Buying a Hotel
For many people the idea of buying a hotel is a long held dream. Some hope that buying a hotel will allow them to be their own boss, set their own hours, spend more time with their families and have more personal freedom. For others, owning and running a hotel offers the chance to live and work in attractive rural or coastal locations. While all these things are possible, they will happen only if the business is a success. So before you get into the details of how to buy a hotel, it is useful to think through the main business considerations to make sure you make a suitable choice for you.
Here are the top 5 factors to consider before buying a hotel:
1: Location
The desirability of a location has two main aspects. Firstly, you need to consider where you desire to live and work. Secondly, you need to consider which locations are desirable to potential customers to ensure a steady stream of visitors and/or rebookings. If you can find a location which is desirable to both, you probably have a winning combination.
For a long term venture it is important for your own satisfaction and motivation that you choose a location that you like from a personal point of view and which delivers the lifestyle you want or need. If a business is financially successful but you dislike the location, you will find yourself wanting to move on. If a business is struggling but you love the location, you are far more likely to find the motivation to turn the business around.
From a customer point of view, desirability falls into two distinct categories: desirability as a holiday location and desirability as a business location.
For holiday guests, the most desirable locations are those which are close to existing tourist attractions, points of interest, or natural features such as mountains, lakes or beaches.
For business guests, the most desirable locations are those which are close to transport links such as motorways, airports or railway stations, as well as being close to commercial centres such as city centres or business parks.
Buying a Hotel or B&B in London
London hotels cater for budget business stays right through to luxury tourist or celebrity accommodation. All London hotels will tend to have a high purchase price, reflecting the London property market generally. But room prices tend to be high also, depending on area, potentially making them a highly lucrative business proposition. Because the number of visitors to London is consistently high throughout the year, a London hotel owner can expect to have high levels of bookings all year round, provided they are easy for customers to find. Getting included onto appropriate hotel booking websites is easy to do and essential to ensure high occupancy rates.
Buying a Hotel or B&B in the Home Counties
Visitors to the Home Counties (Bedfordshire, Buckinghamshire, Berkshire, Hampshire, Hertfordshire, Essex, Kent, Surrey and Sussex) tend not be to people holidaying for a week or two. Instead they are much more likely to be business people attending meetings or conferences, or families attending weddings and so on. When tourists do appear they are likely to stay for a night or two at most to see local attractions before moving on to the next place on their itinerary.
Hotels in the Home Counties can be either city/town centre, or out of town / rural. Larger hotels in semi-rural locations with extensive grounds can be popular locations for weddings and/or receptions – a very lucrative market if you can find a hotel with appropriate grounds and facilities.
Prices of hotels in the Home Counties are high – nearly as high as London.
Many hotels in these areas develop their own amenities such as spas or health clubs as a way of attracting guests to an area which has no special attractions of its own.
Buying a Hotel or B&B in East Anglia
East Anglia, particularly Suffolk and Norfolk, is a popular destination for holiday makers wanting access to the East Coast and Norfolk Broads. But East Anglia also includes several large commercial towns such as Cambridge, Ipswich and Norwich, so business travel is also significant. Hotels close to the coast can expect mostly holiday traffic, while town and village hotels can expect a mix of business and leisure guests.
Prices are considerably cheaper than London and the Home Counties and there are plenty of good value properties available.
Buying a Hotel or B&B in the South West
The hotel trade in Cornwall, Devon and Somerset caters primarily for the holiday maker, although of course city centre hotels can expect some business guests too. Any hotel located on or near the coast, or close to known natural attractions such as Dartmoor or Exmoor can expect seasonal business, with a drop off during the winter months. So if you are looking for a part time occupation this could be a good location for you.
Apart from London, freehold prices here are amongst the highest in UK, especially for popular locations in Cornwall, Devon and Dorset – although leasehold properties can be had for quite modest investments.
Buying a Hotel or B&B in the South
The southern coastal towns of Portsmouth, Bournemouth and Brighton, Eastbourne and Weymouth are all popular UK holiday destinations and as such, all extremely popular places to buy a hotel or B&B. Catering mainly for tourists, hotels and guest houses on the South coast will enjoy a busy summer occupancy with some trade during the winter months. Freehold prices here are typically high, particularly in the cosmopolitan city of Brighton.
