Buying Your Hotel – 3

Six Simple ‘Rules of Thumb’ to Check the Value of Your Hotel Investment

(Buying Your Hotel– The Biggest Decision You Will Make – Part 1 – Here)

(Buying Your Hotel– The Biggest Decision You Will Make – Part 2 – Here)

Once you have a better understanding of the market, you should now focus on the building and ‘the deal’.

1. Base the value of the business on trading profits and not the number of rooms.
2. Separate the revenue created by letting rooms from food and beverage and the sale of other services. Room revenue is always the most profitable.

3. The purchase price should be between 4 and 8 times profit, except in exceptional circumstances,

4. A Simple Test of Value: Divide the revenue generated by the rooms only by the number of available letting rooms to calculate the average room rate. Then divide the purchase price by the number of rooms available. The purchase cost per room should be close to the average room rate multiplied by 1,000 – unless food and beverage revenues are substantial.

5. Purchase price should be 1.5 to 3 times annual revenue. The greater the share of catering revenue in the total revenue mix, the lower the multiple should be.

6. Total loans should be less than 70% of the purchase price – and preferably be much less!

7. If in doubt, appoint an external consultant to test the market viability and feasibility for you.

At this point I wish you every success with the transaction and future operation of your hotel!