconceptions that a rookie listening might have about hotel investing? Yeah. I mean, first of all, most people traveling, right? Like how many of us have seen a hotel while driving down the road, driving down a highway? Most of them may have been like the Marriotts or the Hiltons of the world. Most people think Paris Hilton just owns half these hotels, right?

And that's a huge misconception. It's not these billion dollar companies or, you know, Wall Street companies that own these hotels, but actually a lot of them are franchised. And so we actually, as franchisees, own a lot of these, you know, Holiday Inns or Hampton Inns, Fairfield Inns, and these are owned by small business owners just like us. And, you know, now the

big trend that's happening in the world is going into this like boutique hotel space, right? So as these hotels also start popping up, you know, I think it's a, it's a big misconception that like a lot of these big players own these hotels. It's a lot of small business owners. One of my business partners, he's like, I'm buying five subways. And I was like,

How is that possible? He was like 28 at the time. I'm like, we're not making that much money off of our properties. And I learned the whole franchise model. And like, I was, is really eyeopening to me how a lot of these big name brands are just like,

mom and pop people or young adults at 28 owning some of these businesses. Yeah, absolutely. And it's cool that you brought that up. Subways, Taco Bells, Burger Kings, fast food restaurants, as well as even some of the larger yoga studios that you guys may have heard of, or fitness studios. A lot of these are franchised, and that's why every location on

operates a little bit differently. Prices may also, you know, differ from place to place, how the operations are, how the expectations are. But what these franchises do is they try to control the expectations and set a certain standard for every operator, right? So, um,

I think that's a huge eye-opener, right? That a lot of these institutions or services that we use every single day are owned by our friends or family or coworkers, whatever it may be. It's really interesting. And I appreciate you sharing that the franchise model has been a big part of your scale because to your point, I don't think a lot of rookies recognize that. But I guess just if you can give us, Sujay, like the 30,000 foot view of how a franchise

franchised hotel is maybe different than a hotel that you just kind of build on your own. Like, like what are the key differences between those two different types of hotels? Yeah, absolutely. So franchises in general, right? So franchises, the way they work is typically there's going to be some sort of royalty payment that you're going to pay every month. And usually the royalty payment is based on your revenue, right? So let's say for example, I do a hundred thousand dollars in revenue in the month of January and

On February 15th, my statement will come out and I will owe...

If it's 8%, then 8% of that $100,000 as my royalty fee that will go to Subway or Hilton or IHE or Marriott, whoever it may be. And then there's some set costs that will be per room basis or be broken up into different ways as well. And some of those things are going to be franchise dependent. So that's how a royalty payment for the franchise works in general.

Now for hotel specific, we actually own the land. We own the real estate. We own the operations. The employees are our liability. Uh,

We have the loan and we guarantee the loan, right? The only thing that the brand does is they put their name up on the hotel and create this huge booking platform for us and this loyalty customer base that drives so many customers to our hotel. The first hotel that we ever opened

It was a new build property. It's called the Avid Hotel. Nobody had heard about it. We were one of the first 10 in the entire world to open up an Avid Hotel. It's a sister brand of Holiday Inn Express. So within the same umbrella of IHE. So if any of you guys have heard of IHE or our loyalty customers, we opened up, I think at 3 p.m. We got our certificate of occupancy and at 5 p.m. We already had bookings.

So no Instagram, no website, like the brand does all of that for us. And it's such a, like a mammoth, right? In the industry that they're able to drive customers, I mean, every single day to our property. And so, you know, again, that kind of de-risks us being a franchisee of these hotels in a lot of cases. Okay. So I think this has probably intrigued everyone's interest, but there's still the big,

price tag, the capital needed to invest. So what does this look like for a rookie investor if they actually do want to go and buy a hotel? How do they pay for it? Yeah, absolutely. It's a great question. So multiple ways to do it. Right. And again, I talked about branded hotels, but there's also independent or boutique hotels. And so hotels for me is it's

It's a vessel, right? You invest in this vessel and then you can make it your own, right? And so the number one thing that I always say is like, you know, we have to underwrite, figure out what the price point is. So I'll give an example. Let's say we're buying a hotel for $1.5 million, okay? And I give that example because we're actually closing on one tomorrow, which is 1.5 million. Yeah, thank you, thank you. So great for rookies, right? So that's why I give this example. So $1.5 million hotel, right?

We're going to do $500,000 of renovation at the hotel. So, you know, total price is going to be 2 million plus some fees and costs and whatnot. So let's say 2.2, right? 2.2 million is the total price tag for this hotel.

So what is different about investing in commercial real estate in general, moving away from residential real estate is you have so many more lending options and products that are available to us that aren't available in the residential world. So a lot of Airbnb investors or single family home investors who are moving into this commercial real estate space, you really need to get acclimated and familiar with all these different lending products.

