Interesting conversation with a hotel owner

[TexasHusker]

I believe someone asked "why" one would keep a location open that loses money. We have one location that loses money. But that location is still introducing customers to our brand every day. So it is an expense, but I look at it as an advertising expense. It will eventually do very well. When you open a new service location, it can take up to 5 years to earn a decent profit.

Additionally, it is very damaging on your brand image to close a location. It broadcasts instability and indicates temporary status to customers and team members. That will harm the rest of your locations.

Finally, most commercial retail leases are 10 years. At $4000 a month, you owe $480,000. If you decide you are uninterested at 5 years, you still owe $240K. Default on that, and they'll come after you for it. If you get out of paying it, you'll still never be able to sign another lease again.

So shuttering a losing location isn't nearly as easy as it sounds.

[LivingAlmostLarge]

We do well. We have two months per year with 3 pay periods, and have losses each of those months. You can't make money with three pay periods in a month. In a normal month, labor consumes over half of your income. In a 3-pay-period month, it consumes three fourths. My point is, non-business owners tend to way over-estimate business margins. Folks think if you own a business, you by consequence live a life of luxury, travel first class, and eat things you can't pronounce.

In each of my business locations, the manager is earning more than me. And that's how it should be. I've taken the financial risk, but they are making things happen.

So yes you lose money 2 months out of the year but 10 months out of the year you make money? So it's profitable. Plus the 3 paycheck months are built into the annual calculation correct?

I can see why losing money can make it hard to give up the location because of rent. I guess it depends on if they can rent it out for more than you signed on for. At least where I am, commercial rentals, landlords are dying to rid of tenants and trying to kick/buy them out to sell for a lot of money to be redeveloped.

[TexasHusker]

At least where I am, commercial rentals, landlords are dying to rid of tenants and trying to kick/buy them out to sell for a lot of money to be redeveloped.

Commercial properties are being mothballed left and right across the country. Retailers and restaurants are going dark everywhere. I am getting calls constantly from landlords asking us to open a location because someone else defaulted on their rent.

Where do you live? I'll have to check that out!

[HundredK]

You must not be doing accrual accounting if you're feeling that a 3 paycheck month is destroying profits for a month. A 3 paycheck month is still only a normal amount of days, it just so happens that three pay periods fall within 2 months each year - accrual accounting would normalize those amounts. Or you could pay folks on the 15th and last day of the month.

[LivingAlmostLarge]

You must not be doing accrual accounting if you're feeling that a 3 paycheck month is destroying profits for a month. A 3 paycheck month is still only a normal amount of days, it just so happens that three pay periods fall within 2 months each year - accrual accounting would normalize those amounts. Or you could pay folks on the 15th and last day of the month.

This could be accounted for if you paid 2x a month instead of biweekly. Where I live? It just happens they want to tear down the small crappy places and build lots of new buildings.

[TexasHusker]

You must not be doing accrual accounting if you're feeling that a 3 paycheck month is destroying profits for a month. A 3 paycheck month is still only a normal amount of days, it just so happens that three pay periods fall within 2 months each year - accrual accounting would normalize those amounts. Or you could pay folks on the 15th and last day of the month.

It doesn't really matter. At the end of the year, it all evens out. We have 26 pay periods per year. It works fine. But, there are two months a year where the financials aren't too attractive!

[TexasHusker]

This could be accounted for if you paid 2x a month instead of biweekly. Where I live? It just happens they want to tear down the small crappy places and build lots of new buildings.

Where do you live, where landlords are kicking commercial tenants out so that they can get new tenants to pay them more? I need to invest in commercial RE there!

Where is this exactly?

[disneysteve]

It doesn't really matter. At the end of the year, it all evens out. We have 26 pay periods per year. It works fine. But, there are two months a year where the financials aren't too attractive!

And then there was 2020 which had 27 pay periods. That screwed up a bunch of accounting.

[CameronMcGrath]

The global pandemic has further aggravated the situation. It has practically destroyed the hotel business and tourism in general. Last year, after the pandemic outbreak, I could not even leave my city, let alone my country, for about 6 months. Almost 45 percent of hotel owners went bankrupt and closed their businesses. In fact, this is very sad. The state was supposed to pay compensation, but as far as I know, this never happened.
I feel very sorry for these people who have been building their business for years and investing their money in it. As a result, they were left with nothing. I hope that the hotel business will no longer find itself in such a situation.

_____________________________

[Petunia 100]

Where do you live, where landlords are kicking commercial tenants out so that they can get new tenants to pay them more? I need to invest in commercial RE there!

Where is this exactly?

LAL is in the Seattle area.

[QuarterMillionMan]

Besides hotels & restaurants, The moment the eviction moratorium is lifted there will be a tidal wave of evictions.

[james.hendrickson]

Besides hotels & restaurants, The moment the eviction moratorium is lifted there will be a tidal wave of evictions.

My brother has some rental property in Oregon. The state government slapped a "no evictions" rule down during the pandemic. One of his tenants has paid him in 7 months. My brother is able to get some funds to make up for the loss from the state, but he's in the red.

At some point state governments will have to let free market economics take over again.

[QuarterMillionMan]

I live in a 40 unit apartment complex. The apt manager told me that 7 tenants are in arears with their rent and the attorney for the landlord already have the "pay or quit" letterhead printed to evict the tenants and waiting for the eviction moratorium to expire. The management has prospective new renters lined up but cannot evict the existing tenants due to the moratorium which is delaying the process. Quite a messy situation.

[BobbySands]

I think alot of people are abusing the fact that they don't have too pay any rent. It's not fair for the owner of the property. People are being protected by this law. Karma always wins in my opinion..

[james.hendrickson]

I think alot of people are abusing the fact that they don't have too pay any rent. It's not fair for the owner of the property. People are being protected by this law. Karma always wins in my opinion..

Yep - its a sad fact that some people will abuse these kinds of laws.

Its like people who take advantage of Costco's return policy - they'll do stuff like buy some steak, eat half, then return the rest and claim it didn't taste good. Or, they'll have a start up, then furnish their start up office from Costco, and when they change offices, just return everything to Costco.

Most people don't do this, but there is always that minority percentage that does.