Hotel investing is a simple business. It’s the execution that is difficult.
More than likely, you already have all the tools you need to start investing in hotels. Real estate investing principles are very similar across asset classes. The major shift is in understanding the differences between what you do now and where you want to go.
Hotels are different than other commercial real estate because of their operational intensity. Therefore, you should begin by becoming familiar with hotel operations.
Obsess Over Education
Hotels found me in 2012 after being an economist for Fannie Mae and then an apartment broker. My experience to that point was probably a lot like many other real estate pros – as a guest.
A regional hotel investment company recruited me on a 6-month trial period to get up-to-speed, and I’d be damned if I didn’t overperform. Here’s the kicker – there was no formal training. It was sink-or-swim.
I made the switch from residential to commercial already. I discovered, then, that the two best educational resources are trade press and relationships. Therefore, I set out to find and subscribe to every industry newsletter and find the old guys that know everything and love to chat.
You know the value of these resources if you’ve had any success in real estate.
Incorporate hotels into your enrichment rituals.
In the beginning, it only takes a small commitment to make big gains. Shoot for 15-30 minutes per day reading about what’s going on in the industry and 2-3 half hour phone calls each week.
Underwrite Every Deal
Like a rolling stone, you’ll pick up a few deals while you’re getting an education.
Underwrite all of them.
That’s right. Underwrite every single deal that crosses your desk.
The only way to get a good understanding of hotel operations or finance is to get your hands dirty. Look for similarities and differences among the deals. Connect the dots between different management and investment strategies.
There’s no way to discriminate in your investment strategy until you know the basics.
The structure of a hotel deal involves a few more working parties than you may be used to. Brand and management companies bring different contributions that work toward the overall success. Similarly, alignment with the right capital partners is essential to long-term investment success.
Use your underwriting model and workflow to uncover questions that you can bring back to your network for answers.
Invest with an Experienced Operator
You already know that there’s no one way into a real estate deal. Still, I believe the best way in is hand-in-hand with someone that’s done it before.
Hotels are operationally- and capital-intensive as an asset class. For example, most hotels require a renovation upon change of ownership, and the scope varies depending on the seller’s ongoing capital investment. Experienced operators can guide you first-hand through navigating the various stakeholders.
You can approach experienced operators in two ways – third-party management or investment in a privately placement.
Private placements are typically restricted to accredited investors so that avenue may be closed for you, but third-party management is readily accessible and can enhance the value of your deal for capital providers.
Avoid aligning with the big guys at this point.
Institutional operators serve their purpose when you have a solid hotel investing platform and know what strings to pull in asset management. However, as an entry-level hotelier, you want to find someone that will hold your hand and educate you along the way. These are usually regional players, where you can have direct interaction with the managing principals.