And so one of them is an SBA loan. So small business administration loan. And hotels are different from other real estate asset classes because it's a business plus real estate, right? And so it being a business unlocks this additional like product that's available for us in the lending world. And now, you know, a loan that's backed

by the government is available for businesses is also available for my real estate purchase, right? So you can get an SBA loan on this kind of property. The other thing that we use pretty often is community banks or regional banks. So if I'm investing in, you know, I'm from Columbus, Ohio, so I'm going to say Columbus, Ohio, I'm going to go to Google maps and I'm going to type in local banks in Columbus, Ohio, and it's going to spit out a list of banks that are

you know, North Valley bank, the community bank, first financial bank, these banks that you may not have heard of, right? It's not your typical Wells Fargo chase bank of America, but these small banks are very eager to invest in the community. They're looking for these types of loans, uh,

to, to give out to, to good small business owners who are, you know, who are aggressive, are looking to get their first property or second property. Um, because, you know, they don't have that deal flow that a chase or a Wells Fargo has. Right. So they're eager to find rookie investors and, uh,

they'll help you, you know, lock down your property, right? So that's a conventional loan. So we have SBA loans, we have conventional loans, and then you can use private capital, right? So you can leverage friends and family. You can do syndications. You can also do creative financing, which is seller finance falls in that category. So you can negotiate with a lot of these hotel owners who have owned these assets for, you know, 15 years, 20 years, and they're just tired.

They don't want to do the renovation that's needed to take the revenue from, you know, 300,000 to 600,000 and they just don't have the bandwidth to do it anymore. And they're willing to, um, sell or carry this hotel for you. So that way you can lock it down without any other loans and you can negotiate interest rate with them.

And they're happy because they get, you know, they get an annuity for the next 10 years, 15 years, even though they retired, they get this, you know, passive income check that comes in every single year. So there's so many different products that are available for rookie investors. Um, when getting into the hotel space, um,

It's just a matter of figuring out what hotel you're investing in and creating a business plan and creating a plan of attack. What makes the most sense? What's my plan A? What's my plan B? What's my plan C? And every single one of these products are going to have pros and cons to them as well.

Tony, for your hotel that you did, did you use any of these ways to fund that property? Yeah. I mean, Suju, you bring up a really good point about the seller financing because that's exactly how we funded our first hotel acquisition as well. There were a brother and sister siblings who inherited this property from a parent who had passed away. They tried to run it themselves and really enjoy it, want it out.

and seller financing was the best route for them because like you said, they got this nice fixed payment every single month. Um, and you know, it was a win-win for both of us and we got great terms, you know, um, I think it's a seven year note. First three years were interest only. It was a smaller down payment than what we would have gotten. Have we gone to a bank? So, so it all worked out. Uh, and I know you said you're, you're closing on a deal tomorrow. Uh,

how did you structure the, the, the, the funds for that deal? Yeah. So that's a, um, so that hotel that we're closing tomorrow, uh, we are actually going to use a conventional loan. Um, we originally reached out to one of the best brokers in the game. Right. Um, and he got us, you know, he got us a good financing option. Um, but it was a 10% interest rate. Um,

And we were going to get construction financing as well as financing to buy the property. But what we started doing is obviously, this is the secret, right? Don't stop. Don't stop. Once you have an option, that doesn't mean it's the best option. Keep going, right? So we dug into it more. Again, we did the Google Maps thing and we started searching local community banks in the area, in the market. This one's in North Carolina.

And so we started looking and we found this local bank there that was very excited to invest with us. And we started talking to them and they gave us a 7% interest rate interest rate, and they're going to fund a part of the renovation as well. And,

our fees are a lot less with this community bank than it would be if you're going through a broker. So we ended up pivoting and we ended up getting this loan through this, uh, conventional loan, uh, through the small community bank. And so they actually, um, funded 80% of our purchase. And then the 20% that was left, we syndicated it. So, um, um,

Well, actually, we started with the syndication process, found a large check writer, which Tony, I know we've talked about that in the past as well. And we actually JV'd it. So we got a couple investors. I think we have three investors total. And one of them is a large check writer. So we were able to fund most of the down payment through that one investor. And

And we were able to lock down that hotel with a JV, right? So JV brings the equity and then the conventional bank brings the primary loan on the property. Can you explain what a joint venture is and why it's actually a...

better, easier method for a rookie investor to follow than doing a syndication to raise that extra capital? Absolutely. Great question. And so there's two ways to kind of like raise capital. I'm sure there's a lot more, but two main ways. So one is joint venture. One is syndication. So joint venture is is cheaper from like a legal perspective. Right.

Um, you don't have to, you know, create the PPM, the subscription agreements. Um, and it's, it's more like an operating agreement that you create, uh, with your partners. Right. Um, again, I say partners, not investors, right? Because when you do a joint venture,

there are certain boxes that you have to check, right? So these people have to be a partner with you in the business. So they have to have some roles and responsibilities. They have to have some rights when it comes to big operational decisions or big business decisions.

Um, so like for an example, when we refinance or when we sell, you know, they, they have to have a vote or they have to have a say, um, in that process. Right. So there's certain boxes that we have to check legally in order for it to be a joint venture. I would definitely consult a lawyer. Um, you know, I know we all have great recommendations, so feel free to reach out to me anytime and I'll point you in the right direction for, for our sec attorney that we use to make sure we're compliant. Um,

but yeah, so that's kind of the pros of a joint venture. It's a lot quicker. Um, you can, you can reach out to, uh, your investors, you can collect the money, you can have this operating agreement, they become partners with you in the business. Um, and what a syndication does though, the pros of a syndication is, you know, you're able to blast it online. You're able to, you know, send out the, uh,

offering memorandum to your investors. It could be people that you've never met before. You're able to utilize social media and you can have people invest $50,000, $100,000, and you can have a mix of accredited investors and unaccredited investors as well in a syndication. So there's pros and cons to both. But obviously, if you have the network and the contacts, a JV is the path of least resistance for sure.

