Buying a motel as only means of support (2015, 3%, fees)

[payutenyodagimas]

Originally Posted by saskwach

Thanks, what do you mean "with all cash". Shouldn't I try to leverage my money with a bank? I don't really have enough cash to buy a substantial property that would net me 40k.

businessmen don't buy in cash. they let the bank finance it. at least that's how I understand how businesses works. in practice, maybe not.


but its not a start up that you have to put up all the capital?

[aslowdodge]

Originally Posted by saskwach

My degree is in History and the work I was doing was taught to me by a relative that had been doing it for many years prior, without going into the details.

I understand why a bank might not give me a loan, but if I can find a motel where the seller is willing to hold my mortgage, and has a steady income track record- not sure why its not worth seriously looking at.

If the seller gives me a mortgage that means he has faith both in me and his business. Unless he just wants my down payment and plans on foreclosing on me in the future or letting the whole thing go.

Well from my point of view, I would only finance you if you had a track record of doing this business and I would want 50% down.
The reason is if I have to take it back it means you couldn't make it and more than likely diminished the business where it wasn't worth much anymore. People buy businesses based on income generated. If I had to take it back I might not be able to get it back on track.
Of course if you paid me a down payment that was so crazy that I wouldn't bother taking it back that's different.

[chet everett]

Originally Posted by aslowdodge

Well from my point of view, I would only finance you if you had a track record of doing this business and I would want 50% down.
The reason is if I have to take it back it means you couldn't make it and more than likely diminished the business where it wasn't worth much anymore. People buy businesses based on income generated. If I had to take it back I might not be able to get it back on track.
Of course if you paid me a down payment that was so crazy that I wouldn't bother taking it back that's different.

The folks looking to exit a particular business generally want as much cash as is possible so they can move on to another phase of their life. They will not be eager to "finance" any aquistion no matter how large the down payment is. The risk that they have to reposes the business, put time into turnng it back around and still risk more losses are all huge negatives!

There are forumula that some business brokers will use that put a value on things like the structure / equipment / systems and others that prefer to price the sale based on gross revenue or EBITDA -- Determining Valuation Multiples If you really have the cash to buy a place for $400k you better be sure that it is generating enough returns to support both you and the required cost of keeping the place going. Just for kicks I looked at what might be availble in Central Illinois and this came up -- https://www.businessbroker.net/busin...is/419191.aspx The listing does not disclose the occupancy data, but they do mention that the place has an ADR of about $50, which is pretty low. The listing also mentions this property is LEASED and that means that from DAY ONE the buyer would be paying tens of thousands per month to the landlord, if there are slow downs the 'buyer' is going to be losing money NOT profiting...

Given the OP's circumstances, they'd likely need to be running whatever business they acquire for upwards of 30 years and without any track record in the "hospitality sector" it is not realistic to expect either a lender, business broker, or even independant seller of a profitable motel to be eager to extend credit to the OP. Folks that have worked up the ladder of responsibility of several roles in hotels / motels run by chains would be in a much stronger position and even then the reluctance of even the most generous of lenders would be hard to overcome -- even traditional lenders that focus on such sectors strongly prefer lending to someone that has a track record and merely is using the borrowed money to maintain their property -- Hotel and Motel Loans: How to Get the Funding You Need

[saskwach]

Originally Posted by chet everett

The folks looking to exit a particular business generally want as much cash as is possible so they can move on to another phase of their life. They will not be eager to "finance" any aquistion no matter how large the down payment is. The risk that they have to reposes the business, put time into turnng it back around and still risk more losses are all huge negatives!

There are forumula that some business brokers will use that put a value on things like the structure / equipment / systems and others that prefer to price the sale based on gross revenue or EBITDA -- Determining Valuation Multiples If you really have the cash to buy a place for $400k you better be sure that it is generating enough returns to support both you and the required cost of keeping the place going. Just for kicks I looked at what might be availble in Central Illinois and this came up -- https://www.businessbroker.net/busin...is/419191.aspx The listing does not disclose the occupancy data, but they do mention that the place has an ADR of about $50, which is pretty low. The listing also mentions this property is LEASED and that means that from DAY ONE the buyer would be paying tens of thousands per month to the landlord, if there are slow downs the 'buyer' is going to be losing money NOT profiting...

Given the OP's circumstances, they'd likely need to be running whatever business they acquire for upwards of 30 years and without any track record in the "hospitality sector" it is not realistic to expect either a lender, business broker, or even independant seller of a profitable motel to be eager to extend credit to the OP. Folks that have worked up the ladder of responsibility of several roles in hotels / motels run by chains would be in a much stronger position and even then the reluctance of even the most generous of lenders would be hard to overcome -- even traditional lenders that focus on such sectors strongly prefer lending to someone that has a track record and merely is using the borrowed money to maintain their property -- Hotel and Motel Loans: How to Get the Funding You Need

"it is not realistic to expect either a lender, business broker, or even independant seller of a profitable motel to be eager to extend credit to the OP"

Like I said before, you tend to be very negative. And negativity doesn't help anyone. Certainly not someone in my situation. You said everything you had to say before, there is no need for you to keep on coming back shooting everything down over and over. It is not helping anyone.

In fact, I have had several offers from owners to offer financing so far, and that they would teach me what to do. Through teaching and working with me, they will provide experience. I suppose they are eager to sell and get the down payment for whatever they need.....I just don't know if on my end it is a smart investment because the numbers are usually moderately - very tight.

