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How to Buy a Hotel

So you want to buy a hotel – how do you make it happen? We take you through the steps involved.

Running a hotel can be a gratifying experience – the thought of providing guests with a relaxing and enjoyable environment is an excellent motivator.

And with growth figures looking good over the next few years, it could be a profitable sector to enter.

But how do you go about finding and buying a hotel that fits your vision? Let us walk you through the steps.

What type of hotel?

First, what type of hotel do you want to buy? A small boutique venue, a large, value-driven establishment, or perhaps somewhere that is as much a destination for foodies as it is a place to stay?

You also need to decide whether you want – and can afford – to buy the property outright or buy the leasehold.

It’s worth taking the temperature of the commercial property market before committing. At the time of writing the market is booming – some Sydney hotels are selling for as much as $34 million – and it’s anyone’s guess as to how long the boom has left to run.

Location

Location is a critical factor. Do you want a highly visible spot in the centre of town? Or a prime location for business travellers, with easy access by road or rail, in the central business district or near a conference centre?

Or are you seeking a secluded beauty spot in the bush – possibly to the benefit of your quality of life as much as spotting commercial potential?

No matter what your vision, the more attractive the location, the higher the asking price will be – and you’ll need to balance location against other factors like the number of rooms, quality of facilities, the hotel’s reputation and so forth.

We spoke to the owner of The Rose Hotel, a 150-year-old Bunbury institution about 170km south of Perth. Asked what he would prioritise when buying another hotel, he said:Location, for sure. You want somewhere with a mixed demographic and a sizeable population.

“There’s no point in being tucked away in the middle of nowhere [...] You need to be visible.”

Start the search

Once you’ve established your criteria, it’s time to check out the marketplace and create a shortlist of promising businesses for sale.

If you find the perfect place and it’s not for sale, it’s always worth asking the current owners if they’d consider selling. Everything has its price; you just have to be prepared to pay it.

Negotiations

The next step is to ask sellers for more information. If the business is listed on BusinessesForSale.com, you can ask for clarification on points of interest by clicking ‘contact seller’.

They won’t give anything confidential away at this point, but you can certainly eliminate businesses from your shortlist with a little digging.

Once you’ve decided on an opportunity to pursue, then you can request to open formal negotiations.

At this point, a lawyer, accountant and broker with experience of selling hotels can help you navigate the business buying process.

Heads of Agreement

The heads of agreement (HOA) is a pre-contractual, non-binding agreement that serves as a roadmap for the sale. It sets out the obligations of both parties and the deal structure. At this stage, either party can walk away without incurring further costs.

An HOA will include items like:

  • Agreed price and payment terms
  • Who is responsible for which items – eg any improvements made to the premises
  • Periods of confidentiality
  • The condition of equipment and stock
  • Warranties and indemnities to protect both parties
  • A timetable for completion

Your lawyer will negotiate terms on your behalf.

Due diligence

Due diligence is where you investigate the business to make sure all information provided by the seller stands up to scrutiny. Because the HOA is not legally binding, you can still walk away if anything doesn’t seem right.

For anyone in doubt about the importance of due diligence, Hoteliyo’s detailed guide to hotel due diligence should dispel any complacency: “Imagine these unforeseen expenditures: a leaking swimming pool on the 10th floor, a boundary dispute with the adjacent landowner, ‘cooked books’ on the hotel financial and operational accounts, surprise ongoing or upcoming lawsuits. The list goes on.

“Hotel due diligence helps you avoid mistakes, make better offers or walk away from bad deals.”

Your legal team will look at items such as:

  • Income statements from the past 3-5 years
  • Records of accounts receivable and payable
  • Balance sheets and tax returns, including business activity statements
  • Profit and loss records
  • Cash deposit and payment records, as reconciled with accounts
  • Engineering due diligence: architectural and engineering plans; maintenance inspection reports for health, fire, elevators etc; furniture, fittings and other inventory
  • Permits and licences
  • Operational due diligence: employee contracts, records of historic and pending reservations, procurement/supplier agreements etc
  • Digital due diligence: registered domain names, IT service agreements, customer email databases, TripAdvisor accounts and reputation; Google Analytics insights; agreements with online travel agents/tour operators etc

The final stages

Once terms are agreed and both parties are happy, it’s time to sign your sale and purchase agreement (SPA). Legally binding, this contract means the business is now yours providing you fulfil the agreed payment schedule. Congratulations!

Looking to sell a hotel you already own? Set up your online listing now .



Faye Ferris

About the author

APAC Sales & Marketing Director for BusinessesForSale.com, the world’s most popular website for buying and selling businesses globally and attracting over 1.5 Million visitors each month. To contact Faye please email faye@BusinessesForSale.com

@YouAreYourBoss

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