How to buy a hotel franchise
Short answer
Buying a franchised hotel means buying real estate and a business, and either taking over the existing franchise agreement (with the brand's approval) or signing a new one. Expect a property improvement plan (PIP) setting renovations the brand requires, and budget for it as part of the purchase. Verify performance (occupancy, ADR, RevPAR, channel mix) from the property system and brand reports, read the franchise and any management agreement, and model brand fees, loyalty program costs and reservation fees.
A franchised hotel purchase has three moving parts: the property, the brand relationship and the operation. The PIP connects all three, because it's what the brand will require you to spend on the property to keep the flag.
The brand relationship
- Will the brand approve a transfer, or require a new franchise agreement?
- The PIP: scope, cost estimates, deadlines. Get contractor quotes.
- Fees: royalty, marketing, reservation, loyalty, technology.
- Brand quality scores and any default notices for this property.
- Territory protections and nearby brand sister properties.
Performance
| Metric | Source |
|---|---|
| Occupancy, ADR, RevPAR by month | Property system, brand reports |
| Performance vs local competitors | Industry benchmarking reports the hotel subscribes to |
| Channel mix and commissions | Property system |
| Departmental P&L (rooms, F&B) | Hotel accounting |
| Lodging taxes paid | Tax returns: independent revenue record |
Worked example: what the brand costs and what the PIP does to the price
Illustrative example, not a real hotel or any brand's actual fees
An 80-room select-service hotel runs 70% occupancy at a $120 average daily rate. Rooms sold: 80 × 365 × 0.70 = 20,440. Room revenue: 20,440 × $120 = $2,452,800. RevPAR: $120 × 0.70 = $84. Say the brand charges a 5% royalty, 3% program fee and 2% for reservation and loyalty costs, 10% of room revenue in total (made-up rates; your franchise agreement sets the real ones): $245,280 a year. Now the PIP. The brand requires new case goods, bathrooms and a lobby refresh, and contractors quote $1,600,000. If the seller's asking price assumed the hotel needed nothing, the PIP is $1.6 million of your money on top of it, or of extra debt that has to be covered by the same cash flow. Most buyers negotiate the price with the PIP estimate on the table, and lenders typically include the PIP in the project cost.
Read the franchise and management agreements
Hotel franchise agreements are long, and the brand decides whether you get one. Get the brand's current Franchise Disclosure Document even if an exemption applies (large-investment deals can be exempt from the FTC Franchise Rule's disclosure requirement under 16 CFR 436.8, but most brands still provide one), and read the sections on fees, required purchases, territory, renewal, transfer and termination. If the brand won't transfer the existing agreement, you'll sign a new one at current terms, which may differ from what the seller pays. Liquidated damages for leaving a brand early can be large. If a third-party management company runs the hotel, its agreement may have years left and a termination fee; know whether you're inheriting it.
The building is most of the risk
Have a property condition assessment done: roof, HVAC (often individual room units plus central plant), elevators, pool, parking, life safety systems, and accessibility. Hotels are public accommodations under ADA Title III (28 CFR Part 36), and accessible rooms, routes and pool access are common issues. Lenders will typically want an appraisal and an environmental site assessment. Ask about the property tax reassessment after sale, which can raise operating costs, and insurance costs for the location.
Red flags specific to franchised hotels
- A default notice or low quality scores from the brand. Ask for every brand inspection report for three years.
- RevPAR falling behind local competitors in the benchmarking reports the hotel subscribes to.
- A new hotel of the same brand nearby, or another under construction.
- Deferred capital spending disguised as profit: low repairs and maintenance in the years before sale.
- Family labor covering front desk or night audit off the payroll.
- Lodging tax filings that don't match the property system's room revenue.
Financing
Hotels are usually financed as real estate (SBA 504 or 7(a) where eligible, or conventional commercial loans), with the property appraised and lenders focused on cash flow after brand fees and PIP. If the business portion is financed under 7(a), change-of-ownership rules apply. See acquisition financing. For unbranded properties, see buying a motel.
Labor, management and the departmental P&L
Hotels report by department: rooms, food and beverage (if any), and undistributed costs like administration, sales, maintenance and utilities. Ask for the departmental P&L monthly for three years, the staffing chart, and wage rates by role. Housekeeping productivity (rooms cleaned per attendant per shift), front desk coverage and night audit, and maintenance staffing tell you whether the seller's costs are sustainable. An owner who manages the hotel full time is doing a general manager's job, and that salary belongs in your numbers whether you take it or pay someone else.