And Sujay, that's exactly how we took down our first hotel as well was through a joint venture. And like you said, our partners who brought the capital have voting rights. They can fire me as the property manager. They can decide when we sell, when we refinance. So yeah, there's some things we worked in there to make sure that we checked all those boxes. One more question, just like on the general state of investing, I want to switch gears a little bit after that, but why do you think right now,

is the golden time for rookies to get into hotel investing? Oh, dude, that is such a good question, man. You know, to be honest, very seldomly in our life do we get an opportunity to be ahead of the curve.

You know, if I want to get into the Airbnb space right now, there's definitely opportunities out there. Right. I mean, we just stayed in one a couple of weeks ago and I was, you know, because I booked it and we're entrepreneurs, I'm doing the math, running the numbers. And I'm like, dude, this place cranks. Right. Like it's like cash flowing like crazy. So there's definitely opportunities. But we all know that space is crowded.

It's saturated. You're competing with families who are looking for their primary residence. You're looking for families who are like, I love the landscaping here, so I want to overpay for this property. You're competing with these emotional metrics. And even when you sell it, again, you're selling on emotional metrics. But right now with hotels, a lot of people don't know about them. A lot of people don't know how to get into them.

Again, we call them the Patel Cartel, right? All these old Indian families who have owned hotels for a long time. And I can joke about it because my wife was Patel before we got married.

but we call them the Patel cartel. But like they've owned these properties and it's been the best kept secret for years. Right. And like, finally the cat's out of the bag. Right. Um, you know, we're all, we're all talking about it, but really, to be honest, it's probably all over your feed because you're looking into it. But, but,

For people who aren't, they don't even know that you can invest into hotels. So very seldomly are we able to get in to a trend before it blows up. And if you're listening to this, you're already ahead of the curve, right? So that's one. Two, interest rates are high. So interest rates are really high right now.

When you're underwriting to factor in debt service, that's not interest only is very difficult when investing in multifamily assets, self-storage assets, all these passive real estate asset classes that people want to invest into. It's really difficult to underwrite and to make them make sense.

But hotels, I say it again, it's real estate plus business. And that business portion of it allows you to flow so much cash flow to the bottom line that you're not only able to meet your debt service requirements, but you're also able to get creative, maybe have, you know, like a bridge debt or a mez debt or, you know, a seller carry that you've negotiated on top and you're able to syndicate it, pay off the investors or pay off your partners and still have money to take home.

right? And that is all because of the high cashflow that exists in hotels. And while there's a lot of investors that are scared right now, they're sitting on the sidelines. Um, this is an opportunity where if we're able to find a hotel that makes sense right now, and if we can refinance in a year or two, dude, it's just going to crank, it's going to cashflow like crazy. Right. So, um, you know, again, and I can go on and on and on, but, um, you know, there, there's just so much you can do. And, um,

You know, hotels are a vessel. You can create additional income streams. You know, there's a property that we have an accepted LOI on. It's on 50 acres of land. It's a boutique property.

They actually have horse buggies that go through the land and go through trails and they charge for this, right? So they charge $150 for a horse buggy ride and they pay the guy who actually drives the horse buggy like $75 per ride, right? Like that's an additional income stream. You already have the customers saying,

staying at your property, you create all these experiences and you're able to upcharge for them and drive more cashflow. So much you can do so much value add. I really hope my partner does not listen to this episode because we have a property that we just turned into short-term rental. And right down the road is this horse farm where they have the big Clyde style horses. And then they have like the big, like,

buggy Chile thing. I can't think of what it's called, but pulled behind it and you can go for the, like the wagon rides and stuff. And he's like, we should stop and talk to the guy. Tell him, you know, we'll book people. We'll split the profits, all this stuff. I'm like, I'm pretty sure this is like a hobby farm. Like this is not like something you want to do as a business.

But he has like all these ideas in his head. And now this is just going to solidify. Like I told you, Ashley, we should go and do these horse and buggy rides. Oh, I hope he's listening because that's awesome. That's a great idea. I love it. Time is the most valuable resource for any business. That's why smart professionals are turning to stamps.com. With rising shipping costs and tighter deadlines, having a reliable shipping partner has never been more important.

Stamps.com isn't just for stamps. It handles all mailing and shipping from anywhere, anytime. For online sellers, it integrates seamlessly with all major e-commerce platforms, including Amazon, Etsy, and eBay. Access post office and UPS services directly from a computer or phone, day or night. No lines, no waiting, no hassle. The mobile app keeps everything running smoothly on the go. All that's needed is a computer and printer.

and stamps.com provides a free scale to ensure accurate postage every time their rate advisor finds the best shipping prices instantly saving up to 88% off USPS and UPS rates a game changer for businesses managing tight margins experience more flexibility and professionalism with stamps.com sign up at stamps.com slash rookie for a special offer that includes a four week trial plus free postage and a free digital scale no long term commitments or contracts just go to stamps.com slash rookie

Hey, Aaron the Ad Guy here. You know, when you've won as many commercial voiceover awards as I have, like the Golden Gutter for most dramatic read of a drain cleaner, or the Silver Sigh for most emotionally charged exhale in a mattress commercial, you start to worry. What if someone comes to steal my trophies?

