How to buy a hotel

The hospitality industry is a dynamic and interesting sector of the economy, where a high degree of involvement from the owner can pay huge dividends. This may not only be in monetary terms as it can offer people new lifestyle options. Although it should be realised that you can't have a relaxed lifestyle and make lots of money in this industry!

Newcomers to the hospitality industry are stimulating demand for hotels for sale in the UK, with the cheaper end of the market currently experiencing a boom. Specialist business brokers say a shortage of high-quality, family-run guesthouses and hotels in the South East of England - where profits are higher - means buyers of hotels for sale in that region in particular could net revenues from £50,000 to £100,000. Higher occupancy rates have been helped by the weak pound encouraging tourists to travel to the UK. In addition, the higher cost of overseas holidays is fuelling the recent trend of the "staycation".

The increased interest in hotels has been seen at the top-end of the market with some notable London hotels being put up for sale. The attractiveness of some of the well known hotels in the capital has drawn in investors from abroad, particularly from the Middle East, who are keen to add new trophies to their portfolios. St James's Hotel and Club, which sits just off St James's Street in W1, close to Piccadilly and Green Park, has been placed on the market for £60 million.

"Anyone with equity of £100,000 or more in their home could buy a small hotel," suggests one broker. "They would probably need to take out a mortgage, but with the lowest interest rates for half a century, any reasonable operator should be able to make a decent profit."

Now could be the time to look at the range of smaller guesthouses and hotels for sale around the country. Prices are beginning to creep up on the back of the increased demand, often from individuals in their mid-careers facing redundancy from management jobs, taking early retirement or simply seeking a lifestyle change.

UK hotels for sale: The numbers
A turnover of around £60,000 per year can be expected from a five-bedroom guesthouse, going up to £300,000 for a 20-bedroom hotel including a bar/restaurant. About half of that will go towards the cost of running the outlet, while business rates and compliance with fire regulations apply to anything bigger than four letting bedrooms.

Hotels for sale: raising finance to buy
In the past, up to 75% of the value of hotels for sale can be lent by banks and building societies over periods of five to 25 years, and usually at 1.5 to 2% over the Bank of England's base interest rate. Following the credit crunch, banks are looking to lend nearer 65% of the value and the interest rates are nearer 6%. Lenders will want to see a business plan, with evidence that a hotel's existing profit will cover twice the annual interest bill. However, as the crunch eases it is likely that accessing finance will be easier especially if the hotel sector continues its revival.

Final tips on approaching hotels for sale
Research particular hotels for sale that grab your interest: why is a given hotel on the market? How long has the current owner been there and how much have they spent on improvements?
Location: what type of custom does the hotel attract? Could you improve the business with a bar, restaurant or gym, for example? Checking with the local authority about other new budget hotels in the pipeline, planned bypasses or similar ventures that could affect trade is advised.
Take a close look at the accounts, contract and details of what is - and isn't - included in a sale. Consider start-up costs such as refurbishing/equipping the hotel, stocking the bar and restaurant. Renewing the soft furnishings needs to be done frequently to ensure a fresh look. The cost can be considerable as the wear and tear is much more noticeable than is often appreciated. Look into business rates, fire regulations and insurance costs. Don't forget to ask for a report on the elevator - a replacement lift can cost up to six figures.
Make sure you read the visitor's book. Sounds obvious, but after looking at a few hotels this can give you a good idea of the character of the establishment and also why guests keep coming back.
Check online forums, especially those where contributors are able to give hotels ratings. These websites can often give dissatisfied customers an opportunity to say what they feel about the hotel.

When it comes to hotels for sale, getting the previous owners of an establishment on side will go a long way - their help and goodwill could prove invaluable.

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