Has anyone used bizbuysell? They have many businesses including commercial for sale, sometimes with seller financing.

[saskwach]

Originally Posted by notnamed

At 31, the best investment would be in yourself with further education.

Such as what? And how without burning through my capital? Every field people say not to go into. They say "law is too saturated to go into right now." "Don't even think about going into med" etc....

Thats why I wanted to establish an income stream and then go back to school nights if possible.

[saskwach]

Originally Posted by payutenyodagimas

businessmen don't buy in cash. they let the bank finance it. at least that's how I understand how businesses works. in practice, maybe not.


but its not a start up that you have to put up all the capital?

No, its not a start-up. Im talking about business that are decades old that have a long history of income to look at.

[saskwach]

Originally Posted by aslowdodge

Well from my point of view, I would only finance you if you had a track record of doing this business and I would want 50% down.
The reason is if I have to take it back it means you couldn't make it and more than likely diminished the business where it wasn't worth much anymore. People buy businesses based on income generated. If I had to take it back I might not be able to get it back on track.
Of course if you paid me a down payment that was so crazy that I wouldn't bother taking it back that's different.

So when you were starting out with no experience, did you get funding?

[jackmichigan]

I think it would be mistake for you to plunk down most of your money into a motel or similar high-cost business venture. If things didn't turn out as you planned, it would be difficult to get your money back. Not many people want to buy a motel.

I certainly understand your desire to find a way to support yourself. When I was in my mid-20s, I got laid off from work and decided that I wanted to find a way to not be dependent upon a job from someone else. It was then that I began to invest in real estate--primarily buying single family houses that I would fix up and rent out. I was looking for the rental income to sustain me, but in the long run I did much better from the appreciation--some of it attributed to my repairs, but much of it due to the fact that I bought low. I focused on buying foreclosed properties which needed primarily cosmetic repairs (I avoided houses with significant and costly structural problems). When dealing with distressed properties, where you make your money is by buying at a good price to begin with.

I don't know your skill set or your interests, but if you want to invest in real estate I think you should consider a similar approach. It would probably be best to start out small and get your feet wet. You can always buy more as you go along. You're young; you have a decent amount of capital to start with. Take your time and learn as you go. I also think that it would be a good idea to get some type of job while you're building up whatever business you choose to go into. Once you find yourself being successful enough, you can ditch the job, if that's your wish. Good luck.

[saskwach]

Originally Posted by jackmichigan

I think it would be mistake for you to plunk down most of your money into a motel or similar high-cost business venture. If things didn't turn out as you planned, it would be difficult to get your money back. Not many people want to buy a motel.

I certainly understand your desire to find a way to support yourself. When I was in my mid-20s, I got laid off from work and decided that I wanted to find a way to not be dependent upon a job from someone else. It was then that I began to invest in real estate--primarily buying single family houses that I would fix up and rent out. I was looking for the rental income to sustain me, but in the long run I did much better from the appreciation--some of it attributed to my repairs, but much of it due to the fact that I bought low. I focused on buying foreclosed properties which needed primarily cosmetic repairs (I avoided houses with significant and costly structural problems). When dealing with distressed properties, where you make your money is by buying at a good price to begin with.

I don't know your skill set or your interests, but if you want to invest in real estate I think you should consider a similar approach. It would probably be best to start out small and get your feet wet. You can always buy more as you go along. You're young; you have a decent amount of capital to start with. Take your time and learn as you go. I also think that it would be a good idea to get some type of job while you're building up whatever business you choose to go into. Once you find yourself being successful enough, you can ditch the job, if that's your wish. Good luck.

Thank you for the encouragement. Yes I am not looking to be wealthy (though that would be nice). Right now, Im simply trying to live.

What do you think is the amount of capital I need to "get my feet wet"?

[jackmichigan]

Originally Posted by saskwach

How close would I have to live to these properties and do you think I can find any in upstate NY or NJ area?

Originally Posted by saskwach

Thank you for the encouragement. Yes I am not looking to be wealthy (though that would be nice). Right now, Im simply trying to live.

What do you think is the amount of capital I need to "get my feet wet"?

First of all, I think you need to decide where you want to live. That's a pretty big range from upstate New York to New Jersey. It's better to keep your primary real estate investments local, so go from there.

If those areas are your basic choices, I'm sure that you can find suitable properties in either general location...but you'll need to narrow the geographic area to a more defined area. Once you do so, you'll need to become very familiar with the local market. You'll need to be able to recognize good deals when they come along.

Before you buy an investment house, however, (if that's what you choose to do) I really feel that your first investment should be a house for you to live in--if you don't own one already. Keeping your living expenses down is just as important for your financial well-being as is the return you can get on investment properties.

There's a bit of a trade off if you buy a house, since it will lessen the amount you may have available for investments, but I would encourage you to consider buying a house for yourself just as you would an investment property. Look for something that you can improve and add value to. The really good thing about living in a house that you fix up is that any profit can become tax-free if you live there for two years. If you're going to buy and flip houses, for tax purposes you really can't beat living in the house.

I hesitate to give you a number as to the capital needed because that is really dependent on the local market. Since you apparently have cash to work with, that should give you an advantage in trying to secure good prices. Years ago, I was almost always able to buy houses for about half price. I'm not saying that you can do that now, but take your time and don't jump at the first "opportunity"--unless you're sure it's a good one. Like I've told investment clients, you can afford not to buy any given house. Don't be afraid not to get offers accepted. There are always other properties out there--and you have to make sure that the price is right for you to make it worthwhile.