That's why I use SimpliSafe. See, most home security systems are reactive. Someone breaks in, sirens blare, chaos ensues, too little, too late. But SimpliSafe is proactive. With their new ActiveGuard outdoor protection, their AI cameras and live monitoring agents actually stop crime before it starts. They see shady behavior, talk to the intruder in real time, flip on spotlights, whatever it takes to scare them off before they get their thieving hands on my bronze whispery wow award for best sultry read of a tax code.

I'm serious, though. This stuff matters. And with no contracts, no hidden fees and monitoring plans starting around a buck a day, there's really no excuse. Get 50% off your new SimpliSafe system with professional monitoring. Plus your first month free at SimpliSafe.com slash pockets. That's SimpliSafe.com slash pockets. There's no safe like SimpliSafe. That platinum protection trophy's in the bag.

What if I told you you could forget everything you know about investment property loans? Because Host Financial is rewriting the rulebook, tossing out those pesky DTI restrictions. They focus on your property's income potential. No tax returns or personal income statements needed. Simple.

efficient, and tailored for investors like you. Imagine a lender that sees the gold mine in your property, not just the numbers on your paycheck. That's the host financial difference. And they're approved in 47 different states. So your next big deal could be just around the corner. Ready to unlock your property's true potential? Visit hostfinancial.com. Don't let old school lending hold you back another day. That's hostfinancial.com.

Before we continue with the show break, though, I do want to talk about my first rental. I thought collecting rent would be the hardest part, and I was actually wrong. The admin never stops the expenses, the receipts, tax forms, tenant issues. I didn't expect the behind-the-scenes work to take up so much of my time and headspace. I'm going to talk about the first rental.

Every night was another round of paperwork and I started thinking, if it's like this one, how do people handle five or 10? Baseline helped me get out of the weeds. It's the official banking platform of BiggerPockets that handles the whole backend for me. Expense tracking, financial reporting, rent collection, even tenant screening. It's the first time I've felt in control and now that I'm not drowning in admin, I finally see how my real estate business can scale.

So do yourself a favor, sign up at baselane.com slash BP today and get a $100 bonus. All right, if you've been nodding along and thinking, I want in, here's where Sujay takes off the gloves and gives you the step-by-step roadmap to make that first hotel a reality.

Okay, so let's start with step one. What kind of hotel should a rookie look for and what kind should they avoid? And out of my own personal curiosity, so far in this podcast, I've been wanting to ask the question,

Should you go for a seasonal hotel where it's like at a lake, but it's very seasonal or is that a bad thing to do? So let's start right there with my curiosity question. Then you can expand to all the other types of hotels. Yeah. Perks of being the host of the show, right? You get to ask me a question live. So I love it. Yeah.

No, but I mean, great question. So, you know, for me, we, you know, unfortunately, I live in Columbus, Ohio, and we do have winters here, right? But we also have fall and spring and summer. You know, obviously, like, I hate the cold, right? So I'd love to be in Florida, but a lot of our properties are seasonal, right?

When we say seasonal, though, it doesn't have to be all or nothing. And that's one of the greatest things about hotels as well is unlike Airbnbs, you're not running at a 100 or a zero occupancy. You can run at a 40% occupancy, a 50% occupancy. So rather than deciding if we should go seasonal or evergreen, what I look at is I look at the financials.

So the first thing I want to do is look at, you know, past financials. I want to look at the last three years. And as long as the numbers make sense and, you know, the property is maybe cash flowing or breaking even, and there's a significant upside, I'm all in on that. Right. And that we look at that from like a T12 perspective. So for those of you who don't know, T12 is a trailing 12 month period.

you know, cycle that we look at. So if I'm looking in April, I'm looking at April 2025 to April 2024. That would be the trailing 12 month for this hotel, right? And so within a 12 month period, you're going to have winters, you're going to have summers, you're going to have springs, you're going to have falls, right? So all the seasons are kind of aggregated within this one financial statement that you can look at.

And what you want to look at is like the overall cashflow of the property, right? And then as a hotel operator, it's my duty to be able to manage the cashflow during the slow season or during the, you know, during the high season, I don't want to distribute all my money just because we're doing really well in the summer. I want to make sure I have some for the winter or have some when my property taxes do right. So these are the types of business decisions that we have to make when operating a hotel.

I think the one for me, Sujay, is what about like franchise versus independent room size, right? Like, does it make sense for a rookie to go after a 300 room hotel or is there like a sweet spot? What have you found is like the ideal hotel type in that sense? Yeah, yeah, no, definitely. Great question. So again, same thing, like, you know, with boutique hotels, what you get is, you know, you have full flexibility.

