What is a motel making $250K a year actually worth?
Somewhere between about $600,000 and $1.4 million. That is not a dodge. The honest answer is that $250,000 of revenue cannot tell you what a motel is worth, because you are not buying revenue. You are buying what is left after the building is cleaned, heated, staffed, and insured, and two motels with identical revenue can leave behind very different numbers. Here is the walk I do before I say a price, with the math shown.
You are not buying revenue
A buyer asked in a forum: "I'm looking at a motel that makes about $250K gross revenue annually. What is the price I can make an offer?" It is the right question with the wrong starting point. Listings for small properties love the revenue number because it is the biggest number in the building. But nobody pays the mortgage with revenue. What a lender will finance, and what the place will pay you back, comes from the profit left after operating costs. That leftover has a name, net operating income, but you do not need the vocabulary to do the math.
The four-step walk
Step one, start at $250,000.
Step two, take out operating costs. Cleaning, utilities, insurance, property taxes, repairs, supplies, the front desk, the booking commissions. On a small owner-run motel these usually eat 55 to 70 percent of revenue. That range is wide on purpose, because this is exactly where two identical-looking motels separate. What is left: somewhere between $75,000 and $112,000.
Step three, price the owner's labor. This is the step people skip, and it is where most small-property listings flatter themselves. If the seller works the front desk, cleans rooms, and does the books, none of that shows up as an expense on their P&L, but it is not free once you own the place. Either you do that work yourself, in which case the "profit" is partly just your unpaid wages, or you hire it done, in which case subtract what those hours cost at market rates. On a small motel that adjustment alone can take $40,000 or more out of the leftover.
Step four, apply a cap rate. A cap rate is just the yearly return a buyer demands for the risk. Divide what is left by that rate and you have a value. At 8 percent, which is in the neighborhood buyers ask of small independent motels, $75,000 of leftover is worth about $940,000 and $112,000 is worth about $1.4 million. If the owner-labor adjustment pulled the leftover down to $50,000, the same math says about $625,000. The right cap rate is a judgment call that moves with the market, the location, and the property's condition, which is one reason the same building can be worth different amounts to different buyers.
Same $250,000 of revenue. The value swings by half a million dollars or more, and the listing does not tell you which end you are looking at.
If you want to run this on a property you are actually looking at, the free Small Hotel Underwriting Template does the four steps for you, with a worked example filled in. It is on the downloads page.
The number on the listing is not the number in the building
This year I audited The Lincoln, an independent hotel in Marfa, Texas (shared with the owners' permission). Two years of books, essentially the same revenue both years. Underneath, the machine had flipped: the second year sold 270 more room nights at lower rates to get to the same top line. Same revenue, opposite strategies, and very different costs, wear, and futures. A buyer who priced that property off the revenue line would have had no idea which business they were buying. The P&L and the monthly occupancy and rate history knew. The listing did not.
What to ask the seller for
Five things, before you talk price. Three years of P&Ls next to three years of tax returns, because sellers rarely overstate income to the IRS, and when the two disagree, believe the returns. An honest count of the hours the owner and their family put in, priced at market. An insurance quote in your name, not their grandfathered premium. Property taxes at your purchase price, not their assessed value. And twelve months of occupancy and average rate, month by month, which is one email to the broker and tells you what strategy produced the revenue.
Sellers of small properties are rarely hiding these things. Most just have never been asked. If a seller cannot or will not produce them, that is an answer too.
So what do you offer?
Do the walk with real documents, put a cap rate range on the result, and you get a value range instead of a guess. Offer inside it, financed on terms a lender will actually accept, and be ready to show your math. A seller anchored to a revenue multiple may not like your number, but a number you can defend line by line beats a number you hoped.
This is the math an underwriting study finishes before you sign. If you are looking at a property and want the walk done properly, with lender-ready numbers and sensitivity scenarios, that is the work I do. Book the Opening Consultation and bring the listing.
The free Small Hotel Underwriting Template is on the downloads page.
Adam Ramirez, Ramirez Hospitality Group. 10+ years, 50+ hospitality properties.
Questions about
motel valuation.
What is a good cap rate for a small motel?
There is no single right number. Small independent properties generally trade at higher cap rates than branded hotels because the income is riskier, and the rate moves with location, condition, and the market. Treat any single figure as a starting point for negotiation, not a rule, and test your offer at more than one rate.
Do revenue multiples work for valuing a motel?
Only as a rough first screen. Two motels with the same revenue can carry very different costs, which is the whole problem this article walks through. If you use a multiple, use it to decide whether a listing is worth investigating, then do the four-step walk before you offer.
Do I need a feasibility or underwriting study before making an offer?
For a first purchase, or any deal with a lender involved, the study is usually what turns your walk into numbers a bank will accept. At minimum, do the four steps yourself with the seller's real documents before you sign anything.
Bring the listing.
Book The Modern Hotel Plan.
Get the four-step walk done properly on the property you are actually looking at, with lender-ready numbers and sensitivity scenarios. The Modern Hotel Plan is one flat fee, quoted up front, and it is not selling you the property.