Buying a Hotel or B&B in the Midlands
Hotels located in the Midlands cater for a real mix of business and leisure guests. Hotels located on prime travel routes such as the M1 will be focused on business travellers, while those close to known tourist areas such as Stratford upon Avon will expect a primarily tourist customer base. Prices here tend to be considerably lower as a result of their distance from London.
UK Pub Sales have experience of valuing and selling hotels in all these major regions and can help to advise you regarding the pros and cons of each. Register @ www.ukpubsales.com with us today or ring 01284 716696 to begin discussing how to buy a hotel which suits your skills and preferred lifestyle.
2: Budget
The size and location of your hotel will be greatly limited by the amount of money you have to invest and/or how much finance you can raise.
Unless you are a cash buyer you will need to talk to a bank or commercial mortgage company to ascertain what budget you raise and what repayments you can afford. The finance you can raise will depend on two main things:
- Any assets you have on which to secure finance (e.g. a house or existing business)
- The business plan for the proposed hotel.
Taking over an existing business with proven turnover and profits will be easier to raise finance for than a start up business, unless you can show a well researched business plan.
The budget you need will vary widely according to whether the hotel is leasehold or freehold, the size of the hotel and its geographic location.
For instance, a 5 bedroom leasehold with 5 years agreement can be obtained for as little as £20,000. A luxury hotel with 20 bedrooms and 15 years leasehold might cost in the region of £200,000. The price for freeholds depends on local market and demand, much like the private property sector, and can range between £200,000 for a small guest house, through to £5million for a larger city centre hotel.
You can get an indication of current asking prices in various locations by checking the UK Pub Sales hotels for sale page where we have a range of leasehold and freehold hotels for sale.
3: Freehold or Leasehold?
Although your budget may well dictate whether you can afford a leasehold or freehold hotel, it is important to understand the differences between the two and the pros and cons of each.
On a leasehold arrangement you effectively rent the premises for a period of time, typically 5-15 years, and you keep the profits of anything you make during that time. You do not own the property and any improvements you make to the property revert to the freeholder at the end of the term. Some licensed leaseholds are also “tied” which restricts what alcohol brands you can supply. The major advantage of a leasehold is that the ingoing costs are modest – a few tens of thousands of pounds typically. This enables someone of limited means to get started in the hotel business with a relatively low level of risk. A leasehold hotel may be a good way of getting started in the business, building up practical experience and, if you are successful, saving profits towards a future venture.
On a freehold arrangement you own the premises. The advantage of this is that you are able to improve the property and potentially make a profit on it if you sell. You are also free to sell products from whatever suppliers you like which gives you control over costs and quality. The disadvantage is that you are personally liable for any mortgage secured against it – so if the business fails and you cannot meet mortgage repayments you stand to lose the whole property, as well as your business. In addition, there is no time limit on how long you hold the business for. This means you are free to sell when it suits you, or to pass it on as a family business.
4: How Much Experience Do You Have?
Running a hotel is a multi-disciplinary business, and you will need some level of business experience, catering experience, marketing experience, and general management experience. Even if you intend to employ staff (see below) to take care of aspects of your business, you will still need to have some relevant background knowledge to enable you to manage them. This type of experience is essential if you are looking to raise finance with a bank or other lender, as they will only lend to people with lots of experience.
Apart from your technical background, you will also need to be a people person, since running a hotel is almost entirely a people business. Even if you are not personally manning the phones or reception (although most small hotel owners will take on this role) you need to manage your business in a way which anticipates customer needs and provides guests with what they really want.
5: Do You Want to Employ Staff?
Unless you want to run only a small B&B, you will almost certainly need to employ additional staff to carry out specific functions such as cleaning, laundry, catering, gardening, barkeeping, maintenance, taking enquiries and bookings, and a myriad of other jobs needed to keep a hotel business up and running. And the success of your business will depend a great deal on recruiting and managing these people effectively.
From a personal point of view you need to think about whether managing staff is what you had in mind when you thought about buying a hotel. Trying to do everything yourself could mean that you have very little time for yourself or your family. However, staff costs need to be included in any business plan to ensure that the business still looks profitable when those costs are factored in.
Running a medium to large hotel involves a great deal of staff management – so you will ideally have previous experience in the hospitality industry, have relevant management experience in another industry, or be willing to undertake management training.
Buying a Hotel – contact us now to discuss your requirements or click here to search our Hotels for Sale