You're able to do whatever you want, however you want it. I might be a great interior designer. And so a boutique hotel might be a great investment for me because I know that I can take this old tired motel and put a little bit of vibrancy and color and character into the rooms and turn it into an experience. And so that's going to be right up my alley. But

for someone like me, who's terrible with design, right? Like my, my wife will be the first one to raise her hand if you, if you ask her, but, but I'm terrible with design, right? So I love like these franchise hotels because it's hotel in a box. They,

They give you the SOPs. They give you the expectations. They tell you, you know, how the rooms are supposed to look, where to order it from. They already have negotiated rates with the vendors and it's a hotel in a box, right? Like you just have to then get the employees, train the employees and do the hands-on, the operations type stuff, right?

And so, you know, the first thing that we need to do is we need to understand our skill set and we need to understand who we are as investors, as operators, and what is the best fit for me. So do a little bit of a study on.

difference between branded and boutique. I think from a price point, you can find both of these assets, both of these types of assets within the price range that you're looking for, right? So my first acquisition was four and a half million dollars. So not huge, but not tiny either. But that was kind of my price point. And it happened to be a Best Western, right? So you can look branded or you can look boutique to answer your question. In terms of size,

Do not make the mistake of going for a 300 room property. Right. Also, you know, be very conscious or just mindful when looking, oh, like this has a full spa and a full restaurant. Like those things look nice and they're pretty to put on Instagram and the flyer looks good. But remember, like when you're operating a full service restaurant, that's a whole

whole nother business that you're running in addition to the hotel. Right. So what I would say is focus on a limited service hotel, right? Something that offers a good night's stay, maybe has, you know, a nice common area that you can create, maybe has some, you know, additional excursions that you can, you know, like we talked about, draw additional revenue from, um,

But if you can avoid a full service restaurant at the property, that might not be a bad idea when you're starting out. So look at those limited service hotels. And I would say to kind of stay under 100 rooms, remember the whole game here is being able to scale, right? So multiple units within one roof. So if you can get a 40 unit or a 50 unit, that's

Probably going to be better from the standpoint of like economies of scale than getting a seven unit boutique hotel, right? A 10 unit boutique hotel. So I typically like to say, you know, kind of aim between that 20 to 80 range when looking at, you know, what is the buy box that I should be looking at?

Yeah. And Suja, you hit on a point that really drew me into the commercial side was the economies of scale. We have just under 30 single family Airbnbs across a few different markets. And

It's kind of a pain in the ass, you know, from like a management perspective to have so many different roofs and cleaners and maintenance and this and that and the other. And I have these operational meetings with my team and like I'll have the hotel team and like our single family team on the same call. And the hotel is just so much easier.

When I'm hearing it back to back, all the issues on the single family side versus the issues on the hotel side, and the hotel is just so much easier. So that is a big draw for me, is that you get these economies of scale where it's one roof, it's one team, and they're all kind of working together.

Now, Sujay, what about on the underwriting, like the analysis side? I think part of what makes single family, even small multifamily so accessible for rookies is that the underwriting is so easy, right?

But, you know, for us, like the hotel that we purchased, we actually hired someone to help us build this underwriting tool because I didn't have one, you know, and it's like, I'm not even sure all the different elements that should go into it. So what if I'm a rookie and say, I want to find this like, you know, 30 room independent hotel room.

What am I looking at from an underwriting perspective to evaluate whether or not it's actually a good deal? Yeah, no, great question. So there's two things that we want to look at for underwriting. And I love that you've leveraged somebody who may be maybe better have the time to dig into it, right? Because I'm sure you could do it if you dug into it enough. But someone who has that experience going into it. But two things that I typically look at when I'm underwriting a deal, right? So one is aggregating.

As is like, let's say worst case scenario, I'm not able to increase the revenue at all, not able to increase the NOI at all. You know, what is this property worth? Right. As is. So I'll do an underwriting and I'll do evaluation. Really, there's three main ways to underwrite a hotel.

or come up with a value for a hotel, right? And so one is using revenue multiplier, right? So we want to look at what the revenue is and depending on your market, your market will have kind of like a standard revenue multiplier. So over here in like the Midwest, the East Coast, revenue multipliers somewhere between three and five, you know, typically it's about around four.

If it's a brand new hotel, that revenue multiplier is going to be higher, increasing the value of the hotel. If it's an old, tired, beat up hotel with a lot of maintenance issues, you know, the revenue multiplier is going to be lower, right? So again, this is a rule of thumb. It doesn't, it's not applicable to every single hotel.

But it's a good start, right? So let's say a four times revenue multiplier. So my first acquisition I ever did, it did about $1.5 million in revenue. It was a little bit less than that, but we'll use 1.5 for whole numbers. So $1.5 million in revenue.

I did a revenue multiplier and I actually did, um, a four times revenue multiplier on the property. So four times revenue multiplier would give me a $6 million valuation, uh, for that property. Right. So like very easy back of the envelope math that you can do. Um,

looking at that property. The second way to underwrite the property is using cap rates. So similar to revenue multiplier, the cap rate will also adjust depending on the condition of the property. The location is the land worth more that will usually compress the cap rate to bring it lower. So that increases the value. So what I do is, so this property had about, I want to say

like 350 to $400,000 of NOI, right? So let's use 500,000 for whole numbers. So if it has a $500,000 NOI, and I'm looking at this property from, you know, somewhere between an 8%

to a 10% cap rate as is. Um, so let's use 10% cause it's easy math. Um, that gives me a value of about $4 million, right? Based on the NOI for the property. So again, I use revenue multiplier. So that gave me $6 million.

