Cost of Starting a Hotel in US

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In this blog, we will cover various factors affecting costs to open a hotel in the United States

An opening of a hotel is way beyond just offering a place where people can sleep—it’s about delivering an exceptional experience that exceeds guest expectations. As with any other hospitality business, entrepreneurs must acquire a deep knowledge about the market in which they are operating.

The needs of guests seeking a cozy stay with personalized attention differ from those prioritizing high-speed Internet and convenience. The guest satisfaction is the key to your hotel success. A dissatisfied guest is more vocal than a satisfied one. To launch a profitable hotel business, you have to understand the totality of the costs and factors to be considered. In this article, we will break down the estimated cost to build a hotel!

How Much Does It Cost to Own a Hotel?

The cost of starting a hotel varies significantly due to factors such as location, size, and overall quality. Factors such as the number of rooms, meeting spaces, restaurants, and amenities contribute a lot to the whole cost. For example, investing on a hotel in New York City central would be more expensive as compared to a small estate in North Carolina.

Despite the wide range of startup expenses in the hotel industry, certain benchmarks offer valuable insights for potential investors. The national average cost to build a hotel falls between $20 million and $52 million. Entrepreneurs generally plan to spend $30 million in order to build a 3-star hotel. A contemporary 2-story motel can be developed for about $9 to $10 million. Whereas luxury 5-star hotels could demand budgets which exceed $85 million, the expenses would come from the use of top quality materials, facilities, and staff.

Another method for evaluating costs is by examining the expenditure ‘per key’ or room. The average cost to build a hotel per room is classified into three primary tiers: 

  • $100,000 for budget and economy hotels
  • $145,000 for midscale limited-service extended-stay hotels
  • $195,000 for upscale extended-stay hotels

In addition to construction expenses, other financial considerations include 

Factor Estimated Cost Range Details
Construction $20 million – $100 million Varies based on location, size, and quality.
Labour Cost
  • An architect charges- $150 to $350 per hour.
  • A structural engineer charges= $180 to $250 per hour.
  • A general contractor costs- $75 to $200 per hour.
  • An interior designer costs- $60 to $250 per hour.
  • Electrician services cost- $45 to $155 per hour.
  • Plumber services cost- $55 to $175 per hour.
Fees for architectural and interior design services.
Furniture, Fixtures & Equipment (FF&E) $1 million – $5 million Includes furnishings, decor, and equipment for guest rooms and common areas.
Soft Costs (Insurance, legal fees, permits, taxes) 10-15% of Construction Costs Covers legal expenses, permits, insurance, and taxes.
Working Capital (Staffing, operational expenses) $500,000 – $3 million Required for hiring staff and covering operational costs like salaries, utilities, and more.

Two Major Ways to Estimate Hotel Construction Costs

Here’s an overview of the two primary methods used to estimate the price to build a hotel:

Hotel Construction Cost Per Square Foot

The cost to build a hotel per square foot calculates this by adding up all of the associated expenses of the construction project within the planned build area. It is widely applied to a variety of real estate projects, not confined to hotels. It provides a swift quotation in which the complete square footage is defined. This also could be tailored for specific regions and cities that have appreciable square foot construction costs.

Hotel Construction Cost Per Key (or Per Room)

The cost per key hotel construction represents expenses, which are calculated based on the total number of rooms (or “keys”) of the hotel. It is exclusive to the hotels and to get an approximate figure of the total cost. This is specifically linked to revenue generation because hotels earn money per room. This approach unifies the cost evaluation process for stakeholders, investors, or lenders provided they understand the hotel business.

Both methods are usable to some extent, but they have to be used with a combination of other techniques to give a more accurate picture of a hotel construction project. The following is an estimate of costs in different hotels in terms of per square foot and per room. The parameters of the cost range from low-end pricing in the countryside to high-end costing levels in the city.

Hotel Type Cost Per Square Foot Cost Per Room
Lodge $165 – $378 $35,000 – $55,000
Mid-scale/Limited Service $289 – $456 $30,000 – $80,000
Upscale/Extended Stay $380 – $570 $63,000 – $140,000
Luxury $480 – $910 $180,000 – $350,000

How to Start a Hotel Business in the USA?

There are some specific steps you need to take to kick start a hotel business regardless of how unique your business idea may be. Let’s delve into these steps, along with budget estimates and considerations:

Establish a Hotel Business Plan

Detailing a hotel business plan is critical for success. Key components include:

  • Executive Summary: Clearly define the hotel’s mission and objectives.
  • Company Analysis: Explores the hotel’s concept, uniqueness, brand, and internal workings.
  • Industry Analysis: Analyzes acquisitions, mergers, and new technologies, as well as competitors and customer preferences.
  • Customer Analysis: Identify target audiences, local market, and behavior segmentation patterns
  • Competitive Analysis: Assesses competitive position, strengths, weaknesses, opportunities, and threats within a region by applying SWOT analysis.
  • Strategic Plan: Leads on marketing, sales, and revenue management.
  • Operations Plan: Details hotel operations, staff, service standards, and supplier relations.
  • Financial Plan: Projects investment capital, operational expenses, and ongoing costs.

