The Next BIG Wave: Motel to Multifamily Conversions

by Ellis Hammond | May 1, 2021 | Article, Investment Strategy, Multifamily

One of the biggest lessons I learned early on in my career is that an entrepreneur gets paid in relation to the size of problems he or she can solve.

One of the major problems happening in the U.S. economy today is the lack of supply for affordable housing. Home prices across the country are at an all-time high with no slowdown in sight, making it virtually impossible for the majority of Americans to buy a home. There is also an alarmingly low supply of new inventory coming to market in terms of new homes being built to accommodate this demand.

This opens the doors for problem-solving entrepreneurs to look outside the box and determine a solution that can meet this growing demand for affordable housing.

Introducing the motel to multifamily conversion

COVID-19 has devastated many middle- and lower-class families as well as many industries across the country. One of these industries is the hotel industry. While many of the big brands will come out just fine, thousands of mom-and-pop owned motels across the country will have to shut their doors in 2021.

Although sad that many of these motels will go out of business, many multifamily investors are saving them from losing it all by offering to purchase the motel with a plan to convert the existing motel into a long-term, multifamily living facility.

This is a great solution for many developers who no longer see it viable in terms of cost to build affordable housing. It is also a great solution for investors who live in cities where much of the red tape policies make it hard to get their projects off the ground.

By converting these motels into long-term rentals, thousands of affordable units will be created over the next three to five years for a portion of our population that desperately needs it.

Here are five reasons why I see this as the next BIG investment opportunity:

There is a massive tenant base that needs affordable housing and no one else has a solution. Cities and municipalities are likely to provide support for these projects.
Many mom-and-pop owned motels will face foreclosure as the stimulus money dries up later in 2021, creating great buying opportunities for investors.
As cap rates compress in large multifamily, there will be a huge demand from investors for higher yielding assets which these motel conversions can provide.
It is much cheaper and much faster to convert an existing building than start from scratch.
Our current administration sees affordable housing and helping the lower and middle class as a huge priority over the next four years. These types of projects have a likely potential to earn favorable tax incentives and government sponsored vouchers.

There is no doubt that with such a massive problem like the lack of affordable housing, and an incredible buying opportunity on the horizon due to the pandemic, the stage has been set for a game-changing, impactful investment strategy.