I used the cap rate method, which gave me a value of about $4 million. So, you know, I know that the value of that property should fall somewhere in between, right? As a buyer, I'm usually going to go with the one that gives me the lowest value, right? So when I'm buying a hotel and I'm submitting LOIs or offers on these properties, you know, I want to try to use whatever's in my favor, right? So for this particular property, I started negotiating at $4 million for the property.

So the third method that we use to evaluate a property is a per key basis, right? So when I'm looking to buy a property, there could be a property that has, you know, it does crazy revenue and it does crazy high NOI. But, you know, that doesn't mean that I want to pay, you know, $10 million for this 10 room property because that's a million dollars per room, right? And I could probably build that hotel if I built it ground up for $30,

$5 million or $4 million, right? So the last method that we use to kind of check our math is a per key basis. And I want to understand how much I'm paying per key. And so in the Midwest, typically, you know, I want to be under $200,000 a key. Um,

Depending on how many rooms there are, that number will drop. So if it's a 100-room property, I want to be closer to $120,000 or $130,000 per key because if I were to go out and rebuild that property, I could probably build it for around that number.

right? Because of economies of scale. So three main ways that we use these like checks and balances to underwrite a hotel back of the envelope. And then I think the next step from there is to then utilize these calculators and underwriting tools that you can use to plug in like, okay, this is how it is. This is what the property is worth as is. Now, if I add that character and spunk

to the rooms and do some like design value add. If I'm able to increase the efficiency of the property and create some like forced appreciation through NOI or cashflow, if I'm able to add more rooms, right? Like what does that look like, right? Like, does that give me the home run that I want, even if I buy it at like a fair market value? So that's typically how I look at these deals.

Tools that I use to underwrite these hotels is CoStar. So CoStar is a great tool. CoStar also owns another company called STR. So Star Reports is what we call it in the industry. So Star Reports will give us kind of like what the ADR or the average daily rate is.

for these rooms, like how much they're selling for on a nightly basis. Uh, what is the occupancy in the market, right? For hotels that are within this, you know, let's say like the Columbus, Ohio market, how much are the, you know, what is the occupancy for the hotels in this market? Right. So it will kind of give me these metrics to be able to like run the math properly and say, okay, like the potential is here. It's underperforming. Right. So we also use these tools to help us underwrite, um,

And and then, yeah, like the last thing I would say is, you know, go down and and do rate shops, right? Like make phone calls to hotels, go visit them, go talk to like these are 24 seven their staff at the property. So, you know, go go to the bar, go grab a coffee if they have a coffee shop or or book a room, right? Book a room, talk to the staffs.

see, you know, see how much they're selling the rooms for, ask them if it's busy, ask them, you know, like, do you guys have enough rooms at this property when it gets busy? Right. They may say like, oh no, like we don't have enough rooms. Like so many times we have to turn people away. That tells you that I may be able to add more rooms to that property or another property that I'm looking at in the market. So ask questions. I mean, oftentimes we rely on the computer and spreadsheets and all these things, but you have

to go to the market. You have to, you know, be at the property because, you know, that's what's going to give you the edge compared to other investors and allow you to kind of make that leap. Right. So I think that's very important in the underwriting process. Sorry, I might have gone a little too deep in there. No, that was great. And I really liked how you highlighted that

go to the market because oftentimes as investors, we get caught in the, oh, you've got to be hands-off. You've got to be a passive investor. Investing out of state, you can do that without ever visiting the market. But I think it's a great reminder that it's not a bad thing to go to the market to do some hands-on research.

especially when you are making a million dollar investment or more, it's worth the $200 per night to spend on a hotel room in that market to see what's going on there. Yeah. And it's a write-off, right? So kids, I'm taking you on vacation. We're going to Columbus,

Ohio for the night. My question though, is before we can do the underwriting, where are we finding properties to even underwrite? I think maybe I saw a one 10 unit motel before on Zillow, but other than that, it doesn't seem like they're listed on most of the residential MLS sites. Yeah. A great question. And honestly, it's another reason why hotels are great for rookies right now. The brokerage space or the, the,

the way to find hotels is fragmented across the board right now, right? So there's a ton of different like national brokerages that will have hotels for sale, right? But unfortunately, there's nothing that funnels all of these listings into one platform. And so you, I mean, every day, you know, people are going to have to log into all these like national listing platforms

brokerages where you can go into their website, go into their portal and find properties that are in your buy box or in your market where you're looking. And then additionally, you've got to get on these brokers email lists, right? So every city or every state is going to have local brokers that

may not be attached to these like national brokerages, like a Marcus and Mill chap or a CBRE, but they, they're, they have their own local, you know, real estate brokerage company within the state of Ohio or within New York or, you know, within California. And they have their, you know, 10 properties for sale, but you can't overlook those because one of those 10 might be your next hotel purchase, right? So you've got to be paying attention to those as well.