Determine the Hotel’s Type

Some hotels display unique features that cannot be categorized into the predetermined classifications. Here’s a breakdown of the average cost to build each type:

Guest House: Average cost per square foot: $150 – $550

Guest houses, including Airbnb properties, range from small backyard units to larger inns or bed-and-breakfast establishments. The price is dependent on the size, and also, on the quality of the materials used in construction.

Boutique Hotel: Average cost per square foot: $200 – $580

A boutique hotel is a compact version of the regular hotel with individual style, themes, design, features that you won’t commonly find in others. The cost to build a small hotel varies depending on the size and unique features.

Resort: Average cost per square foot: $300 – $550

The resort specializes in destination vacation experiences with a variety of relaxation, recreational, and dining options on offer. Normally they are four- and five-star facilities that offer higher rates and premium features compared to regular hotels.

Motel: Average cost per square foot: $350 – $650

A motel is a special kind of hotel for people who travel by car. Instead of going through a lobby, guests can go straight to their room from the parking lot. It’s designed to be easy for travelers who need a quick stop along the road. Motels are usually found near highways and big roads, making them convenient for travelers on long trips. The cost to open a motel generally depends on the location and accomodation capacity.

Legal and Professional Fees

One of the requirements of launching a hotel business is that you should comply with a wide range of legal and regulatory norms. Legal and professional expenditures such as issuing the company name, getting permits, licenses and certifications, and seeking the help of a legal counselor can cause the bills to climb.

Business Incorporation $500 – $2,000
Securing Funding 1-5% of loan value
Permits, Licenses, Certifications $1,000 – $10,000
Intellectual Property Protection $500 – $10,000

Renovation and Furnishing

The size of the hotel operation, furnishing, and decoration are all integral parts in determining the price to open a hotel. The latest data sets the furnishing and décor costs at $1500 and $20,000 per guest room respectively, based on hotel locations and quality levels.

Staffing and Training Expenses

One of the most significant expenses when acquiring a hotel is staffing and training costs. Here’s an average cost to run a hotel in regard with Staffing-

Front Desk Staff $30,000 – $40,000
Housekeeping Staff $25,000 – $35,000
Training and Development Programs $1,000 – $2,000 per employee
Employee Benefits 30% of Salary

Marketing and Advertising Fees

Promotional and Advertising expenses are very vital for the marketing campaign of a hotel, which in turn helps in new customer attraction and to retain existing clients’ loyalty. According to the latest survey, the small to medium-sized hotels in the US typically spend between $25,000 and $50,000 per year on marketing and advertising. Check this out- 

SEO $5,000 – $10,000 per year
Social Media Advertising $10,000 – $20,000 per year
Email Marketing $2,000 – $5,000 per year
Collaboration with OTAs Commission-based

Technology and Software Costs

Investing in technology and software is essential for managing a successful hotel, and the associated costs can significantly impact the bottom line. The typical spend on a hotel property management system (PMS) is between $4,000- $10,000 per year.

Insurance Coverage

Acquiring a hotel involves various insurance requirements that need to be considered. Hotel insurance like Exceed Hotel Insurance is necessary to protect against property damage, theft, liability claims, and natural disasters. Here’s a breakdown of basic insurance coverages-

Hotel Insurance $5,000 – $25,000 per year
Workers’ Compensation Insurance $1,500 – $15,000 annually
Cyber Liability Insurance $500 – $5,000

Conclusion

Therefore, the article ends with estimated budgeting for the question “How much does it cost to own a hotel?”. Through careful consideration and budgeting for all these costs, a hotel’s start-up operation can be both possible and profitable. Every cost category has a vital role in achieving the hotel’s profitability, sustainability, and competitiveness within the hospitality industry.

Frequently Asked Questions

  • What could be the cost to buy a hotel franchise?

This figure can be different, subject to the franchise, while the average number is normally $75,000 or $10,000,00 as per the US Small Business Administration.

  • What are the advantages and disadvantages of buying an existing hotel business?

The benefits of buying an existing hotel include reduced costs, instant operation, and an audience which is already familiar with the hotel. But there are disadvantages such as upgrading expenses, limited customization, and the possible occurrence of unforeseen problems.

  • What are the advantages and disadvantages of building a new hotel?

The advantages of new hotel building encompass individualization, cutting-edge design, and branding. However, disadvantages include a high initial investment price to build a hotel, an extended timeline, and market uncertainty.

Published: May 10, 2024

Last updated: May 10, 2024

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