Buying a hospitality property: the complete guide

Buying a restaurant, an inn or a hotel is not the same as acquiring a residential property. You are buying not only land and buildings but, as a rule, a going concern with staff, licences, regular guests and a reputation built over years. The due diligence looks correspondingly different. This guide takes you through the whole process – from the search and the valuation to financing and handover.

Three kinds of buyer

• Operators. You intend to run the business yourself. What matters is whether it works without being completely reinvented, the state of the kitchen, and whether a team can be taken on.
• Investors. You are buying an investment and will lease it on. What matters is yield, substance, and how easily a tenant can be found.
• Buyers with a change of use in mind. What matters above all is the site and what planning law would permit there.

It pays to establish early which group you belong to. The examination differs in each case, and a property that is ideal for an operator may hold no interest for an investor.

The best properties are never advertised

This is the single most important point for anyone searching seriously: a substantial share of hospitality properties never reaches the open market. The reason lies with the seller. An owner who wants to hand over has good grounds not to make it public – staff resign, regular guests drift away, suppliers grow nervous, competitors sense an opportunity.

These properties are placed exclusively through specialist agents and their circle of registered buyers. Anyone watching only the portals sees the smaller and often weaker part of the market. It is more effective to register a search profile with someone who holds the quiet mandates.

What to examine

Location is the only thing that cannot be changed. Fittings can be renewed, a concept changed, a team built. Location cannot. Examine the catchment area, access, parking, the neighbourhood and – often overlooked – the municipality's development plans for the coming years.

The building fabric determines your first few years. Roof, heating, electrics, ventilation and drainage are expensive in hospitality and readily deferred. A property with fifteen-year-old kitchen technology is not cheap; the investment is simply still ahead of you. Budget for deferred maintenance from the outset and, in case of doubt, have it assessed by a surveyor.

And the decisive question: why is the business available? Retirement, lack of a successor, illness or a change of direction are unproblematic – in those cases you are buying a functioning business. It is a different matter if the business has not been carrying itself commercially. Then you need to know why: the concept, the management, the fit-out – or the location itself. You can change the first three; you cannot change the last.

The figures

Ask for management accounts covering the past two to three years. Without solid figures any asking price is an assertion, and your bank will not lend without them in any case.

Look beyond turnover. What is telling is the cost of goods relative to turnover, the staff cost ratio, energy costs, and whether the previous owner paid himself a market salary. Businesses that only work because the family works unpaid look better on paper than they are.

How the value of a property is composed in detail is set out here: What is a hospitality property worth?

Equipment and goodwill payments

Goodwill payments are customary in hospitality, particularly where a business changes hands. Examine the demand closely: equipment should be evidenced by original invoices, business value by the accounts, and the figure should not exceed the book value in the fixed-asset account.

Worth knowing: banks rarely finance goodwill payments in this sector. You will generally have to fund that amount from your own resources – build it into your calculation from the start.

Licences, permits, staff

• Alcohol and catering licence – does not transfer to you automatically and must be applied for afresh. Establish early whether you meet the personal requirements.
• Permitted use and closing hours – check what planning law allows and how long you may actually open. In residential settings this is often tighter than the previous operator practised.
• Staff – on a transfer of business, employment relationships generally pass to you with all existing entitlements. In a tight labour market that is more of an advantage, but it should be known.
• Existing contracts – supply, maintenance and beverage agreements can tie you in for years. Ask to see every running contract.

Financing

Expect banks to assess hospitality cautiously. Where around twenty per cent equity suffices for other commercial property, some institutions require considerably more here, and a few will not lend to the sector at all.

What decides the outcome is a solid business plan: the bank wants to see that you can service the debt and still make a living from the business. First-time buyers often face the problem that they lack the property's figures. That is precisely where we help – we draw up the business plan with you or entirely on your behalf. This regularly produces a positive lending decision that would otherwise not have come.

The fallback: possible change of use

Before buying, establish what else planning law would permit – residential, senior housing, mixed use. This is not a sign of doubt about the concept but plain risk management. A property that can be used differently if needed is easier to finance and easier to sell later.

Good properties move quickly

The market is in a curious position: overall there is more supply than demand, yet the genuinely good properties – good location, well-maintained fabric, verifiable figures – are taken quickly. Anyone who deliberates for three weeks over such a property arrives too late.

So prepare before you search: clarify your financing framework, make equity available, have the bank's documents ready. Then you can act when the right property appears.

The most common mistakes

• Looking only at the purchase price and overlooking deferred maintenance
• Not examining the figures, or accepting verbal assurances
• Accepting a goodwill demand unchecked although it cannot be financed
• Clarifying licences and closing hours only after completion
• Viewing without a settled financing framework and then losing weeks
• Watching only the portals and never seeing the quietly placed part of the market

Frequently asked questions

How much equity do I need?

That depends on the property, the bank and your standing. In hospitality, budget considerably more than the customary twenty per cent, and add goodwill payments and initial investment on top.

Does the licence transfer to me?

No. The catering licence is personal and must be applied for afresh. Clarify this early.

Do I have to take on the staff?

On a transfer of business, existing employment relationships generally pass to the acquirer. The details belong in the contract negotiation.

Buy or lease?

Leasing ties up less capital and is the usual route for operators without substantial equity. Buying makes sense if you are planning for the long term and want to build the asset as well. We have a separate guide on leasing: Leasing a hotel or restaurant.

How long does a purchase take?

Several months from first viewing to completion is realistic. Financing usually accounts for the larger part of that.

Register a search profile

If you are searching in earnest, tell us what you are looking for: type of business, region, size and your financing framework. We will be in touch as soon as a suitable property comes up – including the mandates that are never publicly advertised.

Our current listings are at properties for sale. The initial consultation is free of charge and without obligation.