Hotels/Motels/Lodges
Hotels
* 1 Times Gross Revenue (lodging only not supplementary income)
Motels/Lodges
* 6 to 10 times Earnings Before Interest and Taxes
* $30,000 per room
* 3 to 4 times Gross Income
RV Parks
* 12 times Earnings Before Interest and Taxes
Key Drivers
* Location is the most crucial factor to determine where on range it fits
* Valuations based on earnings assume reasonable salary to manager of property
* Replacement cost not as relevant as cash flow
* New properties with recent improvements require less maintenance and should translate into higher multiple for vendor
* If valuing on Gross Revenue, exclude on core income sources (ie lottery revenues with low profit margins)
* Lifestyle plays a role for lodges and RV parks and therefore required rate of return is less for purchaser. 8% return may be appropriate.
* Properties often sell for more than $750K, but these rules of thumb still appropriate
Structuring the Deal
* Downpayment often 40%, with bank/mortgage company 50% and vendor 10%