Hotel Financing
I have come across a hotel deal, asking 1,000,000, with potential gross income of $322,000. actual gross 290,000.
vacancy of 25% expense adds up to about 20%. all these considered the debt coverage ratio of 1.66 assuming 100% financing. This seems like a screaming deal but I have no experience with hotels, it is not self managed, and seems to be turn-key. What am I missing? Any commercial gurus out there with anything to look out for? Also I have only about 10% of 1031 money to put down. are there any creative ways to get the rest. seller will only finance with 30% down. Thanks in advance.
Thanks for the reply and you were right about the expenses. They are closer to 40%. NOI is very close to $150,000 which still gives me a debt coverage ratio of over 1.5. any thoughts on getting in lighter than 20-30% down?
but do you want to operate a hotel?
Is a lease back to a operator possible?
virgin territory for me to.
But for my project the financial look great. OVER colateralized notes being sold at par.
Defaut rate on notes 18%.
I am with jcacci1 here-- Apartment expenses tend to run 40-50% I gotta believe Hotel ratios are much higher.
Its been 15 or 20 years since I did a hotel deal but at the time one of the big accounting firms had an income and expense analysis guide to the hotel industry.
This guy has a chapter on I/E ratio analysis-- my guess is that he will at least refer you to the industry standard guides.
http://www.chipsbooks.com/accthosp.htm
It sound like a good deal/ depending on the ADR to get sales up usually when I look at potential purchases, I use the Gross mutiplier by 3, meaning purchase price should be no more than 3 times the gross, also see where you can control your expenses usually in payroll. email me if you have any other deals, quick flips.
Hire a Hotel Management company
Fantastic I will private msg you next week when I have the package together.
Does your LLC have a PAYDEX score and/or any type of business credit established?
The age of a company does not mean much to a bank if it does not have a credit payment history.
Normally a company must at least have several lines of credit from business credit cards and NET 30s established.
And since you have such an excellent personal score, you should have no problem being a personal guarantor to obtain larger LOC from business credit cards.
No, no PAYDEX score, though I do have some corporate credit cards.
Thanks for the info.
Maybe I can help. Contact me via Email.
I dealt w/ my local braches,
I would suggest looking yo a nationwise 800 number of the website.
You should be able to get a line of credit up to $25k with your score. Unsecured in the LLC name, your LLC has been open for 2yrs., that should get you in the door.
Now, the important question? why do you need line of credit? you can get that on a house in a week, not a big deal. Try CapitolOne, i got one pretty easy...but i dont use it much. Seems like most purchases come with financing of some sort already nowdays.
Good luck
Number one - with a 740 plus you should be able to get Business credit even unsecured.
Number 2 - if you tell them you are in real estate especially with how things are now they will say NO a majority of the times.
Pick some other aspect of real estate - like property management.
Number 3 - unsecured lines will be mostly credit cards. Afer a few months of those you can try for unsecured business loans. If you do secured however, you will get higher limits
Some good banks for all this:
Bank of America, Wells Fargo, Key Bank. for unsecured lines of credit.
For credit cards same banks plus Citibank and Chase.
Go to the business area of http://creditboards.com/forums/
That is a pretty good place to start and they have a way to build business credti fast. I use that approach for several clients and it works.
I got a business line of credit last month with Wachovia in my LLCs name. Got 45K. Used it to buy a set of 12 garages.