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TIPS TO CONSIDER WHEN BUYING A BOUTIQUE HOTEL

Hotel can be great investments. The travel industry is not going away, and for this reason, there will be a need for hotels. While the investment in this industry is generally sound, not all hotels are worth investing in. Here are some tips to consider when contemplating the purchase of a hotel.

  • As with any purchase of real estate, the condition of the structure should be checked and inspected by a professional. Necessary repairs as well as the need of updated furnishings, fixtures, equipment and inventory should be considered. This information will help you in determining the market value of the property. Once the sale is complete, make sure that the owner gives you a separate bill of sales for all furnishings, fixtures, equipment, and inventory as well as the deed to the property.
  • Stay at the hotel as a guest for two – three days up to a week. Try to do this before anyone is aware that you are considering the property. This will give you the opportunity to view the hotel as a guest would.
  • Avoid discussing price with the owner of the property. It is better to let the Real Estate Agent handle the negotiations with the owner. You should know in advance what the top dollar you are willing to pay for any property is, and disclose this information to the agent from the start.
  • If the Hotel is managed by an independent Hotel Co. read the disclosure. Also, view agreement that the current owner has with the company, and find out if that agreement will be transferred to you, or if you have a new agreement with the company or if you wish to cease it what will the conditions be.
  • Check out the current competition, and consider the potential for future competition. Also consider the local reputation of the hotel as a good reputation will definitely increase the market value of the property.
  • Look at the financial statements for the past two or three years. Also, check the occupancy rate. Look at the room rates and expenses for running the business. Check the room rated at nearby hotels for comparison. Verify all financial information.
  • It is usual for the buyer to have 2 weeks to 30 days due diligence period and this is usually set down in the letter of intent or the agreement of sale. Use this period to check things out to your satisfaction. If you are not satisfied, you can back out of the agreement.
  • Review contracts that the current owner has with suppliers, as well as customer groups. Find out if those contracts will be renewed or valid after you take over the property. Be sure that the contracts will be satisfactory for you as the owner of the property. If there are existing contracts that you may wish to cancel upon purchasing the property, make sure that you will be able to cancel those contracts without being penalized.
  • Make sure that the hotel is currently in compliance with governmental requirements. Also consider what licenses and permits you will need to get to operate the property, as well as the requirements and costs in obtaining those licenses and permits. Find out what insurance company is currently insuring the property and how much the premiums are. Do your own insurance shopping as well to see if you can get better coverage, or a better rate.
  • Each country will have its own property and tax laws for foreign acquisition and investments. Obtain sound advice from local legal and Tax professionals in the respective countries.