Late Start to Real Estate? Investing in Your 50s/60s (Rookie Reply)

Ashley Kehr:
Do you think that you need millions to own a hotel? Today’s guest used an SBA loan and a few friends to buy a 75 room property and now manages a portfolio of brands like Hilton and Marriott. If you’ve ever thought hotels were out of reach for rookie investors, this episode is your blueprint.

Tony Robinson:
That’s right. Today’s guest is a hotel investor and operator who’s breaking down exactly how a Ricky can go from a single family home or a duplex to a full-blown hotel entrepreneur.

Ashley Kehr:
This is the Real Estate Rookie podcast. I’m Ashley Care.

Tony Robinson:
And I’m Tony j Robinson. And let’s give a big warm welcome to Sujay Meta Sujay. Thank you for joining us today, brother.

Sujay Mehta:
Hey, thank you both so much. It’s an honor and a pleasure to be here. Obviously, BiggerPockets has touched so many lives, so the pleasure is online.

Ashley Kehr:
Well, I want to start off with what are some of the biggest misconceptions that a rookie listening might have about hotel investing?

Sujay Mehta:
Yeah, I mean, first of all, most people traveling. How many of us have seen a hotel while driving down the road, driving down a highway? Most of ’em may have been the Marriotts or the Hiltons of the world. Most people think Paris Hilton just owns half these hotels. And that’s a huge misconception. It’s not these billion dollar companies or Wall Street companies that own these hotels, but actually a lot of ’em are franchise. And so we actually as franchisees own a lot of these Holiday Inns or Hampton Inns, Fairfield Inns. And these are owned by small business owners just like us. And now the big trend that’s happening in the world is going into this boutique hotel space. So as these hotels also start popping up, I think it’s a big misconception that a lot of these big players own these hotels. It’s a lot of small business owners.

Ashley Kehr:
One of my business partners, he’s like, I’m buying five subways. And I was like, how is that possible? He was like 28 at the time. I’m like, we’re not making that much money off of our properties. And I learned the whole franchise model and it was really eyeopening to me how a lot of these big name brands are just small mom and pop people or young adults at 28 owning some of these businesses.

Sujay Mehta:
Yeah, absolutely. And it’s cool that you brought that up. Subways, taco Bells, burger Kings, fast food restaurants, as well as even some of the larger yoga studios that you guys may have heard of or fitness studios. A lot of these are franchised, and that’s why every location operates a little bit differently. Prices may also differ from place to place how the operations are, how the expectations are, but what these franchises do is they try to control the expectations and set a certain standard for every operator. So I think that’s a huge eyeopener that a lot of these institutions or services that we use every single day are owned by our friends or family or coworkers, whatever it may be.

Tony Robinson:
It’s really interesting, and I appreciate you sharing that the franchise model has been a big part of your scale because to your point, I don’t think a lot of Ricks recognize that. But I guess just if you can give us CJ, the 30,000 foot view of how a franchised hotel is maybe different than a hotel that you just kind of build on your own. What are the key differences between those two different types of hotels?

Sujay Mehta:
Yeah, absolutely. So franchises in general. So franchises, the way they work is typically there’s going to be some sort of royalty payment that you’re going to pay every month. And usually the royalty payment is based on your revenue. So let’s say for example, I do a hundred thousand dollars in revenue in the month of January. On February 15th, my statement will come out and I will owe, if it’s 8%, then 8% of that a hundred thousand dollars as my royalty fee. That will go to Subway or Hilton or IHE or Marriott, whoever it may be. And then there’s some set costs that will be per room basis or it’ll be broken up into different ways as well. And some of those things are going to be franchise dependent. So that’s how a royalty payment for the franchise works in general. Now, for hotel specific, we actually own the land.
We own the real estate, we own the operations. The employees are our liability. We have the loan and we guarantee the loan. The only thing that the brand does is they put their name up on the hotel and create this huge booking platform for us and this loyalty customer base that drives so many customers to our hotel. The first hotel that we ever opened, it was a new build property. It’s called the Avid Hotel. Nobody had heard about it. We were one of the first 10 in the entire world to open up an avid hotel. It’s a sister brand of Holiday Inn Express. So within the same umbrella of IHE. So if any of you guys have heard of IHE or our loyalty customers, we opened up, I think at 3:00 PM we got our certificate of occupancy and at 5:00 PM we already had bookings. So no Instagram, no website. The brand does all of that for us. And it’s such a mammoth right in the industry that they’re able to drive customers, I mean every single day to our property. And so again, that kind of de-risks us being a franchisee of these hotels in a lot of cases.

