Converting A Motel To A Youth Hostel
I am interested in converting a local hotel into a youth hostel. The property is currently on the market through an auction company who, in turn has farmed it out to a business broker. The contract with the auciton house will terminate in October, when I hope to approach the owner directly (I've already spoken to her) and see if I can't do something creative like the Dave Lindahl article on this site about Passive Income using a Master Lease Option.
The idea would be to convert the existing motel (it's one of those 60s-70s style carport type motels) into a Youth Hostel. American Hostelling International has recently held a moratorium against bringing in new affiliates to their program, which will be lifted in two weeks.
I spoke with the headquarters today, and they have a straightforward application ... once approved, I can operate a for-profit hostel backed by their non-profit organization. I buy the rights to use their name. I can set the reservation rates yearly as long I do not go beyond a maximum rate that they have pre-determined ( I assume this is a national pre-set rate).
I figure the odds are good since this is a National Park area with plenty of local attractions for hosteller-travelers (the outdoors, local cultural intrigue -the hot springs- and plenty of lakes!) Plus, I'd be backed by an internationally well-established business name with a huge client base.
This would be my first commercial deal and my first hospitality industry venture. I have hostelled before, so I do understand, generally, how these facilities operate.
However, I do not know enough about how to calculate yields, etc... to assess this business plan.
The current owner has discussed the business ledger with me. I believe she was asking around $200,000. If I can do a Master Lease Option and an Option to Purchase at the same time, I believe this will be a feasible project.
What other specifics do I need to research and share in order to get quality feedback on this one?
Your assistance is greatly appreciated.
Mary Katherine,
This sounds like it might be a winner. Small hotels/motels are really hard to sell (seems most people don't want to work that hard) and, if you are willing to deal with the management issues, tend to have pretty good cap rates. In addition because the seller knows she has a difficult product to finance some sort of creative deal is very likely.
Conversion to a youth hostel is an interesting idea. You might try going back to the AHI guys and asking them for financial info. I'm sure they will have much data.