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.