Hotels and motels

Owning a hotel or motel means owning a business that resells the same rooms every night. Income can rise fast when travel is strong and collapse when it stops. During the 78-day shutdown in 2020, Nevada’s 219 major casinos lost an estimated $6.2 billion. Some Las Vegas properties never reopened.

Small motels are often run by owner-operator families who live on site and do much of the work themselves: the front desk, laundry, cleaning and repairs. Indian immigrants and their children own roughly half of U.S. motels, and many were started by families living behind the lobby (NPR).

Hotels are financed and valued as businesses, not homes, so lenders look at occupancy and room revenue. Franchise brands require upgrades, and old motels can hide huge repair bills. In California, cities bought many motels during the pandemic through Project Homekey; some became housing quickly, while others needed millions in repairs or ended in foreclosure.

Short-term rentals (renting a house or apartment by the night) are a related, small-scale version. Their income depends heavily on local rules. New York City’s 2023 registration law in effect ended most whole-apartment stays under 30 days. Arizona law, by contrast, says a city or town may not ban short-term rentals but may require permits. Arizona HOAs may be able to limit rentals through their recorded declaration (CC&Rs), so read it before you buy.*

Who it suits

Who it doesn’t

Real stories

From living behind the lobby to a hotel company (2016)

Hasu P. Shah, a former electrical engineer, and his family lived behind the lobby of the 23-room Red Rose Motel. It was one of their first properties, and they did chores like mowing and skimming the pool. They kept buying hotels, and by 2016 the company that grew from that motel, Hersha Hospitality Trust, owned 52 hotels and was worth $2.5 billion.

Lesson: Small motels can suit hard-working owner-operator families who live on site, keep costs low and reinvest over many years. Growing to 52 hotels is a rare outcome, not a typical one. NPR: Here to stay: How Indian-born innkeepers revolutionized America’s motels (March 5, 2016)

Selling motels to the state’s Homekey program (2020)

The pandemic emptied hotels in 2020, and sales fell sharply nationwide. But California’s Project Homekey funded cities and counties to buy motels for homeless housing. A hotel broker said the program gave owners who wanted to sell a buyer at the prices they expected. Homekey made up $890 million in California hotel sales that year.

Lesson: A government or nonprofit buyer can be a real exit for a motel owner. But the state paid only up to the appraised value. Spectrum News 1: Project Homekey makes up most of California’s hotel sales (Feb. 23, 2021)

A $9 million motel that stayed empty for five years (2020)

The City of Los Angeles bought a Travelodge in Gardena for $9 million. The nonprofit taking it over saw only online photos and basic inspection reports beforehand, and a consultant estimated about $50,000 to start moving people in. Instead, the motel turned out to need all new windows, plumbing and electrical. After nearly $3 million and more than five years, it was still vacant in 2026.

Lesson: Inspect an old motel fully and price repairs with a contractor before buying. Photos of the surface hide the costliest problems. CalMatters (via KQED): Did Newsom’s $3.8 billion hotels-to-housing program pay off? (May 7, 2026)

Converted motel lost to foreclosure (2024)

A developer renovated the All Star Lodge in downtown San Bernardino. It opened as Homekey housing in late 2022. Two years later the bank foreclosed. Because no affordable-housing restriction had been recorded on the property, the new owner told tenants it would quadruple the rent.

Lesson: Motel conversions carry heavy debt and the risk that plans go wrong. Before investing in or lending on one, check the operator’s finances and recorded deed restrictions. CalMatters (via KQED): Did Newsom’s $3.8 billion hotels-to-housing program pay off? (May 7, 2026)

Hotel owner stops paying a $725 million loan (2023)

Park Hotels & Resorts stopped paying a $725 million loan on two hotels: the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55. The company pointed to record office vacancy, street conditions, a slow return to offices and a weak convention calendar. It expected the hotels to leave its portfolio.

Lesson: Hotel values depend on the health of the whole local market. A downtown slump can wipe out an owner’s equity, even in famous properties. KTVU FOX 2: Investment firm stops paying $725M loan on 2 of San Francisco’s largest downtown hotels (June 5, 2023)

78 days closed, some never reopened (2020)

Nevada’s governor ordered all casinos closed on March 17, 2020, and they stayed closed for 78 days. Most big Strip resorts reopened on June 4, 2020. But Red Rock Resorts never reopened Texas Station, Fiesta Rancho or Fiesta Henderson, which were later sold and torn down. Boyd Gaming’s Eastside Cannery never returned either.

Lesson: A hotel’s income can drop to zero overnight. Owners need reserves and loan terms that can survive a long closure. Las Vegas Review-Journal (via Hawaii Tribune-Herald): Four years ago, Las Vegas’ casinos shut down for 78 days. The fallout was brutal (March 16, 2024)

New registration law puts a host’s income on hold (2023)

New York City’s Local Law 18 took effect in September 2023. Hosts renting for under 30 days had to register, live in the home during stays and host no more than two guests. A Bronx host who had rented space since 2011 met the rules but was still waiting for approval as Airbnb blocked new bookings. He said the income had helped him pay his mortgage.

Lesson: Short-term rental income can vanish when a city changes its rules. If a property only works as a nightly rental, check local law before you commit; without a permit, the plan may not work. Spectrum News NY1: New law cracking down on short-term rentals takes effect (Sept. 3, 2023)

Costs

How people pay

Check before you buy

Sources