Investing in hotels and motels can be a rewarding way to build wealth, but it also comes with its own set of challenges. Whether you’re considering a boutique inn, a roadside motel, or a branded hotel, this hotel purchase guide will take you step-by-step through how to evaluate deals, manage risks, and succeed in hospitality investment US.
1. Why Invest in Hospitality Now
According to CBRE, 94% of hotel investors expect investment levels to increase or hold steady in 2025, highlighting strong confidence in the sector . The hospitality industry is projected to reach nearly $250 billion this year in the U.S., with steady growth in occupancy and RevPAR (revenue per available room) .
Why this matters:
- Hotels are dynamic assets—ADR and RevPAR can spike quickly during peak seasons.
- Branded conversions (e.g., adding franchises) are gaining ground in response to elevated capex.
- Demand is relaxing into new modes like “bleisure” travel—longer stays that blend work and leisure .
Hotels may not be passive investments, but they offer unlocking of revenue and demand potential ordinary assets can’t match.
2. Types of Hospitality Properties
- Full-Service Hotels: Large facilities with restaurants, ballrooms—e.g., Marriott, Hilton.
- Select-Service Hotels: Mid-scale, fewer amenities—e.g., Courtyard, Hampton Inn.
- Extended Stay: Kitchens, longer-term stays—growing as remote/workation trends rise.
- Motels/Independents: Often highway-located—require hands-on management.
- Converted Properties: Old offices or apartments repurposed into hotels—a growing trend.
Pick based on your expertise, available capital, and market demands.
3. Understanding Key Performance Metrics
To evaluate a hospitality property, focus on:
- ADR (Average Daily Rate) = Room revenue ÷ rooms sold
- RevPAR = ADR × occupancy percentage
- NOI (Net Operating Income) = Revenue minus operating expenses
- Occupancy rate—how many rooms are actually rented
- Cap rate = NOI ÷ purchase price—yields insight into returns
- Discounted Cash Flow (DCF)—uses a 5–10-year horizon to project value
Each tells part of the story. Together, they help estimate your investment’s present and future value.
4. Market & Location Factors
Location is everything:
- Demand drivers: corporate travel, tourism, events
- Supply dynamics: new builds are under 1%, below historic averages
- Conversions: office-to-hotel projects are on the rise—look for redevelopment potential
- Insurance and capex risks: rising insurance costs (+15% in 2024) can squeeze margins
Also monitor local regulations and risk factors—flood, zoning, tourism trends.
5. Valuation Methods for Hotels
Blend several methods:
A. Income Approach
DCF or cap rate-based—relies on strong understanding of income flow.
B. Sales Comparison
Compares to recent hotel sales, adjusting for differences.
C. Cost Approach
Less common—it shows replacement cost vs purchase price.
Use all three to triangulate a reliable value.
6. Due Diligence Checklist
Before buying, be sure to check:
- Operative history: ADR, RevPAR, occupancy reports—are they audited?
- Brand / franchise agreements: fees, standards, required capex
- Physical condition: FF&E (furniture fixtures), mechanical systems, deferred maintenance
- Title, zoning, and insurance risks
- Market comps: share revPAR vs competition
- Feasibility for repositioning or conversion—especially if property is independent
A thorough inspection and third-party review can save you from unpleasant surprises.
7. Financing Options
Common financing routes:
- CMBS loans by big banks
- SBA 7a / 504 programs for smaller hotels
- Bridge financing during renovation or repositioning phase
- Equity/debt from private equity—PE firms continue to dominate in hotels
- Franchise/brand-backed financing—e.g., Marriott, Hilton offer terms to align with brand standards
Each has pros and cons based on your plan and financial situation.
8. Real-Life Hospitality Investment Examples
- San Francisco rebound: Occupancy up 70% from conventions, with property prices 45% below 5-year average—opportunity for value-add plays .
- Office-to-hotel conversions: Marriott’s Project Mid repositions office spaces into hotels, reducing capex and leveraging existing infrastructure.
- Private equity play: Despite rate pressure, PE firms are actively buying distressed motels and converting them to franchise brands .
In each case, smart investors combine operational upgrades with strategic positioning to increase value.
9. Trends and Risks to Watch
- Rising insurance, labor, and debt costs: OC costs rose 15% in 2024 .
- Global uncertainty: San Francisco reduced international travel due to geopolitical factors .
- Bleisure travel, sustainability, and smart tech: Guests expect work-friendly amenities and eco-conscious hotels .
- Consolidation: Larger operators are converting independent properties to franchises .
Best strategy? Stay informed and build flexibility into your operating plan.
10. Final Takeaways
| Step | What to Focus On |
| 1. Strategy | Define your asset type (full-service, extended-stay, etc.) |
| 2. Market | Pick resilient locations with strong demand drivers |
| 3. Metrics | Analyze ADR, RevPAR, NOI, cap rates, and DCF models |
| 4. Underwriting | Do full due diligence—legal, financial, physical |
| 5. Financing | Evaluate SBA, CMBS, bridge loans, or equity |
| 6. Operations | Plan branding, staffing, and tech investments |
| 7. Exit | Define exit scenarios: sale, refinance, conversion |
Hotels can yield strong rewards, but they require a sharper eye and more operational hands-on care than other real estate.
11. FAQs
Q: Are hotels good investments right now?
Yes—94% of investors expect stable/increased investment in 2025 for U.S. hotels .
Q: What metric matters most?
RevPAR is king, but cap rate and DCF shape your valuation accuracy.Q: Is brand conversion worth it?
Often yes—franchise affiliation brings higher occupancy, distribution access, and financing.