Ashley Kehr:
So I think this has probably intrigued everyone’s interest, but there’s still the big price tag, the capital needed to invest. So what does this look like for a rookie investor? If they actually do want to go and buy a hotel, how do they pay for it?

Sujay Mehta:
Yeah, absolutely. That’s a great question. So multiple ways to do it, right? And again, I talked about branded hotels, but there’s also independent or boutique hotels. And so hotels for me, it is a vessel. You invest in this vessel and then you can make it your own. And so the number one thing that I always say is we have to underwrite, figure out what the price point is. So I’ll give an example. Let’s say we’re buying a hotel for $1.5 million. And I give that example because actually closing on one tomorrow, which is 1.5,

Ashley Kehr:
Congratulations.

Sujay Mehta:
Yeah,

Ashley Kehr:
Thank

Sujay Mehta:
You. Thank you. So great for rookies, right? So that’s why I give this example. So 1.5 million hotel, we’re going to do $500,000 of renovation at the hotel. So total price is going to be 2 million plus some fees and costs and whatnot. So let’s say 2.2, right? 2.2 million is the total price tag for this hotel. So what is different about investing in commercial real estate in general, moving away from residential real estate is you have so many more lending options and products that are available to us that aren’t available in the residential world. So a lot of Airbnb investors or single family home investors who are moving into this commercial real estate space, you really need to get acclimated and familiar with all these different lending products. And so one of ’em is an SBA loan. So small business administration loan and hotels are different from other real estate asset classes because it’s a business plus real estate.
And so it being a business unlocks this additional product that’s available for us in the lending world. And now a loan that’s backed by the government is available for businesses, is also available for my real estate purchase. So you can get an SBA loan on this kind of property. The other thing that we use pretty often is community banks or regional banks. So if I’m investing in, I’m from Columbus, Ohio, so I’m going to say Columbus, Ohio. I’m going to go to Google Maps and I’m going to type in local banks in Columbus, Ohio, and it’s going to spit out a list of banks that are North Valley Bank, the community bank, first financial bank, these banks that you may not have heard of, it’s not your typical Wells Fargo, chase, bank of America. But these small banks are very eager to invest in the community.
They’re looking for these types of loans to give out to good small business owners who are aggressive, are looking to get their first property or second property because they don’t have that deal flow that a chase or a Wells Fargo has. So they’re eager to find rookie investors and they’ll help you lock down your property. So that’s a conventional loan. So we have SVA loans, we have conventional loans, and then you can use private capital, you can leverage friends and family, you could do syndications, you can also do creative financing, which is seller finance falls in that category. So you can negotiate with a lot of these hotel owners who have owned these assets for 15 years, 20 years, and they’re just tired. They don’t want to do the renovation that’s needed to take the revenue from 300,000 to 600,000 and they just don’t have the bandwidth to do it anymore, and they’re willing to sell or carry this hotel for you so that way you can lock it down without any other loans and you can negotiate interest rate with them.
And they’re happy because they get an annuity for the next 10 years, 15 years, even though they retired, they get this passive income check that comes in every single year. So there’s so many different products that are available for rookie investors when getting into the hotel space. It is just a matter of figuring out what hotel you’re investing in and creating a business plan and creating a plan of attack. What makes the most sense? What’s my plan A, what’s my plan B? What’s my plan C? And every single one of these products are going to have pros and cons to them as well.

Ashley Kehr:
Tony, for your hotel that you did, did you use any of these ways to fund that property?

Tony Robinson:
Yeah, I mean, Suji, you bring up a really good point about the seller financing because that’s exactly how we funded our first hotel acquisition as well. There were a brother and sister siblings who inherited this property from a parent who had passed away that tried to run it themselves and really enjoy it, wanted out, and seller financing was the best route for them because like you said, they got this nice fixed payment every single month and it was a win-win for both of us. And we got great terms. I think it’s a seven year note. First two years were interest only. It was a smaller down payment than what we would’ve gotten had we gone to a bank. So it all worked out. And I know you said you’re closing on a deal tomorrow. How did you structure the funds for that deal?