Illustrative example, not a real hotel or wage
From the 80-room example: 20,440 rooms sold. If a housekeeper cleans 15 rooms a shift, that's about 1,363 shifts a year (20,440 ÷ 15). At 8 hours and $18 an hour plus 12% payroll costs, housekeeping labor is about 1,363 × 8 × $18 × 1.12 = $219,800. If the seller's P&L shows $160,000, ask why: fewer rooms cleaned (stayovers skipped), lower wages that won't hold, or family members working unpaid. Each answer changes what you're buying.
What moves the value of a franchised hotel
We don't value deals or publish capitalization rates or multiples we can't verify. Appraisers and lenders weigh these factors:
| Factor | Supports a higher value | Pulls it lower |
|---|---|---|
| RevPAR vs competitors | Above the local set | Behind and slipping |
| Brand standing | Good quality scores, long agreement | Defaults, near expiry |
| PIP | Recently renovated, modest PIP | Large PIP due soon |
| Market | Diverse demand (business, leisure, events) | One demand driver |
| Supply | No new competing hotels | New hotels under construction |
Independent checks on hotel revenue
Hotel revenue can be tested against records the seller doesn't control. Compare reported room revenue with:
- Lodging tax returns. Most states and many cities tax room revenue. The returns filed should track the P&L month by month.
- The brand's reports. Royalty and reservation fees are charged on room revenue, so the brand's statements to the hotel are a second record of it.
- Card processor statements. Most guests pay by card; deposits should line up with revenue after timing differences.
- Third-party booking statements. Commissions paid to online travel agencies show how many room nights came through them.
Differences have explanations, such as direct billing for corporate accounts or tax-exempt stays, but you should be able to trace each one.
Questions to ask the seller and the brand
- Will the brand transfer the existing agreement, and what PIP will it require of a new owner?
- Can I see three years of brand quality reports and any default or cure notices?
- What were occupancy, ADR and RevPAR by month, and how do they compare with the local competitive set?
- What capital spending was done in the last five years, and what's overdue?
- Is there a management agreement, and what does it cost to end?
- Are any new hotels planned within your market?
Frequently asked questions
What is a hotel PIP?
A property improvement plan listing renovations and upgrades the brand requires, often triggered by a change of ownership. It can be a major cost; get it before you agree a price.
Do I get a Franchise Disclosure Document for a hotel?
The FTC Franchise Rule has exemptions, including one for very large initial investments (16 CFR 436.8(a)(5)), so you may not automatically receive one. Ask the brand for its FDD anyway; most provide it.
What fees do hotel brands charge?
Typically royalties, marketing or program fees, reservation and loyalty program fees, and technology fees, usually tied to room revenue. Check the agreement.
Do I need a management company?
Not necessarily. Many owner-operators manage themselves; others hire a third-party manager. If there's an existing management agreement, check its term and termination costs.
How do I verify a hotel's room revenue independently?
Lodging or occupancy tax returns filed with the city, county or state are based on room revenue, so they're an independent record. Compare them with the property management system's room revenue, the brand's royalty statements (calculated on room revenue) and card processor deposits. All four should tell the same story.
Can I use an SBA loan to buy a franchised hotel?
Often yes, under SBA 7(a) or the 504 program for the real estate, if the brand and property meet the lender's and SBA's requirements. Lenders will appraise the property, review the franchise agreement and PIP, and test debt coverage after brand fees and the renovation budget.
Sources
- FTC Franchise Rule, 16 CFR Part 436 (including 436.8 exemptions), eCFR
- SBA: 504 loans
- FTC Franchise Rule exemptions, 16 CFR 436.8
- ADA Title III regulations, 28 CFR Part 36 (public accommodations)
- SBA SOP 50 10 8.1 (change of ownership; valuation)
- ASTM E1527-21 (Phase I environmental site assessment)
Related guides
General information, not legal, tax, financial or investment advice. Rules and lender practices change; check the linked sources and talk to your attorney, CPA and lender about your deal. Examples with named numbers are illustrations, not real businesses. OKtoBuy's Deal Check does not value businesses or give price opinions.