How to buy a motel business: what to check in the numbers
Short answer
To buy a motel, pull data from the property management system: occupancy, average daily rate (ADR) and revenue per available room (RevPAR) by month, and the mix of booking channels, since online travel agency commissions can be large. Check long-term stay guests (which may create tenant rights in some places), housekeeping and front desk labor, utilities, deferred maintenance (roofs, HVAC units, furniture), property tax after sale, and if the motel is branded, the franchise agreement and any property improvement plan (PIP) the brand will require.
Motels are real estate with a daily rhythm. The property system tells you how rooms sell; the building tells you what it will cost to keep selling them.
Core metrics
Illustrative arithmetic, not a real motel
A 40-room motel averages 65% occupancy at an ADR of $90. Rooms sold per year ≈ 40 × 365 × 0.65 = 9,490. Room revenue ≈ 9,490 × $90 = $854,100. RevPAR = $90 × 0.65 = $58.50. If 40% of revenue comes through OTAs at an example 15% commission, that's about $51,200 a year in commissions.
From room revenue to what the owner keeps
Illustrative example continued, not a real motel
Room revenue is $854,100 and OTA commissions $51,200, so net room revenue is $802,900. Housekeeping: 9,490 rooms sold, at about 25 minutes a room is 9,490 × 25 ÷ 60 ≈ 3,954 hours; at $17 an hour plus 12% payroll costs, about $75,300. Front desk covering 24 hours, 365 days is 8,760 hours; at $16 plus 12%, about $157,000. Maintenance person $45,000. Utilities $70,000, laundry and supplies $40,000, insurance $35,000, property tax $38,000, card fees $20,000, repairs $30,000. Total costs: about $510,300. That leaves $802,900 − $510,300 ≈ $292,600 before debt, capital spending and the owner. Now the common twist: the seller's family covers the front desk and lives on site, so the P&L shows no front desk payroll and $449,600 of profit. The difference is $157,000 a year of labor you'll either do yourself, around the clock, or pay for.
Checks
- Property management system reports by month; channel mix and commissions.
- Card processor statements, bank deposits, and occupancy/lodging tax returns (an independent record of room revenue).
- Cash handling for walk-ins.
- Labor: housekeeping, front desk, maintenance; owner and family hours.
- Room-by-room condition; roof, HVAC units, pool, parking lot; furniture age.
- Long-stay guests and local rules.
- Property tax reassessment, insurance, franchise agreement and PIP if branded.
Owner-operator motels often run on family labor that doesn't appear in payroll; price in the staff you'll need. For branded hotels, see buying a hotel franchise.
The building: where motel money goes
Motels age in predictable ways. Roofs, individual room HVAC units, water heaters, mattresses and furniture, parking lots and pools all wear out, and guests notice in reviews long before they show up in the P&L. Have a property condition assessment done, and walk every room, not a sample the seller picks. Ask what was replaced in the last five years and what each item cost. Motels are public accommodations under ADA Title III (28 CFR Part 36), so accessible rooms, parking and routes matter; fixing them after an accessibility complaint costs more than planning for them. Check fire and life safety inspections, and ask about any police calls or local nuisance complaints, which can affect licensing and reputation.
Long-stay guests and local rules
Some motels rely on weekly or monthly guests. That revenue can be steady, but in some places guests who stay beyond a certain number of days may gain tenant rights, which changes how you can remove them. Ask for a list of current long-stay guests, how long each has stayed, and what they pay, and have a local attorney explain the rules. Long-stay revenue also tends to lower rates and raise wear on rooms.
Red flags specific to motels
- Lodging tax filings that show less room revenue than the seller claims.
- Repairs and maintenance cut in the two years before sale.
- Review scores falling, especially mentions of cleanliness or safety.
- Heavy dependence on one channel or one corporate account.
- A property tax bill that will jump when the sale price resets the assessment.
- Unpermitted conversions (an apartment built into the office, extra rooms) that show up on the appraisal.