Sujay Mehta:
Yeah, so that hotel that we’re closing tomorrow, we are actually going to use a conventional loan. We originally reached out to one of the best brokers in the game and he got us a good financing option, but it was a 10% interest rate and we were going to get construction financing as well as financing to buy the property. But what we started doing is obviously this is the secret, right? Don’t stop, don’t stop. Once you have an option, that doesn’t mean it’s the best option. Keep going. So we dug into it more again, we did the Google Maps thing and we started searching local community banks in the area in the market. This one’s in North Carolina. And so we started looking and we found this local bank there that was very excited to invest with us, and we started talking to them and they gave us a 7% interest rate, and they’re going to fund a part of the renovation as well. And our fees are a lot less with this community bank than it would be if you’re going through a broker. So we ended up pivoting and we ended up getting this loan through this conventional loan through the small community bank. And so they actually funded 80% of our purchase and then the 20% that was left, we syndicated it.
Well, actually we started with the syndication process, found a large check writer, which Tony, I know we’ve talked about that in the past as well. And we actually JVD it. So we got a couple investors, I think we have three investors total, and one of ’em is a large check writer. So we were able to fund most of the down payment through that one investor, and we were able to lock down that hotel with a jv. So JV brings the equity and then the conventional bank brings the primary loan on the property.

Ashley Kehr:
Can you explain what a joint venture is and why it’s actually a better, easier method for a rookie investor to follow than doing a syndication to raise that extra capital?

Sujay Mehta:
Absolutely. Great question. And so there’s two ways to kind of raise capital. I’m sure there’s a lot more, but two main ways. So one is joint venture, one is syndication. So joint venture is cheaper from a legal perspective. You don’t have to create the p, the subscription agreements, and it’s more like an operating agreement that you create with your partners, right? Again, I say partners, not investors, because when you do a joint venture, there are certain boxes that you have to check. So these people have to be a partner with you in the business. So they have to have some roles and responsibilities, they have to have some rights when it comes to big operational decisions or big business decisions. So for an example, when we refinance or when we sell, they have to have a vote or they have to have a say in that process.
So there’s certain boxes that we have to check legally in order for it to be a joint venture. I would definitely consult a lawyer. I know we all have great recommendations, so feel free to reach out to me anytime and I’ll point you in the right direction for our SEC attorney that we use to make sure we’re compliant. But yeah, so that’s kind of the pros of a joint venture. It’s a lot quicker. You can reach out to your investors, you can collect the money, you can have this operating agreement, they become partners with you in the business. And what a syndication does though, the pros of a syndication is you’re able to blast it online. You’re able to send out the offering memorandum to your investors. It could be people that you’ve never met before. You’re able to utilize social media and you can have people invest 50,000, a hundred thousand, and you can have a mix of accredited investors and unaccredited investors as well in a syndication. So there’s pros and cons to both, but obviously if you have the network and the contacts, a JV is the path of least resistance for sure.

Tony Robinson:
And sujay, exactly how we took down our first as well was through a joint venture. And like you said, our partners who brought the capital have voting rights. They can fire me as the property manager. They can decide when we sell, when refinance. So yeah, there’s some things we worked in there to make sure that we checked all those boxes. One more question, just like on the general state of investing, I want to switch gears a little bit after that, but why do you think right now is the golden time for rookies to get into hotel investing?

