The idea of ‘buying’ a hotel may seem strange. You stay at hotels; you do not buy them. However, the accommodation business can be very lucrative if you do your homework. It helps if you have some experience in the hotel industry, but it is not necessary as long as you have a business plan. You also need to find a suitable hotel for sale, of course.
Resort Brokers Australia offers a brief guide to the more entrepreneurial-minded.
There are two ways that you can buy a hotel. You can buy the business (leasehold) or the property (freehold). Leasehold means you own the hotel business but not the land, which means you have to pay rent to the landowner. If are buying the property where a hotel is operational, you are buying a freehold going concern (FHGC).
Any business requires capital. The hotel business is no different and it may take less initial cash than you might think. In most cases, buying a hotel is like buying a house. You need to come up with the down payment and amortise the rest over a prescribed period. The main difference is a hotel can make money for you. When choosing a hotel for sale, you should check if the revenue is enough to offset what you are paying for it.
In general, leasehold requires less money than FHGC because you are not buying the property. This means you can get your money back faster with leasehold than FHGC. On the other hand, you do not own the land where your hotel is located. You will have to give up your hotel at the end of the contract unless you renew it. Of course, hotel leaseholds are usually long term, such as 40 years or more.
The decision to freehold or leasehold will depend on your plans for the future. In a nutshell, if you want to pass on your hotel to your children, then you want freehold. Meanwhile, if you just want to try out the hotel business, you should consider leasehold.