What moves the value of a motel
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 |
|---|---|---|
| Revenue records | Property system, lodging tax filings and deposits agree | Cash claims, gaps |
| Labor | Paid staff in the numbers | Unpaid family labor |
| Condition | Recent capital spending, good reviews | Deferred roofs, HVAC, furniture |
| Guest mix | Balanced transient and corporate | Heavy long-stay or one account |
| Channels | Direct and repeat bookings | Most bookings through high-commission sites |
| Location | Near highways or demand drivers | Declining area, new competition |
The first 90 days after you buy
Make sure the property system, channel accounts, lodging tax registration and payment processing are in your name from day one, and that rates and inventory are loaded correctly on every booking site; mistakes there show up as lost nights. Keep the staff who know the building. Walk every room in the first month, list what needs fixing, and start with what guests mention in reviews: cleanliness, beds, air conditioning, Wi-Fi. Review scores are the motel's real marketing, and they respond quickly to small fixes.
What an SBA lender will check
Motels are usually financed with the real estate, under SBA 7(a) or the 504 program, or conventional commercial loans. Expect an appraisal, an environmental site assessment, tax returns matched to IRS transcripts, and a debt service test that uses real labor costs. If the motel is branded, the lender will review the franchise agreement and any PIP.
Independent checks on motel revenue
Motels often take some cash, so test reported room revenue against records the seller doesn't control:
- Lodging or occupancy tax returns filed with the state or city, month by month.
- Card processor statements, which should cover most stays.
- Online travel agency statements, which show room nights and commissions.
- Utility bills. Water and electricity use rises with occupancy; a year of high reported revenue with flat utilities needs an explanation.
- Housekeeping and laundry records: rooms cleaned per day and linen volumes should track occupied rooms.
- The property management system: nightly audit reports compared with deposits.
Large cash receipts can carry IRS reporting duties as well, so ask how the seller handles them.
Worked example: what occupancy and rate do to revenue
Illustrative example, not a real property or rates
A 40-room motel sells rooms at an average of $80 a night with 60% occupancy. That is 24 rooms a night, or $1,920 a night, about $700,800 a year over 365 nights. If occupancy stays at 60% but the average rate falls to $72, revenue falls to $1,728 a night, about $630,700 a year, a drop of $70,100. If occupancy instead falls to 54% at $80, it is 21.6 rooms a night, also $1,728 a night. A 10% fall in either one costs the same revenue, but lower occupancy also lowers cleaning and laundry costs, while a lower rate does not. Ask which one moved in any weak year.
Questions to ask the seller
- Can I see the property system's monthly reports and the lodging tax filings for three years?
- Who works the front desk and night shift, and are they on payroll?
- What capital items were replaced in the last five years, and what's due?
- How many long-stay guests are there, and for how long?
- What share of bookings comes through each online channel, and at what commission?
- Any accessibility complaints, police calls or code violations?
Frequently asked questions
What is RevPAR?
Revenue per available room: room revenue divided by rooms available. It combines occupancy and rate into one figure.
Why do OTA commissions matter?
Bookings through online travel agencies carry commissions that reduce net revenue. A high OTA share can make a busy motel less profitable than it looks.
What is a PIP?
A property improvement plan required by a hotel brand when a property changes ownership or renews its franchise. It can require significant spending on rooms and public areas.
Are long-stay guests a risk?
In some jurisdictions, guests staying beyond a certain period may gain tenant protections, which complicates operations. Check local law and current long-stay guests.
How do I verify a motel's revenue?
Compare the property management system's room revenue with lodging or occupancy tax returns (filed on room revenue), card processor statements and bank deposits. For walk-in cash guests, check the night audit reports and registration cards against cash deposits. If tax filings show less than the seller says the motel earns, rely on the filings.
What capital spending does a motel usually need?
Roofs, individual room HVAC units, water heaters, mattresses and furniture, flooring, parking lots and any pool, all on predictable cycles. Get a property condition assessment, ask what was replaced in the last five years, and budget a realistic annual amount rather than relying on the seller's recent repair spending.
Sources
- SBA SOP 50 10 8.1 (real estate appraisal; blended terms)
- SBA: 504 loans
- ADA Title III regulations, 28 CFR Part 36
- IRS: Form 8300 (cash payments over $10,000)
- 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.