Sujay Mehta:
Oh, dude, that is such a good question, man. To be honest, very seldom in our life do we get an opportunity to be ahead of the curve. If I want to get into the Airbnb space right now, there’s definitely opportunities out there. I mean, we just stayed in one a couple of weeks ago and because I booked it and we’re entrepreneurs, I’m doing the math, running the numbers, and I’m like, dude, this place cranks, right? It’s probably flow like crazy. So there’s definitely opportunities, but we all know that space is crowded, it’s saturated. You’re competing with families who are looking for their primary residence. You’re looking for families who are like, I love the landscaping here, so I want to overpay for this property. You’re competing with these emotional metrics, and even when you sell it, again, you’re selling on emotional metrics. But right now with hotels, a lot of people don’t know about ’em. A lot of people don’t know how to get into them.
Again, we call ’em the Patel Cartel, all these old Indian families who have owned hotels for a long time, and I can joke about it, my wife was Patel before we got married, but we call ’em the Patel Cartel, but they’ve owned these properties and it’s been the best kept secret for years. And finally, the cat’s out of the bag. We’re all talking about it. But really to be honest, it’s probably all over your feed because you’re looking into it. But for people who aren’t, they don’t even know that you can invest into hotels. So very seldom are we able to get into a trend before it blows up. And if you’re listening to this, you’re already ahead of the curve. So that’s one. Two, interest rates are high. So interest rates are really high right now when you’re underwriting to factor in debt service, that’s not interest only is very difficult when investing in multifamily assets, self-storage assets, all these passive real estate asset classes that people want to invest into.
It’s really difficult to underwrite and to make them make sense. But hotels, I say it again, it’s real estate plus business, and that business portion of it allows you to flow so much cashflow to the bottom line that you’re not only able to meet your debt service requirements, but you’re also able to get creative, maybe have a bridge debt or a Mez debt or a seller carry that you’ve negotiated on top and you’re able to syndicate it, pay off the investors, or pay off your partners and still have money to take home. And that is all because of the high cashflow that exists in hotels. And while there’s a lot of investors that are scared right now that are sitting on the sidelines, this is an opportunity where if we’re able to find a hotel that makes sense right now, and if we can refinance in a year or two, dude, it’s just going to crank.
It’s going to cashflow like crazy. So again, and I can go on and on and on, but there’s just so much you can do. And hotels are a vessel. You can create additional income streams. There’s a property that we have an accepted LOI on, it’s on 50 acres of land. It’s a boutique property. They actually have horse buggies that go through the land and go through trails, and they charge for this. So they charge $150 for a horse buggy ride, and they pay the guy who actually drives the horse buggy $75 per ride. That’s an additional income stream. You already have the customers staying at your property. You create all these experiences and you’re able to upcharge for them and drive more cashflow. So much you can do so much value add.

Ashley Kehr:
I really hope my partner does not listen to this episode because we have a property that we just turned into short-term rental, and right down the road is this horse farm where they have the big Clydesdale horses and then they have the big buggy chalet thing. I can’t think of what it’s called, but pulled behind it, and you can go for the wagon rides and stuff. And he’s like, we should stop and talk to the guy, tell him we will book people. We’ll split the profits, all this stuff. I’m like, I’m pretty sure this is a hobby farm. This is not something you want to do as a business. But he has all these ideas in his head and now this is just going to solidify. I told you, Ashley, we should go do these horse and Bucky rides.

Sujay Mehta:
Oh, I hope he’s listening. That’s awesome. That’s a great idea. I love it.

Ashley Kehr:
Before we continue with the show break though, I do want to talk about my first rental. I thought collecting rent would be the hardest part, and I was actually wrong. The admin never stops the expenses, the receipts, tax forms, tenant issues. I didn’t expect the behind the scenes work to take up so much of my time. And Headspace every night was another round of paperwork. And I started thinking, if it’s like this one, how do people handle five or 10 base Lane helped me get out of the weeds. It’s the official banking platform of BiggerPockets that handles the whole backend for me, expense tracking, financial reporting, rent collection, even tenant screening. It’s the first time I’ve felt in control. And now that I’m not drowning in admin, I finally see how my real estate business can scale. So do yourself a favor. Sign [email protected] slash bp today and get a $100 bonus.
Alright, if you’ve been nodding along and thinking, I want in, here’s where Sujay takes off the gloves and gives you the step-by-step roadmap to make that first hotel a reality. Okay, so let’s start with step one. What kind of hotel should a rookie look for and what kind should they avoid? And out of my own personal curiosity so far in this podcast, I’ve been wanting to ask the question, should you go for a seasonal hotel where it’s at a lake but it’s very seasonal or is that a bad thing to do? So let’s start right there with my curiosity question. Then you can expand to all the other types of hotels,