And then the last one is, you know, get in the right rooms, get in the right communities, get in the right conferences, go to these conferences, start rubbing shoulders with other hotel owners and operators. Cause you never know when that buyer is going to be a seller, right? For example, for us, like I'm always buying hotels, but I'm also selling certain properties, right? Like when I, when it's run its investment course with me, I'm going to be offloading. So even right now, like we're offloading a couple of our properties, uh,

as we continue to scale and get into maybe larger properties or more rooms, we're offloading our 50-unit properties that are in a smaller market. So I could be a buyer, but I could also be a seller. So rub shoulders with the right people, be in the right rooms. And again, it goes back to get out of the house, right? Like you can't just...

Sit at home, sit on the laptop. Like, you know, and I see this, especially on this podcast, because that was the number one thing that I learned from my father, who is an entrepreneur is like, don't sit at home. You know, don't like if you can make a phone call, great. But like, go out and meet them, do a meeting. Because when you let people know that, hey, I am looking to buy my first hotel and I am hungry, I'm ready to go.

things will start coming, right? Like put it on social media, you know, put it out on LinkedIn, on Instagram, whatever it is, but let people know that you're looking, right? So, and then the deal flow will start coming to you as well. Suja, you've got a lot to share, man. And I want to keep digging into it. And what I want to get into next is like the operational component, right? Like what happens when,

after you buy the hotel, where things can, I think, fall apart fast for rookies. And how can we maybe avoid some of those rookie mistakes that kill cashflow? But first, we're going to take our last break and hear a word from today's show sponsors.

Do you want to invest in cash-flowing rentals but don't have the time to manage the properties? Is your local market too competitive or expensive to invest in? Rent-to-Retirement offers new construction, turnkey investment properties that you can buy with as little as 5% down and rates as low as 3.99%.

Their team handles everything from financing, management, insurance, and more so you can live where you want and invest in the markets that offer the best returns. Rent to Retirement has the best reputation in the industry with more five-star reviews than any other company on the BiggerPockets website. To learn more, visit biggerpockets.com slash retirement or just text REI to 33777 to start investing in the best markets today.

In today's fast-paced business world, standing in line at the post office is simply outdated. Stamps.com transforms the shipping experience by bringing all postal services directly to any workspace. Stamps.com isn't just for stamps. It handles all mailing and shipping from anywhere, anytime. For online sellers, it integrates seamlessly with all major e-commerce platforms, including Amazon, Etsy, and eBay.

Access post office and UPS services directly from a computer or phone, day or night. No lines, no waiting, no hassle. The mobile app keeps everything running smoothly on the go. All that's needed is a computer and printer. And Stamps.com provides a free scale to ensure accurate postage every time. Their rate advisor finds the best shipping prices instantly, saving up to 88% off USPS and UPS rates. A game changer for businesses managing tight margins.

Experience more flexibility and professionalism with Stamps.com. Sign up at Stamps.com slash Rookie for a special offer that includes a four-week trial, plus free postage and a free digital scale. No long-term commitments or contracts. Just go to Stamps.com slash Rookie. If you want a short-term rental, here's something worth knowing. Not all landlord insurance policies are built for your kind of property.

But that's where Steadily comes in. Steadily offers insurance designed specifically for short-term rentals. They cover things like property damage, liability, loss of rental income, and even unexpected issues like bed bugs. Steadily only works with real estate investors, so they understand the details that make short-term rentals unique. And they've built coverages specifically for short-term rentals.

One investor pro tip I always like to give out is to review your rates and coverages every single year. So go get a quote in minutes at biggerpockets.com slash landlord insurance today. Steadily, rental property insurance for the modern investor. Hey, Aaron the ad guy here. You know, when you've won as many commercial voiceover awards as I have, like the Golden Gutter for most dramatic read of a drain cleaner or the Silver Sigh for most emotionally charged exhale in a mattress commercial, you start to worry. What if someone comes to steal my trophies?

That's why I use SimpliSafe. See, most home security systems are reactive. Someone breaks in, sirens blare, chaos ensues, too little, too late. But SimpliSafe is proactive. With their new ActiveGuard outdoor protection, their AI cameras and live monitoring agents actually stop crime before it starts. They see shady behavior, talk to the intruder in real time, flip on spotlights, whatever it takes to scare them off before they get their thieving hands on my bronze whispery wow award for best sultry read of a tax code.

I'm serious, though. This stuff matters. And with no contracts, no hidden fees and monitoring plans starting around a buck a day, there's really no excuse. Get 50% off your new SimpliSafe system with professional monitoring. Plus your first month free at SimpliSafe.com slash pockets. That's SimpliSafe.com slash pockets. There's no safe like SimpliSafe. That platinum protection trophy's in the bag.

Tired of traditional lenders holding you back? Host Financial is here to change the game. They've ditched the DTI restrictions and they zero in on what really matters, your property's income potential. So no more chasing papers for tax returns or personal income statements. Think about it. A lender that values your property's worth over your paycheck?

That's the host financial difference. Approved in 47 states, they are ready to help you make your next big move. Curious if you qualify? Just head over to hostfinancial.com and find out. Stop letting outdated lending practices hold you back. That's hostfinancial.com, where your property's potential meets unlimited financing.

