# Buying a Hotel

What hotels trade for, how the flag and its improvement plan shape the deal, and why the property and the operation have to be read at once.

Source: https://searchspheresource.com/guides/buying-a-hotel
Last checked: 2026-08-08

## 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](https://searchspheresource.com/glossary/valuation) reads like both a [cap-rate](https://searchspheresource.com/glossary/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](https://searchspheresource.com/glossary/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](https://searchspheresource.com/glossary/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:

## Financeability Notes

Hotels finance on both halves of their nature: [SBA 7(a)](https://searchspheresource.com/glossary/sba-7a) and 504 structures are standard at this scale, with the 504 carrying the real-estate weight and the 7(a) the [going concern](https://searchspheresource.com/glossary/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](https://searchspheresource.com/glossary/capex) schedule, and treat a deal whose numbers only work at the seller's own occupancy peak as unpriced seasonality, not upside.

## What this guide verified

- 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. (Census County Business Patterns, hotels and motels (2023): https://www.census.gov/programs-surveys/cbp.html)
- 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. (American Hotel & Lodging Association, industry overview (page updated March 2026): https://www.ahla.com/about/our-industry)
- 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. (BLS Occupational Employment and Wage Statistics, lodging managers (2025): https://www.bls.gov/oes/)

## Terms of the trade

- **Franchise agreement term**: How many years are left on the brand agreement, and what the brand can require to renew. A branded hotel is worth what the brand delivers and the agreement has a clock on it, so a buyer who does not read the remaining term can close on an asset that needs a renovation and a new agreement within two years. The brand decides what renewal costs. Ask for the agreement itself, its expiration, the renovation the brand has already required, and what it has told the seller about renewal.
- **RevPAR**: Revenue per available room: the average daily rate multiplied by occupancy. RevPAR is the one number that joins price and fullness, so it is how hotel people compare properties, markets, and years in a single breath. Read it against the property's competitive set, not in isolation: a $70 RevPAR is strength in one corridor and failure in another. Its trend across three years tells you whether the market or the operator moved, and its gap against the comp set is the size of the operational story you are being sold.
- **Property improvement plan**: The renovation scope a franchisor requires at sale or renewal, called the PIP. A flagged hotel changes hands through the franchisor, and the franchisor uses that moment to demand the property be brought to current brand standard: new soft goods, case goods, sometimes systems and exteriors. The PIP is a six or seven figure bill that arrives with the keys. No flagged deal prices honestly until the PIP scope is in writing from the brand, not estimated by the seller, and the financing plan carries it beside the purchase itself.
- **OTA commission**: What the online travel agencies take from a booking, the gap between rate and revenue. A room sold at a good rate through a channel taking a fifth of it is not a good rate, and the average daily rate a seller quotes almost never nets this out. Ask for the channel mix by month with the commission paid alongside it, then compute net rate per occupied room. A property that has been buying occupancy through the channels for two years has also taught its market to book that way, which is a habit the next owner inherits.
- **Transient occupancy**: The tax status that keeps a guest a guest, and the day count that ends it. California hangs the whole distinction on the lodging tax: the landlord-tenant chapter applies to everyone who hires a dwelling unit except transient occupancy taxable as lodging, and that tax reaches an occupancy of thirty days or less. Past that the guest is a tenant and leaving becomes an eviction. The statute also closes the obvious workaround, barring an operator from making a residential-hotel occupant check out and re-register before thirty days to keep them transient, with a rebuttable presumption of that purpose and a civil penalty. Florida asks the parties' intention instead, presuming nontransient status when the unit is the guest's sole residence, and its courts have refused to let a signed registration form settle it. A long-stay policy that travels between states does not.
- **Unclaimed guest funds**: Advance deposits and folio credits nobody came back for, which the state eventually takes. Money paid ahead for a stay that never happened, and credit balances left on old folios, are neither revenue nor the hotel's to keep. Ohio treats a sum paid in advance for unused services as unclaimed after a year, with the annual report filed before November and a notice letter owed to every owner of fifty dollars or more. Two things make it a deal item. A successor must file the prior holder's names with the report, so the duty follows the ledger; and the running of a limitation period against the guest does not clean the money or release the holder. An asset buyer taking the ledger takes the reporting with it.
- **Accessible room hold**: The duty to describe accessible rooms everywhere you sell, and to hold them back. The commission term is about what a channel takes and this is about what a channel obliges. The federal rule reaches reservations made by any means, and says so including through a third party, so every listing the seller wrote on every travel site comes with the business. Two duties sit in it. Accessible features must be described in enough detail for somebody to judge independently whether a room meets their needs, and accessible rooms must be held back until every other room of that type is gone. The first is the one that gets litigated, because the listing text is the evidence and a claim can be written from a laptop without anybody visiting. The second is an occupancy cost at a small property with two accessible keys, whether or not the revenue model assumed it. Read the channel listings before pricing the channel.

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