Sujay Mehta:
Perks of being the host of the show. You get to ask your questions live. So I love it. No, but I mean, great question. So for me, unfortunately, I live in Columbus, Ohio, and we do have winters here, but we also have falls and fall and spring and summer. Obviously I hate the cold, so I’d love to be in Florida, but a lot of our properties are seasonal. When we say seasonal though, it doesn’t have to be all or nothing. And that’s one of the greatest things about hotels as well is unlike Airbnbs, you’re not running at a hundred or a zero occupancy. You can run at a 40% occupancy, a 50% occupancy. So rather than deciding if we should go seasonal or evergreen, what I look at is I look at the financials. So the first thing I want to do is look at past financials.
I want to look at the last three years, and as long as the numbers make sense and the property is maybe cash flowing or breaking even, and there’s a significant upside, I’m all in on that. And we look at that from a T 12 perspective. So for those of you who don’t know, T 12 is a trailing 12 month cycle that we look at. So if I’m looking in April, I’m looking at April 20, 25 to April, 2024, that would be the trailing 12 month for this hotel. And so within a 12 month period, you’re going to have winters, you’re going to have summers, you’re going to have springs, you’re going to have falls. So all the seasons are aggregated within this one financial statement that you can look at. And what you want to look at is the overall cashflow of the property. And then as a hotel operator, it’s my duty to be able to manage the cashflow during the slow season or during the high season. I don’t want to distribute all my money just doing really well in the summer. I want to make sure I have some for the winter or have some when my property taxes due. So these are the types of business decisions that we have to make when operating a hotel.

Tony Robinson:
I think the one for me, Sujay, is what about franchise versus independent room size? Does it make sense for a rookie to go after a 300 room hotel? Or is there a spot? What have you found is the ideal hotel type in that sense?

Sujay Mehta:
Yeah, yeah, no, definitely. Great question. So again, same thing with boutique hotels. What you get is you have full flexibility. You’re able to do whatever you want, however you want it. I might be a great interior designer, and so a boutique hotel might be a great investment for me because I know that I can take this old tired motel and put a little bit of vibrancy and color and character into the rooms and turn it into an experience. And so that’s going to be right up my alley. But for someone like me who’s terrible with design, my wife will be the first one to raise her hand if you ask her. But I’m terrible with design. So I love these franchise hotels. It’s Hotel in a Box. They give you the SOPs, they give you the expectations, they tell you how the rooms are supposed to look, where to order it from.
They already have negotiated rates with the vendors, and it’s a hotel in a box. You just have to then get the employees, train the employees, and do the hands-on the operations type stuff. And so the first thing that we need to do is we need to understand our skillset and we need to understand who we are as investors, as operators, and what is the best fit for me. So do a little bit of a study difference between branded and boutique. I think from a price point you can find both of these assets, both of these types of assets within the price range that you’re looking for. So my first acquisition was four and a half million dollars. So not huge, but not tiny either, but that was kind of my price point and it happened to be a Best Western. So you can look branded or you can look boutique to answer your question in terms of size, do not make the mistake of going for a 300 room property also be very conscious or just mindful when looking, oh, this has a full spa and a full restaurant.
Those things look nice and they’re pretty to put on Instagram and the flyer looks good. But remember, when you’re operating a full service restaurant, that’s a whole nother business that you’re running in addition to the hotel. So what I would say is focus on a limited service hotel, something that offers a good night’s stay, maybe has a nice common area that you can create, maybe has some additional excursions that you can, like we talked about, draw additional revenue from. But if you can avoid a full service restaurant at the property, that might not be a bad idea when you’re starting out. So look at those limited service hotels. And I would say to stay under a hundred rooms, remember the whole game here is being able to scale, so multiple units within one roof. So if you can get a 40 unit or a 50 unit, that’s probably going to be better from the standpoint of economies of scale than getting a seven unit boutique hotel, a 10 unit boutique hotel. So I typically like to say kind of aim between that 20 to 80 range when looking at what is the buy box that I should be looking at.

Tony Robinson:
And Suge, you hit on a point that really drew me into the commercial side was the economies of scale. We have just under 30 single family Airbnbs across a few different markets, and it’s kind of a pain in the ass from a management perspective to have so many different roofs and cleaners and maintenance and this and that and the other. And I have these operational meetings with my team and I’ll have the hotel team and our single family team on the same call. And the hotel is just so much easier when I’m hearing it back to back all the issues on the single family side versus the issues on the hotel side and the hotel is just so much easier. So that is a big draw for me is that you get these economies of scale where it’s one roof, it’s one team, it, and they’re all kind of working together.
Now what about on the underwriting, like the analysis side? I think part of what makes single family even small multifamily so accessible for rookies is that the underwriting is so easy, but for us, the hotel that we purchased, we actually hired someone to help us build this underwriting tool because I didn’t have one. And it’s like I’m not even sure all the different elements that should go into it. So if I’m a rookie and say, I want to find this 30 room independent hotel, what am I looking at from an underwriting perspective to evaluate whether or not it’s actually a good deal?

