BRRR Hospitality Deals: Beyond the Basics

Investing in hospitality properties—motels, boutique hotels, or extended-stay assets—requires far more than surface-level analysis.

If your goal is to execute a BRRR (Buy, Renovate, Rent, Refinance, Repeat) strategy successfully, you need deep operational and financial insights, not just flashy pro formas and wholesale promises. 

1. Acquisition Reality: Know What You’re Actually Buying

Before trusting a seller’s numbers or marketing, ensure you understand the legal and structural realities of the deal.

Key Questions:

• What seller representations survive closing (income, property condition, permits), and for how long?
• Is seller financing in first position, and are there any clauses that could reduce your control?
• What triggers default remedies on the seller note?
• Does the financing allow for cash-out refinancing, not just term adjustments?
• Is the seller personally guaranteeing the financing, or is it strictly non-recourse?
• Are comparable transactions showing the proposed price is realistic for today’s market, not a stabilized projection?

2. Reopen & Stabilization Truth: The Hard Part of BRRR

The success of BRRR depends on how quickly and efficiently you can reopen and stabilize operations.

Timeline & Licensing

• How long from acquisition to first rentable room?
• What inspections and permits are required to operate?
• Are utilities, licenses, and merchant processing accounts active?

CapEx Reality

• What is the per-room cost to make the property rentable (FF&E, flooring, HVAC, basic safety upgrades)?
• Which capital improvements are cosmetic versus operational necessities?
• Which costs lenders will credit in a refinance versus which they will exclude?

Labor & Operations

• What are realistic staffing needs and wage assumptions (housekeeping, front desk, maintenance)?
• How will staffing turnover affect stabilization?
• Will the property be owner-operated or professionally managed?

3. Income Integrity: Numbers That Reflect Reality

Hospitality deals often fail when projected revenue doesn’t materialize. Dig into the true operational income.

Revenue Considerations

• What is realistic ADR (Average Daily Rate) and occupancy by season, not as a simple average?
• How will revenue split between direct bookings, OTAs (online travel agencies), and corporate/extended-stay guests?
• What revenue adjustments exist for OTA commissions, chargebacks, or un-rentable rooms?
• Are alternative uses, like workforce housing or extended stay, feasible under local zoning and operational constraints?

Revenue Leakage

• What is your expected bad-debt rate for longer-term tenants?
• How do fees, taxes, and marketing reduce gross revenue before NOI?

4. Expense Reality: The Silent Return Killer

Expenses in hospitality are dynamic. Many investors underestimate the true costs of operation.

Fixed vs Variable

• Which expenses stay constant even if occupancy drops?
• Are utilities, insurance, and property taxes modeled realistically post-stabilization?
• Does projected NOI include reserves for ongoing replacements and maintenance?

Operational Expenses

• Have you included property management, software, marketing, accounting, and back-office costs in the projections?
• How do occupancy fluctuations affect housekeeping and labor costs?

5. Refinance Reality: The BRRR “Make or Break”

The ability to refinance is the core of BRRR—but lenders are conservative, especially in hospitality.

Lender Appetite

• Which lenders will refinance post-acquisition?
• How long of a trailing operating history do they require?
• Do they accept hybrid or extended-stay models for stabilization?

Valuation Mechanics

• Are cap rates applied realistically, considering current market stress?
• Will the lender base the refinance on actual trailing 12 months or annualized projections?
• How do lender restrictions on reserves or CapEx affect extractable capital?

Capital Extraction

• Max loan-to-cost (LTC) and loan-to-value (LTV) limits?
• Will cash-out above your basis be permitted?
• What happens if the refinance fails—who carries the capital burden?

6. Exit Liquidity: Who Will Buy It?

Even if stabilization is successful, the exit strategy must be realistic.

Exit Considerations

• Who are the likely buyers: private operators, REITs, local investors?
• How sensitive is value to ADR, occupancy, or local labor shifts?
• Which buyer types are unlikely to purchase, and why?
• How do changes in cap rate or market conditions affect exit equity?

7. Sponsor & Fee Transparency: Understanding True Costs

Many deals hide fees under “acquisition” or “structuring” labels. Investors must verify:

• What exactly is covered by acquisition or structuring fees?
• Are fees refundable if closing fails?
• How much sponsor capital is actually at risk?
• What reporting and oversight will investors receive during stabilization?

8. Stress Testing: Planning for the Worst-Case Scenario

The difference between a successful BRRR and a failed one is often revealed under stress.

Stress Questions

• If ADR is 10–15% lower than projected, does the property still cover debt service?
• If stabilization takes longer than expected, who funds operations?
• What is the break-even NOI at which the deal becomes unprofitable or unsellable?
• How do interest rate changes or cap rate expansion affect projected equity?

Key Takeaways

• Don’t trust marketing or pro forma assumptions. Verify every number with real comps and operational history.
• Understand true CapEx and operational costs. Cosmetic renovations don’t make a hotel rentable.
• Refinance assumptions are not guaranteed. Lender requirements are strict and often conservative.
• Stress-test every scenario. Hospitality is seasonal and sensitive to local market shocks.
• Exit strategy is critical. Ensure liquidity exists for multiple buyer types and interest rate environments.

Final Thought

BRRR hospitality deals are not passive investments—they are operationally intensive, capital-sensitive, and require careful due diligence. By asking the right questions, stress-testing assumptions, and understanding lender mechanics, investors can significantly increase the likelihood of success and protect their capital.