What to consider when purchasing a hotel

Many people dream of purchasing their own hotel. Running your own hotel can not only be rewarding and enjoyable, but it can also be incredibly lucrative.

However, when it comes to purchasing a hotel, there’s an awful lot to consider and it’s important you work through the process carefully to ensure that your purchase runs as seamlessly as possible.

Here are some of the things you should consider if you’re considering buying a hotel in Scotland.

Location is key

The success of a hotel ultimately comes down to its location, as well as its appeal to the guests that you want to attract.

A hotel that is positioned in a popular tourist location or the heart of a busy city is likely to sell for far higher than a similar hotel situated in a non-tourist town that doesn’t attract many visitors. Of course, although you will pay a lot more for a hotel in a popular location, you can also expect profits to be higher too.

So as well as considering where you would like to live and run your hotel, make sure you think about whether people will have any reason to visit the area. 

Freehold hotels v Leasehold hotels

Before purchasing a hotel, you should take the time to understand the difference between a freehold hotel and a leasehold hotel.

A freehold hotel is where the buyer purchases both the building and the business. Buyers will normally pay a price for the Bricks and Mortar Valuation and a price for the Goodwill of the business.  So, a freehold purchase will be considerably more expensive than a leasehold. If you purchase via a leasehold agreement you will either take over an existing lease or create a new lease with the landlord.  Terms are invariably by negotiation but when planning don’t forget to take into account that you will have to pay rent!

Limited-service & Full-service hotels

At the same time, it is also important to understand the difference between a limited-service and full-service hotel, as this may impact your business offering and vision for your hotel.

A full-service hotel will allow you to offer a fully licensed bar, restaurant and function facilities. On the other hand, a limited-service hotel does not offer these extras but does have lower operating costs as a result.

You will need to think carefully about how you want to position your hotel and how these service offerings will impact your guests and the profitability of the hotel.

Reach out to other hotel owners

Some of the best advice that you can get when considering purchasing a hotel is from other hotel owners and specialist hotel advisors that have a proven involvement with hotel sales.  You will also need to seek guidance from valuers, accountants, solicitors and financiers who all have experience working within the hotel sector as part of the purchasing process.

How to finance your hotel

Once you find your dream hotel, you’ll need to organise the finances to purchase it! This may include a commercial mortgage which can be either a fixed or variable rate for 1 to 25 years. The amount you could borrow will depend on a variety of factors including the price, style of the hotel, amount of deposit, and your current financial position. Banks will not lend against the goodwill element of the business.

For commercial property, it’s also important to note that the deposit needed to secure them is generally higher than that of residential properties, sometimes 30% or 40% of the property value.

At CCL we have dedicated Commercial Finance Brokers that can assist you with finding the right finance for your business venture.

Does running a hotel suit your lifestyle?

Although running a hotel can be incredibly exciting, it can also be extremely challenging too, and not always plain sailing! With this in mind, you will need to take a dedicated and committed approach to run any hotel and be prepared to work long and unsocial hours.

The vast majority of hotel owners also live on-site and you should keep in mind that hotel accommodation tends to be small which can result in significant pressures on day to day family life.