How much can I borrow to buy a hotel?

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Garry
Posts: 53
Joined: Wed Aug 12, 2009 12:22 pm

How much can I borrow to buy a hotel?

Post by Garry »

Hi,

I‘ve heard that hotels can be very profitable. I’m considering the idea of owning one but I want to learn more about this before I make my decision. I’d rather take out a mortgage to finance it and so I want to know how much I’ll be able to borrow in order to buy a hotel. Can anyone help me please?

FYI, I’m looking for a hotel worth around $300,000 - $500,000 and I have $85,000 in my savings account.

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Otto Dargan
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Re: How much can I borrow to buy a hotel?

Post by Otto Dargan »

Hi and welcome to the forums garry,

By taking out a hotel loan, you may be able to borrow up to:
  • 65% of the property value for a freehold with gaming.
  • 50% of the purchase price for a freehold without gaming.
  • 70% of the going concern valuation by a lender instructed valuer if you go for a leasehold with gaming.
Please keep in mind that the maximum loan term may differ depending on whether you apply for a principal and interest (P&I) or interest only loan. The loan term is usually five years for P&I and three years for interest only.

You may need to provide a business plan including business forecasting for the property that you are planning to purchase. If you want to take out a low doc loan then you should know that they may not be available for the purchase of hotels. However, certain interest rate discounts may be available depending on the lender and your financial situation.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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Garry
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Joined: Wed Aug 12, 2009 12:22 pm

Re: How much can I borrow to buy a hotel?

Post by Garry »

Thanks for replying, Otto :)

I’ve already started making plans for the business so that won’t be a problem. The other info you provided is also pretty useful. Now I’ve heard that lenders may ask for certain permits in order for someone to run a hotel. If this is true then what sort of permits will I require?

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Otto Dargan
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Re: How much can I borrow to buy a hotel?

Post by Otto Dargan »

Hi garry,

The permit needed to run a hotel may vary between different lenders. Most hotels may require the operator to complete certain courses in order to be the nominee of a licence.

For instance, the hotel may require the operator to finish a course to be eligible for a liquor licence. In many cases, however, a liquor licence may be held by the hotel itself until the operator completes the required course.

You should note that other permits may be required depending on what the hotel offers such as food safety permits, accommodation permits, and outdoor seating or patio permits.

Please ensure that you become a member of the Australian Hotels Association (AHA) and Tourism Accommodation Australia (TAA), a division of AHA that specialises in hotels for accommodation.

You can visit our website to learn more about getting a hotel loan. You can also give us a call on 1300 889 743 or fill in our free assessment form to find out how our expert mortgage brokers can help you.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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Garry
Posts: 53
Joined: Wed Aug 12, 2009 12:22 pm

Re: How much can I borrow to buy a hotel?

Post by Garry »

Thank you so much for your time, Otto. I really appreciate it. I’ll definitely give you guys a call. We can discuss my situation in more detail then. I hope you guys can brief me about the whole licence process as well. I’m really looking forward to your help. Speak with you soon.

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Otto Dargan
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Joined: Sat Sep 06, 2008 5:55 pm
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Re: How much can I borrow to buy a hotel?

Post by Otto Dargan »

Hi grubber,

You may consider deciding on operational benchmarks before you try to figure out the costs of running a hotel or motel. This may be more in relation to the proportion of your turnover you should be paying in rent and staff wages, rather than focussing on comparable sales and market sales.

You may be able to define the location of your hotel, whether it is in a regional or city location. The reason may be the difference between the cost of goods in the country and the cost of goods in the city which may depend significantly on wages, freight costs, and other related things.

A hotel in the country may most likely be a family affair. Therefore, there may not be much need to employ too many casual staff. Taking this into account, you may consider the licence capacity of the hotel and break the annual rent down by a per person basis. For instance, if you have an 800-capacity hotel then you should be able to make so much per person.

The way to work out rent ratio was to look at square metres of the property or to look at the percentage of turnover. However, this is an outdated method. A percentage turnover may be considered faulty since you could be a better operator than the previous owner.

It should be noted that Australian Hotels Association (AHA) is the key industry body for hotel and pub owner. AHA may be able to provide you with operational benchmarks as you plan-out your business.

It is recommended that you speak to a mortgage broker who can help you choose the right lender that offers low fees and a strong interest rate. You may also be able to take advantage of the commercial loan features that work best for you.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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