The hotel industry is recovering post-pandemic, creating unique opportunities for investors willing to reposition underperforming properties.
The Current Hotel Market Landscape
According to STR (Smith Travel Research), hotel occupancy has recovered to 65.4% nationally (2024 data), with revenue per available room (RevPAR) up 8.3% year-over-year.
Market segments performing best:
- Limited-service hotels (Hampton Inn, Holiday Inn Express)
- Extended stay (Residence Inn, Homewood Suites)
- Select-service (Courtyard, Fairfield)
Struggling segments:
- Full-service convention hotels (still below 2019 levels)
- Urban business hotels (remote work impact)
Three Hotel Investment Strategies
Strategy 1: Distressed Asset Repositioning
The opportunity: Independent hotels and franchises struggling post-pandemic selling at 30-50% discounts to replacement cost.
Target profile:
- Built 1990-2010 (good bones, needs refresh)
- Occupancy: 40-60% (underperforming)
- Purchase price: $35,000-$55,000 per key
- Post-renovation value: $65,000-$85,000 per key
Real example (Indianapolis market):
- Purchase: 80-room independent hotel at $3.2M ($40k/key)
- Renovation: $1.2M ($15k/key) for rooms, lobby, exterior
- Rebrand: Join Choice Hotels as Comfort Inn
- Post-renovation RevPAR: $52 (vs. $35 pre-renovation)
- New value: $5.6M ($70k/key)
- Equity created: $1.2M in 18 months
Renovation priorities (highest ROI):
- Room refresh (paint, carpet, bedding): $3,000-$5,000/room
- Bathroom updates: $2,000-$4,000/room
- Lobby modernization: $50,000-$100,000
- Exterior refresh: $40,000-$80,000
- Technology (wifi, TV, door locks): $1,000-$2,000/room
Strategy 2: Conversion to Extended Stay
Why this works: Extended stay demand is up 12% (per CBRE Hotels Research), driven by:
- Remote work (digital nomads)
- Corporate relocations
- Displaced homeowners (disasters, renovations)
- Healthcare workers (travel nurses)
Ideal conversion candidates:
- Existing limited-service hotels
- Rooms 300+ sq ft (need space for kitchenette)
- Parking ratio 1:1 (extended stay guests need parking)
- Location near employment centers
Conversion costs:
- Kitchenette installation: $3,000-$5,000/room
- Additional furniture: $1,500-$2,500/room
- Larger TVs and workspace: $800-$1,200/room
- Total: $5,000-$9,000 per room
Revenue increase:
- Standard hotel ADR (average daily rate): $85
- Extended stay ADR: $95-110
- Length of stay: 5 days vs. 1.5 days (standard)
- Revenue per room per month: $1,450 vs. $2,850
Strategy 3: Short-Term Rental Arbitrage (Small Hotels)
The model: Buy small independent hotels (20-40 rooms), operate as individual Airbnb/VRBO units.
Why it works:
- Higher nightly rates (30-50% premium vs. traditional hotel)
- Less operational complexity than full-service hotel
- Target leisure travelers (higher margins)
- Flexibility in pricing
Example property (Smoky Mountains market):
- Purchase: 24-room motel at $1.8M ($75k/room)
- Renovation: $360k ($15k/room for modern finishes)
- Operate as individual “cabins” on Airbnb
- Average rate: $165/night (vs. $95 as traditional motel)
- Occupancy: 75% (vs. 58% previous owner)
- Gross revenue: $1.09M/year (vs. $605k traditional)
- NOI after 20% operating expense increase: $495k
- Cash-on-cash return: 23% on $540k invested
Financing Hotel Investments
Loan options:
- SBA 7(a) loan: 10-20% down, up to $5M, for owner-operated
- Commercial mortgage: 30-40% down, rates 7.5-9.5%
- Bridge loan: For distressed acquisitions, 12-15% rates, 2-3 years
Lender considerations:
- Flag (branded vs. independent) – franchises easier to finance
- Property Condition Report (PCA) required
- Market feasibility study (demand analysis)
- Management company with track record (if not self-operated)
According to Hospitality Net, SBA loans are 45% of small hotel acquisitions under $5M.
Operating Metrics That Matter
Key performance indicators:
- Occupancy: Rooms sold / rooms available (target 65%+)
- ADR (Average Daily Rate): Revenue / rooms sold (varies by market)
- RevPAR: Revenue per available room (occupancy × ADR)
- GOP: Gross Operating Profit (revenue – operating expenses)
- EBITDA: Earnings before interest, taxes, depreciation (30-40% target)
Example 60-room hotel:
- 60 rooms × 365 days = 21,900 room nights available
- 70% occupancy = 15,330 rooms sold
- ADR $110 = $1,686,300 room revenue
- Other revenue (F&B, parking): $150,000
- Total revenue: $1,836,300
- Operating expenses (60%): $1,101,780
- GOP: $734,520 (40%)
- EBITDA: $660,000 (36%)
Hotel Management Options
Option 1: Self-Operate
- Best for: Small properties (under 50 rooms), operators with experience
- Pros: Keep 100% of profit, full control
- Cons: Time intensive, need hospitality experience
Option 2: Third-Party Management
- Management company fee: 3-5% of revenue
- Best for: First-time hotel investors, larger properties
- Companies: Aimbridge Hospitality, White Lodging
Option 3: Franchise + Management
- Franchise fee: 5-6% of revenue
- Management: 3-5% of revenue
- Total cost: 8-11% of revenue
- Best for: Maximum hands-off, established brand value
Market Research Before Buying
Essential analysis:
- Competitive Set: Identify 3-5 comparable hotels within 3 miles
- STR Report: Purchase market report ($500-$1,500) showing:
- Occupancy trends (3 years)
- ADR trends
- Market segmentation (business vs. leisure)
- Demand generators
- Site inspection:
- Visit on different days/times
- Check competitor hotels (shop rates, see condition)
- Identify demand drivers (businesses, attractions, hospitals)
- Traffic patterns and visibility
Red flags:
- Declining market occupancy (3 years)
- New supply coming online (under construction competition)
- Major demand generator closing (factory, military base)
- Negative online reviews (under 3.5 stars = trouble)
The Bottom Line
Hotel investing best for:
- Experienced commercial real estate investors
- Those with $500k+ to invest
- Ability to manage active asset (not passive)
- Markets with tourism or business travel demand
Entry strategies:
- $50k: Syndication/crowdfunding (passive hotel investment)
- $500k-$1M: Partner on small hotel (20-40 rooms)
- $2M+: Acquire distressed asset, reposition solo
