Hotel Down Payments
How much of a down payment will I need to buy a hotel?
Many larger purchase decisions such as buying a house, a car or even furniture typically require some kind of down payment. Buying a hotel is no different. But when you decide to buy a hotel, how do you know what an appropriate down payment should look like? First, let’s scale things back down to the basics.
What is a down payment?
A down payment is an initial payment for a purchase that is being financed, or bought with credit. This payment is due at the time of purchase. Down payments can vary greatly in size, and often are based on the original purchase price.
In general, a higher down payment means a lower interest rate. Why? Because when a buyer offers up a larger down payment, the lender recognizes that the buyer has a larger stake in the property. This reflects the extent to which the lender is protected from possible financial failures.
What determines the size of the down payment I need to buy a hotel?
This is a complex question that will vary based on a number of circumstances. First and foremost, you’ll need to consider your credit history. If you have some dark stains in your credit history, you can expect that a larger down payment may be required.
The type of property and its performance also plays a large role in the kind of down payment required to buy a hotel. Is the hotel part of a franchise? Or is it a privately owned bed and breakfast? These kinds of details will have an impact on the kind of down payment you’ll need.
Additionally, your personal net worth should be considered when determining what an appropriate down payment looks like. This includes your assets and liabilities, as well as your overall financial health.
What do down payments look like for most hotel buyers?
While choosing to pay for a hotel outright with cash is always an option, most buyers want to finance this kind of purchase. To buy a hotel, our hotel brokers at Southeast International recommend a down payment be 20-25% of the hotel’s purchase price. Keep in mind that you may also have more wiggle room for negotiation if upgrades or construction improvements are included in the financing.
Now that you’re ready to buy a hotel, are you also prepared to buckle down and get a hard number estimate for your down payment? A hotel broker with Southeast International can help you review the relevant factors necessary to come to a decision about what your down payment should be. Contact us today by phone, or fill out our contact form online.