As the cost of living continues to rise, more and more people are looking for affordable housing options. Converting a hotel into multifamily apartments can be a great way to turn a property that may be struggling into one that is thriving. There are many benefits to converting a hotel into an apartment building. When done correctly, converting a hotel into apartments can provide significant returns on investment. There are many things to consider when making this type of conversion, so it is important to do your research first.For the right property, the strategy works extremely well, if you're interested in learning more about converting hotels into multifamily apartments, keep reading!
WHY HOTEL CONVERSION TO APARTMENTS IS A GOOD IDEA?
A Hotel typically have hundreds of rooms and several different floors. They generally have staircases, elevators and interior corridors that go to the front doors of the rooms. The extended stay hotels are the ideal conversion prospect because they're typically larger units between 400 to 500 square feet and they have kitchens. A Motel, on the other hand are typically one or two floors and the guests can access the rooms directly from the parking lot. They have open air corridors and staircases and usually only range from 200 to 300 square feet.
Most hotels located in secondary or tertiary markets are typically owner operated businesses. The big hotel brands typically won't put their names on these motels, which is one of the reasons why a lot of motels struggle.
LOWER ACQUISITION COST
Many hotels have been forced to close their doors due to the COVID-19 pandemic, as they cannot cover operating expenses or service debt. COVID has caused a lot of disruption in the hotel and motel world that most of these won't be able to recover from even when the vaccine is fully distributed. This, of course, increases vacancy, lowers the per night rent stay, and allows investors to pick up these assets at a reasonable price to compensate for the large cost to convert to apartments or what's also called micro-apartments.
SHORTAGE OF RENTAL HOUSING
FASTER THAN BUILDING FROM GROUND UP
APARTMENTS ARE MORE STABLE
CHEAPER THAN BUILDING NEW APARTMENTS
Okay, now let's quickly go over the things to LOOK OUT for when you're doing hotel to apartment conversions.
CHANGE OF USE
Conversion is going to be a change of use, which means there are going to be building code changes and zoning changes. It's the very first thing you want to find out before you even get involved. If the respective planning department isn't going to allow the zoning or change of use then move on.
LOCATION
DEMAND
LAYOUT
KITCHEN
AMENITIES
FIRE SPRINKLER
RENOVATION COST
OVERBUILDING
You could be thinking, “How do I find a conversion project like this?” We both know the answer to that question is not easy
They're hard to find because the location has to work and a lot of these motels and hotels are in bad locations, the layouts have to accommodate a full kitchen and still be viable, zoning has to allow it, the purchase price has to be low due to the higher conversion costs and typically, you will have to buy enough rooms to make it all worth it. Most importantly, you need experienced team of professionals to execute this strategy.
Which investment stratergies do you focus on and why? Let us know below!
Harry Samby
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