Sujay Mehta:
Yeah, no, great question. So there’s two things that we want to look at for underwriting, and I love that you’ve leveraged somebody who maybe better have the time to dig into it, right? Sure, you could do it if you dug into it enough, but someone who has that experience going into it. But two things that I typically look at when I’m underwriting a deal. So one is as is, let’s say worst case scenario, I’m not able to increase the revenue at all, not able to increase the NOI at all. What is this property worth as is? So I’ll do an underwriting and I’ll do valuation. Really there’s three main ways to underwrite a hotel or come up with a value for a hotel. And so one is using revenue multiplier. So we want to look at what the revenue is. And depending on your market, your market will have kind of like a standard revenue multiplier.
So over here in the Midwest, the east coast revenue multipliers, somewhere between three and five, typically it’s around four. If it’s a brand new hotel, that revenue multiplier is going to be higher, increasing the value of the hotel. If it’s an old, tired beat up hotel with a lot of maintenance issues, the revenue multiplier is going to be lower. So again, this is a rule of thumb, it’s not applicable to every single hotel, but it’s a good start. So let’s say a four times revenue multiplier. So my first acquisition I ever did, it did about 1.5 million in revenue. It was a little bit less than that, but we’ll use 1.5 for whole numbers. So 1.5 million in revenue. I did a revenue multiplier, and I actually did a four times revenue multiplier on the property. So four times revenue multiplier would give me a 6 million valuation for that property.
So very easy back of the envelope math that you can do looking at that property. The second way to underwrite the property is using cap rates. So similar to revenue multiplier, the cap rate will also adjust depending on the condition of the property, the location, is the land worth more, that will usually compress the cap rate to bring it lower. So that increases the value. So what I do is, so this property had about, I want to say like 350 to $400,000 of NOI, right? So let’s use 500,000 for whole numbers. So if it has a $500,000 NO, and I’m looking at this property from somewhere between an eight to a 10% cap rate as is, so let’s use 10% because easy math, that gives me a value of about $4 million based on the NOI for the property. So again, I use revenue multiplier. So that gave me 6 million.
I used the cap rate method, which gave me a value of about $4 million. So I know that the value of that property should fall somewhere in between. As a buyer, I’m usually going to go with the one that gives me the lowest value. So when I’m buying a hotel and I’m submitting lois or offers on these properties, I want to try to use whatever’s in my favor. So for this particular property, I started negotiating at $4 million for the property. So the third method that we use to evaluate a property is a per key basis. So when I’m looking to buy a property, there could be a property that has, it does crazy revenue, and it does crazy high NOI. But that doesn’t mean that I want to pay 10 million for this 10 room property, a million dollars per room, and I could probably build that hotel if I built it ground up for $5 million or $4 million.
So the last method that we use to kind of check our math is a per key basis, and I want to understand how much I’m paying per key. And so in the Midwest, typically I want to be under $200,000 a key, depending on how many rooms there are, that number will drop. So if it’s a hundred room property, I want to be closer to 120 or $130,000 per key because if I were to go out and rebuild that property, I could probably build it around that number because of the economies of scale. So three main ways that we use these checks and balances to underwrite a hotel back of the envelope. And then I think the next step from there is to then utilize these calculators and underwriting tools that you can use to plug in, okay, this is how it is, this is what the property is worth as is.
Now, if I add that character and spunk to the rooms and do some design value add, if I’m able to increase the efficiency of the property and create some forced appreciation through NOI or cashflow, if I’m able to add more rooms, what does that look like? Does that give me the home run that I want, even if I buy it at a fair market value? So that’s typically how I look at these deals. Tools that I use to underwrite these hotels is CoStar. So CoStar is a great tool. CoStar also owns another company called STR. So STAR Reports is what we call it in the industry. So Star Reports will give us kind of what the A DR or the average daily rate for these rooms, how much they’re selling for on a nightly basis, what is the occupancy in the market for hotels that are within this, let’s say the Columbus, Ohio market, how much are, what is the occupancy for the hotels in this market?
So it would kind of give me these metrics to be able to run the math properly and say, okay, the potential is here. It’s underperforming. So we also use these tools to help us underwrite. And then, yeah, the last thing I would say is go down and do rate shops, make phone calls to hotels. Go visit them, go talk to, these are 24 7. They’re staff at the property, so go to the bar or go grab a coffee if they have a coffee shop or book a room, right? Book a room, talk to the staff, see how much they’re selling the rooms for, ask them if it’s busy, ask them, do you guys have enough rooms at this property? When it gets busy, they may say like, oh no, we don’t have enough rooms. So many times we have to turn people away. That tells you that I may be able to add more rooms to that property or another property that I’m looking at in the market. So ask questions. I mean, oftentimes we rely on the computer and spreadsheets and all these things, but you have to go to the market. You have to be at the property because that’s what’s going to give you the edge compared to other investors and allow you to make that leap. So I think that’s very important in the underwriting process. Sorry, I might’ve gone a little too deep in there.

