Plan on a down payment of roughly 25%–35% for a hotel or motel — noticeably more than the 20%–25% typical of other investment property. The reason is simple: a hotel re-rents every room every night, so its income is more variable than a building full of year-long leases. Lenders offset that variability with more equity.
Why hospitality asks for more
An apartment building has signed leases. A hotel has to fill its rooms again tomorrow. Income swings with the season, the local market, and how well the property is run — so the lender wants a bigger cushion between the loan and the value. That cushion is your down payment.
What moves the number
- Operating history. Strong, documented occupancy and ADR can land you at the lower end of the range.
- Flag vs. independent. A recognized brand brings built-in demand and a reservation system, which lenders like. An independent has to prove its demand on its own.
- Condition. A property needing significant work will need more equity — or a bridge loan first.
- Your experience. Because a hotel is an operating business, relevant experience (or a credible management company) strengthens the file.
The cash beyond the down payment
Budget for more than the equity check. Hotel lenders typically want several months of debt service in documented reserves, plus an FF&E reserve — money set aside to replace furniture, fixtures, and equipment as they wear out. On a franchised property, a required property improvement plan can add real capital cost on top. Some buyers also use SBA loan programs to reduce the cash needed at closing.
A typical deal
A scenario I see often: an investor buying a small independent motel with solid occupancy in a tourism market. Strong operating numbers put the down payment near 30% rather than 35%, with several months of reserves set aside and a management plan in place. The performance of the operation is what earned the better terms.
Looking at a hotel?
The property’s operating numbers drive the equity requirement more than any rule of thumb. Tell us about your deal and we’ll size it — in English or Spanish.
By Andres Jara — Alpha Equity Lending (NMLS #1855083). 20+ years in real estate finance, an MS in Finance, and an active South Florida investor and landlord.