All right, we're back. So Sujay, let's say, man, you close on your first deal, right? But it feels like at that point, the real work is just starting when you close in that first hotel. I really want to know, like, what does it take to run a profitable hotel operation and how to avoid some of those mistakes that first-time investors make? So I guess maybe let's start there. Like, what do rookies totally maybe underestimate when they take over a hotel operation? Yeah, I think the first part of it, yeah,

you know, starts even, and I'll just drop this like real quick, because I know we're talking about operations, but the purchase sale agreement, a lot of people come from the residential world and they're used to these like model purchase sale agreements that they don't realize you can negotiate anything and everything. Right. And so when you're buying your house, the realtor sends you a purchase sale agreement and says, Hey, sign this click, click, click. You sign it.loop. It's done. Right. And you might negotiate like, you know, the hot tub is to be included with the home, right? Like that's about it.

But there's so much in hotels. So the purchase sale agreement is really key. And, you know, for a lot of the people in our community, like that's something that I really stress is like, make sure we review every single line item of the purchase sale agreement because you can save a ton of money before you even buy the property and get into the operations if your purchase sale agreement has all of the clauses and terms that

you know, that we've, um, that we can have in there. Right. So, um, I think that's really important. Um, I think from an operational perspective, um,

your staff is very important. And, you know, I know Tony and I have joked around about this a little bit with, you know, some of the shared experiences we have with our hotels that we own, right? But like your GM is your MVP, right? Like without them, you're just a proud owner of a dumpster fire, right? And like, that's not what we want to be. Like your staff is everything, right? Like

if your staff is not properly trained if you don't have the right people in the right places um your reviews are going to go down really fast your revenue is going to start dropping you're going to lose a lot of the group revenue that you may have already at the property right and and repeat guests it's going to go downhill and once they leave and start testing out other hotels it's difficult to get them back right so

Uh, one of the things that I've learned through just like the iteration of, of buying more hotels is making sure that I, my presence is felt, um, kind of when we get to those last few weeks before closing and the staff knows that, Hey, you know, like there's going to be a culture shift. Um, and I'm big on culture at our properties. Like, Oh,

our, our culture is family. Like that's our go-to. So, you know, like all of our staff knows that like, you know, we're going to treat them like family if they treat the place like their home and they treat us like family. Right. And that comes with like trust. Uh, we'll go above and beyond if, if they're in a tough place, like we'll go out of our way to make sure that they're okay. I remember during COVID time, you know, one of our staff members had COVID and we went grocery shop. I literally went grocery shopping for them and dropped off groceries at their house. But like

that person will never leave me. And even during the great resignation, she's, she's the one employee that is still with me today, right? Five years later after COVID, she's still working for me and she'll never leave. And anyway, so taking care of your staff and making sure that there's continuity when you purchase the hotel is very important. So make sure that you have your employment agreements already written out.

You've already presented it to the new employees. So they're not out looking for jobs once they find out that the hotel is selling, right? Like they know that they have a steady position. Nothing's going to change. They have their job and you're able to retain the people that you want to retain, right? Like, I think that's very important. Yeah.

Second thing about operations is this isn't like an Airbnb where you can just have a third party cleaner and, you know, you book them and assume that your property is going to get cleaned and everything's going to be perfect. Right. Which I know is not the case with Airbnbs either. But, you know, people are a lot more hands off in that sense with their cleaners. And, you know, once you put the third party people in the right place, but it's because they have a boss.

They have someone else who's training them. They have someone else who has expectations for them. They have SOPs laid out for them. If you do not continue to train and retrain your staff, um, those things are going to go downhill really fast. So, you know, like we have cleaners at all of our properties. They're on our payroll. Um, they're expected to come to work at the same time every single day. Um,

but we still have to, we still have to check their work, right? Like I have to make sure that my GM is going and inspecting five rooms every single day. And I have checks and balances to make sure from an operation standpoint that this is all getting done. Right. And so, um,

I think just having that awareness and a pulse on the property and every task that's being done at the property is going to be key and vital as an operator. And it may seem stressful and it may seem like it's a lot, but when you take a step back and

it's the same thing as, you know, having a 10 unit multifamily property, right? Like you got to send a maintenance person, you have to have, you know, all these, you know, someone mowing the lawn or taking care of the landscaping or dealing with the HOA. You have all these issues that you're going to have. Um,

But really, I mean, the beautiful thing is you have a team. And once you train the team, you start building a business, not building a job for yourself. Right. So, you know, don't let any of this, you know, make you feel like it's overwhelming. But really, I say this to make sure that, you know, we don't run into these pitfalls when you do close on your first hotel property. Well, Sujay, thank you so much for coming and speaking with us today on the Real Estate Rookie Podcast.

Where can people find more information about you and reach out to you? Yeah, absolutely. I think Instagram is a great place. So feel free to reach out to me, DM me on Instagram. If you listen to this and you don't agree with something, you know, like long

it, you know, feel free to tell me I'm crazy. Um, and also if you loved it, feel free to tell me like, yo, I listened to it and I love it and, um, would love to have a conversation. So I love meeting people over Instagram. Uh, Sue Chmita is my, um, is my Instagram handle. So, uh, feel free to reach out. Well, thank you so much. We, I definitely learned a lot today about hotel investing in general, and we'll have to have you on another time too, to go over franchises and go more in depth about franchise investing.

So thank you so much. I'm Ashley. He's Tony. And thank you so much for watching or listening to this week's Real Estate Rookie episode.