How to buy a motel, from first look to closing

Buying a motel goes in this order: you underwrite the property yourself, sign a purchase agreement with a financing contingency, apply to the brand and the lender at the same time, then close once the appraisal, the brand approval and the loan approval all land. Most deals that die, die in the gap between the seller’s numbers and what the tax returns show.

1. Underwrite it before you make an offer

Ask the seller for three years of profit and loss statements, the tax returns that match them, and the STR report if it’s a branded property. The tax returns matter most, because they are what the lender will use. If the P&L says the motel cleared $500,000 and the Schedule E or 1120-S shows $310,000, the loan will be sized on $310,000.

Put the trailing twelve months into the hotel loan calculator at the price you plan to offer. DSCR at your loan amount tells you how much slack the deal has above the lender’s minimum. Breakeven occupancy tells you how bad a year you can survive: the calculator’s example motel runs at 62% and breaks even at 48.6%, so it can lose about 13 points of occupancy before the income stops covering the mortgage. Then compare price per key with recent sales of similar motels nearby, which a broker or appraiser can pull.

2. Sign a purchase agreement you can get out of

The purchase agreement should give you a due diligence period long enough to inspect the property and read the books, a financing contingency long enough for an SBA loan, and access to the books, the franchise agreement and the property. Make it contingent on the brand approving you as the new franchisee, if you plan to keep the flag.

3. Apply to the brand and the lender together

Run these at the same time, because each side waits on the other. The brand reviews you as a new owner, sends a property improvement plan (PIP) listing the renovations it requires, and issues a new franchise agreement on its current terms; the current fees are in its disclosure document (see franchise costs by brand). The lender can’t set the project cost until it has the PIP, and it won’t close until the brand has approved you.

Ask for the PIP early. Every dollar of it goes into the project cost and raises the equity you need, and you want to know before your diligence period ends, not after.

4. Diligence: what to inspect

Hire a property condition assessment and have someone walk every room. Check the roof, HVAC units (PTACs), the boiler, the pool, parking lot and life-safety systems. Order a Phase I environmental report; lenders require one, and motels on old highway sites sometimes sit on former gas stations or dry cleaners. Confirm zoning and any extended-stay or long-term occupancy rules in the city.

5. Financing: the paths that work for owner-operators

For most first and second motels, the loan is SBA 7(a) or SBA 504. 7(a) can finance the real estate, the PIP, furniture, working capital and even goodwill in one loan. 504 usually gives a lower fixed rate on the real estate and equipment portion but needs a bank and a certified development company. SBA 7(a) for hotels and SBA 504 for hotels walk through each.

Check one thing before you count on SBA: since March 1, 2026 (SBA Policy Notice 5000-876441, now in SOP 50 10 8.1), every owner of an SBA borrower has to be a U.S. citizen or U.S. national living in the U.S. Green-card holders can no longer own any share. If your partnership includes a non-citizen, line up a bank or credit union loan instead, or restructure ownership with a lender’s help before you sign.

Seller financing can bridge part of the gap, though SBA restricts how a seller note can count toward your equity.

6. Close and take over

At closing you sign the loan, the new franchise agreement and the transfer documents, and you take over the payroll, the reservation system and the guests in the building. Line up the property management system logins, the merchant account, insurance, utility transfers and the sales tax and occupancy tax registrations before the day, not on it.

Where motel deals fall apart

Most die on the tax returns. The lender sizes the loan on what the seller reported to the IRS, and when that is well below the P&L the loan shrinks and the buyer can’t cover the gap. The next most common surprise is a late, large PIP, which pushes up the project cost and the equity after the buyer has already spent money on diligence. A low appraisal does the same thing from the other side, since the loan follows the lower of price and value. And some deals stall because the brand won’t approve the buyer or the buyer can’t document where the down payment came from; lenders trace every dollar of it.

If you have a deal under contract, send it to Janover Capital, which arranges motel financing through lenders.