Ashley Kehr:
No, that was great. And I really liked how you highlighted that, go to the market because oftentimes as investors, we get caught in the, oh, you got to be hands off. You got to be a passive investor investing state. You can do that without ever visiting in the market. But I think it’s a great reminder that it’s not a bad thing to go to the market to do some hands-on research, especially when you are making a million dollar investment or more. It’s worth the $200 per night to spend on a hotel room in that market to see what’s going on there.

Sujay Mehta:
And it’s a write off. So

Ashley Kehr:
Kids, I’m taking you on vacation. We’re going to Columbus, Ohio for the night. My question though is before we even do the underwriting, where are we finding properties to even underwrite? I think maybe I saw a one 10 unit motel before on Zillow, but other than that, it doesn’t seem like they’re listed on most of the residential MLS sites.

Sujay Mehta:
Yeah, a great question. And honestly, it’s another reason why hotels are great for rookies right now. The brokerage space or the way to find hotels is fragmented across the board right now. So there’s a ton of different national brokerages that will have hotels for sale, but unfortunately there’s nothing that funnels all of these listings into one platform. And so I mean, every day people are going to have to log into all these national listing brokerages where you can go into their website, go into their portal and find properties that are in your buy box or in your market where you’re looking. And then additionally, you got to get on these brokers email lists. So every city or every state is going to have local brokers that may not be attached to these national brokerages, like a Marcus and Mill chap or A-C-B-R-E, but they have their own local real estate brokerage company within the state of Ohio, within New York or within California, and they have their 10 properties for sale.
But you can’t overlook those because one of those 10 might be your next hotel purchase. So you’ve got to be paying attention to those as well. And then the last one is get in the right rooms, get in the right communities, get in the right conferences, go to these conferences, start rubbing shoulders with other hotel owners and operators. You never know when that buyer is going to be a seller. For example, for us, I’m always buying hotels, but I’m also selling certain properties when it’s run it’s investment course with me, I’m going to be offloading. So even right now, we’re offloading a couple of our properties as we continue to scale and get into maybe larger properties or more rooms. We’re offloading our 50 unit properties that are in smaller market. So I could be a buyer, but I could also be a seller. So rub shoulders with the right people, be in the right rooms.
And again, it goes back to get out of the house. You can’t just sit at home, sit on the laptop. And I see this especially on this podcast because that was the number one thing that I learned from my father who was an entrepreneur, is don’t sit at home. If you can make a phone call, great, but go out and meet them. Do a meeting because when you let people know that, Hey, I am looking to buy my first hotel and I am hungry, I’m ready to go. Things will start coming. Put it on social media, put it out on LinkedIn, on Instagram, whatever it is, but let people know that you’re looking right and then the deal flow will start coming to you as well.

Tony Robinson:
Suji, you’ve got a lot to share, man, and I want to keep digging into it. And what I want get into next is the operational component. What happens after you buy the hotel where things can, I think, fall apart fast for rookies, and how can we maybe avoid some of those rookie mistakes that kill cashflow? But first, we’re going to take our last break and hear a word from today’s show sponsors. Alright, we’re back. So Sujay, let’s say, man, you closed on your first deal, right? But it feels like at that point, the real work is just starting. When you close in that first hotel, I really want to know what does it take to run a profitable hotel operation and how to avoid some of those mistakes that first time investors make. So I guess maybe let’s start there. What do rookies totally maybe underestimate when they take over a hotel operation?

