Hotels & Guest Houses
The amount of money that you need to borrow to buy a hotel or guest house will depend on a number of factors including the size of the building (in particular, the number of bedrooms), its location and the facilities on offer to guests.
As with many other commercial mortgages, most lenders will lend up to 80 percent of a hotel value, if the figures in the business plan add up. However, for a hotel business that is seasonal, many mortgage providers will not lend more than 50 percent of the property value.
The complexity of the business plan needed to secure a mortgage will largely depend on the range of amenities available, as well as the number of staff required to maintain a consistently high level of service.
Boost your chances of achieving a suitable mortgage offer by conducting your own market research first. Reflect your findings in as much detail as possible in your business plan.
Establishing and running a hotel involves understanding your target audience. Bear in mind that most successful hotels specialise in something that sets them apart from the competition. For example, your niche market could be catering for weddings, corporate events, weekend breaks in the country, pampering packages, sports-oriented deals aimed at surfers, golfers, etc., or any combination that makes the most of your available facilities and services. Depending on your location, you may decide to offer special deals for business guests during the working week and for families at weekends. These considerations should be fully documented for any prospective mortgage lender.
Regulations Governing Hotels
According to the English Tourism Council (ETC), hoteliers need to be aware of around sixty current pieces of legislation covering areas as diverse as:
- Health & Safety
- Fire precautions
- Liquor licensing
Hotels are inspected annually by local authorities that have the powers to close down establishments where there are serious breaches of regulations. As a priority, therefore, hotel owners need to ensure that standards are rigorously (and consistently) maintained.
Potential Earnings from Hotels
Owners of smaller hotels need to decide whether they want to keep their earnings below the VAT threshold, currently £82,000 per annum. A 40 percent profit on turnover is considered achievable and would provide an annual income of around £80,000 at just below the VAT threshold. Earnings need to be significantly higher than the VAT threshold, at least £105,000 per annum, before net income levels increase significantly.
Levels of business in many hotels, particularly in seaside and rural areas, are very seasonal, with low cash flow being a potential problem, during the winter months. Special promotions like off-season wedding packages, three nights for the price of two weekend breaks or gourmet and wine-tasting weekends can help to boost takings during the low season.
- The purchase price of a hotel will depend on its size, location and facilities
- Legislation relating to the hotel business covers a broad spectrum and can be complex
- Owners of smaller hotels need to decide whether to keep their earnings below the VAT threshold