How much cash do you need to buy a motel?
Plan for more than the down payment. A motel purchase also needs cash for closing costs, working capital, early room and roof repairs, a reserve to carry you through the slow season, and linen and supply stock. Your lender will set its own terms, so ask what it expects you to hold in cash.
Start with the price and the down payment, but note that a motel asks for cash in several other places, and the gaps show up in the first season. Ask your lender whether it wants to see that you can carry the property after closing. Here is a starting list to put in front of your lender and accountant.
The down payment and closing costs
The down payment is the part of the price you fund yourself. Closing costs sit on top of it: your lawyer’s fees, adjustments between buyer and seller, any fees your lender charges, and any tax or registration fee on transferring the property. Ask your lawyer and lender for a written estimate of the closing costs early. Our page on financing a hotel acquisition covers how lenders look at lodging.
Working capital and the slow season
Guests pay as they stay, but suppliers, staff, utilities and loan payments do not wait for the busy months. If you buy shortly before the quiet season, you may fund several months of costs with little income coming in. A cash reserve for that stretch is part of the real cost of buying. Ask the seller for month-by-month figures so you can see how deep the gap runs.
Repairs and supplies you will need right away
Ask what rooms and roofs will need. An inspection before closing helps you list what needs work in the first year, and the seller may agree to deal with some of it. Linens, towels, cleaning supplies and small items for the rooms also need stocking. Ask whether any of that comes with the sale, and in what condition.
- Down payment and lender fees
- Legal fees, property transfer costs and closing adjustments
- Working capital for the first months
- A reserve for the slow season
- Early repairs found in the inspection
- Linen and supply stock
Related reading
12 pages on the same subject, grouped by topic.
Financing
Buying
- Expert answerWhat motel costs might the seller’s statements not show?
- Expert answerHow do I check a motel’s rooms and building before buying?
- Expert answerWhat should I change first after buying a motel?
- Expert answerWhat should I ask about the owner’s role before buying a motel?
- Expert answerHow do I compare two motels for sale?
Selling
Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentWorking capital loan
- 02Business Development Bank of CanadaGovernmentWhat are the steps to buying a business?
- 03Business Development Bank of CanadaGovernmentWhat is Cash Flow
- 04Business Development Bank of CanadaGovernment4 key steps to plan your cash flow in the coming year
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