Investing in hotels and motels can offer a unique blend of long-term appreciation and immediate cash flow, especially as the hospitality industry continues its post-pandemic recovery. For 2024, buying hotels or motels presents both exciting opportunities and unique considerations. Here’s what prospective buyers need to know to make an informed decision in this dynamic market.
1. Market Trends: What’s Driving Demand?
- Increased Domestic Travel: Domestic leisure travel continues to drive demand for hotels and motels across the U.S., especially in popular tourist destinations and along key highway corridors. Regional and local travel, including “staycations,” has maintained higher occupancy rates in smaller, independently owned motels and budget-friendly hotel chains.
- Corporate Travel Resurgence: Corporate travel is picking up, with many companies resuming in-person meetings and events. Business-focused hotels near convention centers and corporate hubs are seeing steady bookings, a trend expected to continue into 2024.
- Growth in Extended-Stay and Experiential Lodging: Extended-stay and experiential lodging are highly sought after. Travelers are increasingly looking for properties that offer unique experiences, such as boutique hotels or historic inns, while extended-stay hotels appeal to longer-term guests, especially in growing job markets.
2. Location is Still Key
- Urban vs. Rural Markets: While urban properties are popular, rural or suburban areas are experiencing rising demand due to their proximity to outdoor attractions, wineries, and national parks. Investors may find hidden gems in these less-traveled regions, often with lower property costs and increasing appeal.
- Regional Hotspots: Cities like Phoenix, Miami, and Nashville have become hotspots for hotel investments due to their booming tourism industries and favorable business environments. Smaller cities with growing tourism industries, like Asheville, North Carolina, and Bend, Oregon, also present attractive opportunities.
3. Hotel Types to Consider
- Boutique Hotels: Boutique hotels can yield higher per-room rates due to their personalized experiences and themed environments. However, they may require a higher upfront investment in design and amenities.
- Budget Motels: Motels along highways or near airports can be low-cost investments with a steady stream of revenue, particularly from budget-conscious travelers and truck drivers. Motel operators often find success by offering practical accommodations at lower price points.
- Extended-Stay Properties: Extended-stay hotels are designed for guests planning to stay for several weeks or months, making them popular with business travelers, relocating professionals, and families. This model has shown resilience due to its broad customer appeal and offers more predictable cash flows.
4. Financing Options and Interest Rates
- Rising Interest Rates: As interest rates remain high in 2024, financing hotel and motel purchases requires careful planning. Traditional loans might become more costly, which could impact overall returns.
- Alternative Financing: For those facing tighter lending conditions, alternative financing, including seller financing, joint ventures, or private loans, may be viable. Additionally, Small Business Administration (SBA) loans provide attractive options for those seeking to buy small or independent hotels.
- Leaseback Arrangements: Some investors may explore leaseback options, allowing them to lease the property back to a hotel operator and ensure a steady income stream while avoiding day-to-day operations.
5. Operations and Management Considerations
- Professional Management Companies: Hiring a professional hotel management company can improve operational efficiency, guest experience, and occupancy rates. Management firms handle everything from booking to staffing, helping owners maximize returns without direct oversight.
- Technology Investments: Incorporating modern technology, such as keyless entry, self-check-in kiosks, and smart room controls, is an increasingly popular way to enhance the guest experience and streamline operations. Properties that embrace these upgrades are likely to attract tech-savvy travelers and set themselves apart from competitors.
- In-House Amenities: Hotels and motels with added amenities, such as complimentary breakfast, gyms, or pools, can boost occupancy rates. However, they also require ongoing maintenance and associated costs, so investors should balance these features with profitability.
6. Legal and Regulatory Factors
- Zoning and Permitting: Local regulations vary widely, particularly when it comes to zoning, building codes, and short-term rental permits. It’s critical to work with local zoning authorities to ensure compliance before purchasing.
- Environmental and Accessibility Compliance: Buyers need to ensure that any hotel or motel complies with environmental standards and ADA (Americans with Disabilities Act) requirements. Retrofitting for compliance can be costly, so this should be factored into the acquisition budget.
- Franchise or Independent Operation: Franchise agreements can provide brand recognition and a built-in customer base but may come with strict operational guidelines and fees. Independent ownership allows for greater flexibility but requires a robust marketing strategy to draw guests.
7. Return on Investment: Short- and Long-Term Considerations
- Cash Flow Potential: Well-located hotels and motels can generate reliable cash flow, particularly in high-demand areas. Extended-stay and budget motels may provide more predictable returns, while luxury and boutique properties often yield higher profits but come with added operational costs.
- Appreciation and Exit Strategy: Hotels in high-growth areas often appreciate over time, making them attractive for investors seeking long-term gains. Buyers should consider an exit strategy that aligns with market conditions and demand projections, such as reselling to larger hospitality chains or converting properties into multi-use developments if trends shift.
Final Thoughts
Hotel and motel investment in 2024 can be a rewarding venture for those willing to navigate a complex landscape. By understanding current trends, carefully selecting property types and locations, securing favorable financing, and managing operations effectively, investors can capitalize on the rising demand in the hospitality sector. For those prepared to adapt, the potential for steady income and long-term growth remains strong in the hotel and motel industry, especially as travel demand continues to rebound.
