Hotel franchises often stand out for offering an accessible entrance in terms of initial investment. However, these franchises also present a number of unique implications and challenges that should be carefully considered before making a decision. In this article, we’ll explore two low-cost hotel and motel franchise models in the United States, each with an investment range of less than $1 million. In addition, we will address the risks inherent in this industry, from high demands to legal requirements for operation.
If you are considering such a franchise to obtain an investor visa in the U.S., here we provide you with detailed information and the critical points to evaluate.
Low-cost hotel franchises
First, it is important to clarify that both business models that we will analyze are designed for conversions or subleases of existing hotels; they do not assume the construction of a hotel from scratch. A “conversion” involves taking a pre-existing hotel or motel and adjusting it to meet the standards of a particular franchise. This reduces construction costs, but can involve significant expenses in remodeling, depending on the conditions of the property. Let’s move forward to discover two budget hotel franchises in the United States:
Econolodge Franchise
Econolodge, one of the most recognized franchises in the economic sector, is an attractive option for investors looking to enter the hotel sector without excessive investment. Belonging to the Choice Hotels group, Econolodge offers a low-cost model with hotels classified between one and two stars.
With an investment ranging from $175,000 to $954,000, this franchise assumes a complete conversion of a motel with an average of 60 rooms. This investment range covers major refurbishments, adapting the existing building to Econolodge’s standards.
However, it is important to mention that the Econolodge model presents certain legal risks. Historically, this chain has faced multiple lawsuits, including a class action lawsuit in 2019 related to human trafficking cases, as well as another in Canada in 2020 for a fire at one of its motels that resulted in deaths and personal injury. The existence of multiple lawsuits, including 92 class actions, points to the need for careful management and strict safety protocols to reduce risks.
Magnuson Hotels Franchise
Another alternative is Magnuson Hotels, a growing franchise that currently operates with only nine locations across the United States.
With an initial investment between $175,000 and $400,000, Magnuson is also focused on pre-existing hotel conversions. However, unlike Econolodge, Magnuson has lower remodeling costs, making it a viable option for investors with limited capital.
Although Magnuson has less of a presence than Econolodge, its history of lawsuits, with three lawsuits recorded, represents a minor risk, although significant, considering its smaller size. This model focuses on an average 60-room hotel and uses a different royalty scheme, based on the number of rooms rather than total revenue, which can be attractive to investors interested in maintaining precise financial control.
*Data as of the date of publication of this article
*Values expressed in US dollars
Risks of Budget Hotel Franchises
Investing in hotel and motel franchises can be risky due to their high exposure to legal and safety issues. The nature of the business and the constant flow of people make these businesses more likely to face unexpected demands and situations. Unlike other industries that we have addressed at Interlink FBC, hotel franchises are not among the most recommended, partly because of the high risk they represent and also because of the high investment costs they require. Although some people have been successful in this sector, the inherent risk and associated demands are factors to carefully consider before deciding on this type of franchise.
In addition, the financial information provided by both franchises is limited, making it difficult to accurately predict the economic benefits that can be obtained. Although occupancy rates range from 47% to 99%, and daily rates range from $2 to $78 depending on location, these figures do not guarantee stable profitability.
Before embarking on this industry, it is essential to have a clear strategy and evaluate whether this business model is the right one for your goals.
Want to explore more franchise options and evaluate which one best suits your needs? At Interlink FBC, we offer personalized advice to help you make informed decisions. Schedule a free initial consultation with us to discuss this or other investment opportunities.
