Buying a Hotel
Two Purchases in One: the Property and the Operation
A hotel is real estate and an operating business fused: the building carries most of the value, and the operation decides what the building earns. That dual nature runs through everything, the valuation reads like both a cap-rate deal and an earnings multiple, the lender underwrites both an appraisal and a P&L, and the diligence walks both the roof and the booking pace. Flagged properties add a third party to the room: the franchisor, whose agreement governs standards, fees, and the renovation bill at transfer. The prize is a limited-service property in a corridor with durable demand; the trap is a tired flag with a deferred plan priced as if the brand were the asset.
What Hotels Trade For
Flagged limited-service hotels commonly trade around 8x to 12x EBITDA, and a listed select-service REIT's own filing puts its 24 acquisitions from 2023 to 2026 at 11.6x going-in EBITDA on an 8% going-in cap rate, near the top of that band. Per-key values land near $30,000 to $50,000 for the properties a first-time buyer sees: another REIT's 13-hotel disposition works out to $38,006 a key. The searcher-scale end, independent and exterior-corridor properties, prices closer to its real estate than to its brand, and every lens moves on the same facts: RevPAR against the comp set, the property's age, and the market's demand drivers.
The Flag: Fees, Standards, and the Transfer Moment
A franchise flag delivers reservations, brand trust, and a booking engine, and it charges for them: royalty and marketing fees commonly take a tenth or more of room revenue, standards are audited, and the agreement's transfer provisions govern the sale itself. The transfer moment is where the money hides, because the franchisor typically requires a property improvement plan as a condition of licensing the buyer, and that scope, decided by the brand rather than the seller, can run from cosmetic to structural. Get the PIP in writing before pricing the deal, confirm the agreement's remaining term and territory protections, and treat a lapsing flag as either upside or a demand cliff, depending on what the comp set says.
Reading the Operation Under the Real Estate
Three operational reads decide the earnings quality. Demand mix first: a property living on one driver, a single employer, a seasonal attraction, a highway interchange whose traffic is being rerouted, carries concentration risk no multiple discounts honestly. Labor second: housekeeping and front desk staffing set the margin, and the manager the deal needs is priced against the seller's own on-site hours. Records third: the STR-style comp report, three years of monthly P&Ls, and occupancy and rate data are the file; a seller who cannot produce them is selling a building with a story attached. Read the booking channels too, since a property bought on third-party listings pays commissions a direct book does not.
What to Verify in Diligence
The record to assemble before the offer holds:
- The franchise agreement: remaining term, fees, territory, and every transfer provision
- The PIP scope in writing from the franchisor, priced by a contractor rather than the seller
- Three years of monthly P&Ls with occupancy, rate, and RevPAR against the comp set
- The property condition: roof, systems, life safety, and the capex the building needs regardless of the brand
- Demand drivers and their concentration: who fills the rooms and what could stop
- Labor roster, wages, and the manager the operation needs priced at market
- Booking-channel mix and the commissions paid for third-party reservations
Financeability Notes
Hotels finance on both halves of their nature: SBA 7(a) and 504 structures are standard at this scale, with the 504 carrying the real-estate weight and the 7(a) the going concern, and lenders underwriting the appraisal, the P&L, and the PIP as one package. Expect the franchise agreement to be a closing document the lender reads, the PIP to be financed alongside the purchase or escrowed, and hospitality experience to be a real underwriting question in a way it is not for most trades. Model debt service net of a market manager's wage and the property's capex schedule, and treat a deal whose numbers only work at the seller's own occupancy peak as unpriced seasonality, not upside.
Terms in This Industry
Franchise agreement term
How many years are left on the brand agreement, and what the brand can require to renew.
RevPAR
Revenue per available room: the average daily rate multiplied by occupancy.
Property improvement plan
The renovation scope a franchisor requires at sale or renewal, called the PIP.
OTA commission
What the online travel agencies take from a booking, the gap between rate and revenue.
Transient occupancy
The tax status that keeps a guest a guest, and the day count that ends it.
Unclaimed guest funds
Advance deposits and folio credits nobody came back for, which the state eventually takes.
Accessible room hold
The duty to describe accessible rooms everywhere you sell, and to hold them back.
What the Data Says
County Business Patterns counts 55,895 hotel and motel establishments with paid employees carrying 1,497,840 workers as of 2023, about twenty-seven per property, and that labor density is the operating model in one figure: a hotel is a payroll with rooms attached.
Source: Census County Business Patterns, hotels and motels (2023)
The lodging industry's own association counts 64,000-plus properties nationwide, 33,200-plus of them small-business properties, with 5.7 million guest rooms hosting 1.3 billion guest nights a year. That is the honest frame for the searcher's end of this market: most American hotels are small businesses, not flags' corporate towers.
Source: American Hotel & Lodging Association, industry overview (page updated March 2026)
Federal wage data counts 42,620 employed lodging managers at a $69,250 median in 2025, the salary line a buyer prices in the moment the plan says run it without living on property.
Source: BLS Occupational Employment and Wage Statistics, lodging managers (2025)
Enter earnings to apply this industry's range.
Range from Advisory tiering for flagged limited-service hotels. A sanity check against asking prices, not a valuation.
Holding a live deal in this industry? Underwrite it with the comps, cited band, and charge-off rate pre-loaded.
Compare bands across industries in the cited multiple bands by industry.
Who Else Is Buying in This Industry
Buyers is the shelf these come from, ordered by who closed something most recently.
What It Costs to Replace the Owner
The multiples above are quoted on SDE, which adds the owner's pay back into earnings, so they hold only if you do the owner's job. Hire someone instead and the going rate for the role comes back out. For this trade that is usually the manager who runs the property and the front desk, paid a median of $69,250 a year nationally. Subtract it from SDE before applying any multiple, because at a 3x multiple that wage also takes about $207,750 off what the business is worth to you.
Lodging managers, BLS Occupational Employment and Wage Statistics (2025), national, all industries, before payroll taxes and benefits. Every role, and the same arithmetic worked end to end, is in Manager Wages.
The Numbers That Run This Business
- RevPAR against the competitive set
- Occupancy and rate by month across three years
- Franchise fees as a share of room revenue
- The PIP scope and cost in writing from the brand
- Booking-channel mix and commissions paid