Sujay Mehta:
Yeah, I think the first part of it starts even, and I’ll just drop this real quick. I know we’re talking about operations, but the purchase sale agreement, a lot of people come from the residential world and they’re used to these model purchase sale agreements that they don’t realize you can negotiate anything and everything. When you’re buying your house, the realtor sends you a purchase sale agreement and says, Hey, sign this. Click, click, click. You sign it, loop it’s done. You might negotiate the hot tub is to be included with the home. That’s about it. But there’s so much in hotels. So the purchase agreement is really key. And for a lot of the people in our community, that’s something that I really stress is make sure we review every single line item of the purchase sale agreement. You can save a ton of money before you even buy the property and get into the operations if your purchase sale agreement has all of the clauses and terms that we can have in there.
So I think that’s really important. I think from an operational perspective, your staff is very important. And I know Tony and I have joked around about this a little bit with some of the shared experiences we have with our hotels that we own, but your GM is your MVP. Without them, you’re just a proud owner of a dumpster fire, and that’s not what we want to be. Your staff is everything. If your staff is not properly trained, if you don’t have the right people in the right places, your reviews are going to go down really fast. Your revenue’s going to start dropping, you’re going to lose a lot of the group revenue that you may have already at the property and repeat guests. It’s going to go downhill. And once they leave and start testing out other hotels, it’s difficult to get them back. So one of the things that I’ve learned through just the iteration of buying more hotels is making sure that my presence is felt when we get to those last few weeks before closing and the staff knows that, hey, there’s going to be a culture shift.
And I’m big on culture at our properties. Our culture is family. That’s our go-to. So all of our staff knows that we’re going to treat them like family. If they treat the place like their home and they treat us like family, and that comes with trust, we’ll go above and beyond. If they’re in a tough place, we’ll go out of our way to make sure that they’re okay. I remember during COVID time, one of our staff members had COVID and we went grocery. I literally went grocery shopping for them and dropped off groceries at their house, but that person will never leave me. And even during the great resignation, she’s the one employee that is still with me today, right? Five years later after COVID, she’s still working for me and she’ll never leave. And anyway, so taking care of your staff and making sure that there’s continuity when you purchase the hotel is very important.
So make sure that you have your employment agreements already written out. You’ve already presented it to the new employees. So they’re not out looking for jobs. Once they find out that the hotel is selling, they know that they have a steady position, nothing’s going to change. They have their job and you’re able to retain the people that you want to retain. I think that’s very important. Second thing about operations is this isn’t like an Airbnb where you can just have a third party cleaner and you book them and assume that your property’s going to get cleaned and everything’s going to be perfect, which I know is not the case with Airbnb’s either, but people are a lot more hands off in that sense with their cleaners. And once you put the third party people in the right place, but it’s because they have a boss, they have someone else who’s training them, they have someone else who has expectations for them.
They have SOPs laid out for them. If you do not continue to train and retrain your staff, those things are going to go downhill really fast. So we have cleaners at all of our properties. They’re on our payroll, they’re expected to come to work at the same time every single day, but we still have to check their work. I have to make sure that my GM is going and inspecting five rooms every single day, and I have checks and balances to make sure from an operation standpoint that this is all getting done. And so I think just having that awareness and a pulse on the property and every task that’s being done at the property is going to be key. And as an operator, and it may seem stressful, and it may seem like it’s a lot, but when you take a step back, it’s the same thing as having a 10 unit multifamily property.
You got to send a maintenance person, you have to have all these, someone mowing the lawn or taking care of the landscaping or dealing with the HOA. You have all these issues that you’re going to have. But really, I mean, the beautiful thing is you have a team and once you train the team, you start building a business, not building a job for yourself. So don’t let any of this make you feel like it’s overwhelming, but really, I say this to make sure that we don’t run into these pitfalls when you do close on your first hotel property.

Ashley Kehr:
Well, Sujay, thank you so much for coming and speaking with us today on the Real Estate Rookie Podcast. Where can people find more information about you and reach out to you?

Sujay Mehta:
Yeah, absolutely. I think Instagram is a great place, so feel free to reach out to me, dm me on Instagram. If you listen to this and you don’t agree with something, love it. Feel free to tell me I’m crazy. And also, if you loved it, feel free to tell me like, yo, I listened to it and I love it and would love to have a conversation. So I love meeting people over Instagram. Suha is my Instagram handle, so feel free to reach out.

Ashley Kehr:
Well, thank you so much. I definitely learned a lot today about hotel investing in general, and we’ll have to have you on another time too, to go over franchisees and go more in depth about franchise investing. So thank you so much. I’m Ashley Hughes, Tony, and thank you so much for watching or listening to this Week’s Real Estate Ricky episode.