Buying an operating hotel or a building to convert: due diligence, capex, permits and timelines

There are two ways into hotel ownership. You can buy a hotel that already trades, with guests, staff and accounts, or you can buy a building and turn it into a hotel. The first costs more per room and buys a track record. The second looks cheaper on paper and carries permit, cost and ramp-up risk that the first has already paid for. This article compares the two, sets out a due diligence checklist for each and shows where buyers most often misjudge. It follows the hotel investment guide and works with the pieces on valuing a hotel and on operating models.

What each route really buys

• An operating hotel gives you income from day one, a trading history to analyse, licences already in place, a team and a guest base. In return, you take on whatever the seller left behind: deferred repairs, tired rooms, dependence on booking platforms, staff contracts and any hidden liabilities.
• A building to convert gives you a blank page and control over the product, at the price of permits, construction, financing during the works and a period in which the new hotel earns less than it will at maturity. Business plans usually assume a ramp-up of some years before occupancy and rate stabilise. That period is a cost, and the plan should price it.

For context on pricing: HVS reported that European hotel transaction volume in the first half of 2026 was about 10% below the first half of 2025, while the average price per room rose to a decade-high of about 268,000 euros. The report notes this reflects the higher quality of hotels sold, not an equal rise in values. Another market summary put the average price per room in 2025 at about 210,000 euros. These are portfolio-level averages from large deals and say little about a 25-room hotel in a small town, but they are a reminder that "cheap per room" is rarely true once capex is included.

Due diligence on an operating hotel

Financial and trading:

• Three to five years of monthly accounts in the hotel's own format and, ideally, in the industry's uniform format, reconciled to bank statements and tax returns. Unexplained gaps between reported revenue and bank receipts are the first thing to chase.
• Seasonality: monthly occupancy and rate, so that you see the low months and not only the annual average. Plan working capital for the weakest months, and check whether the hotel survived them with owner loans.
• Channel mix. What share of revenue comes from online travel agencies, which charge roughly 15% to 25% commission, versus direct, corporate, groups and tour-operator contracts? One 2026 vendor report put the OTA share of independent hotels' bookings at about 63% and OTA cancellation rates at about 22%, against about 11% for direct bookings. Use the hotel's own data, not averages.
• Reviews. Trend and recent content, response behaviour, and any pattern of complaints about the building itself.
• Who owns the website, domain, booking engine, channel manager and guest database. If they sit with the seller's personal accounts or with the current operator, make their handover a condition.

Legal and licences:

• The hotel or tourism licence, classification, operating permit, fire certificate, occupancy certificate, health and food-safety approvals, pool and alcohol licences. Check whether they belong to the building, the company or the person, and whether they survive a sale.
• Zoning and use. Confirm that the use is lawful today and that all extensions, rooftop rooms and terraces were permitted.
• Existing contracts: management, franchise, lease, supplier, laundry, software, tour operators and any change-of-control clauses. See how to read an operator contract.
• Litigation, tax arrears, tourist-tax and VAT compliance, unpaid social contributions.

Staff:

• Employment contracts, seniority, seasonal contracts and accrued leave. In an asset deal (you buy the business, not the company) EU rules on transfers of undertakings generally move employees to the buyer on the same terms. A plain share purchase falls outside that directive, but the employer, with its liabilities, simply stays the same. National rules differ, so get local advice before you assume either way.
• Key people: who holds the relationships and know-how, and will they stay?

Technical:

• A building survey covering structure, roof, facade, lifts, heating and cooling, electrical and fire systems, plumbing, the pool and the energy rating. Ask for maintenance records and the last renovation date, room by room.
• Capital expenditure backlog. The seller's price should reflect what you will have to spend, not the other way around. Brands also set property improvement plans if you plan to re-flag the hotel.

Deal structure: A share deal buys the company with everything inside, including liabilities and tax history, so it calls for broader warranties and often a retention from the price. An asset deal buys selected assets and the business and may need fresh licences and a transfer of staff. Which one fits depends on the country, on taxes and on the licences, so decide it with a local lawyer and tax adviser early.

Due diligence on a building to convert

• Permit feasibility first. Obtain the authority's written position on change of use before you commit, not an agent's verbal assurance. Check zoning, minimum room sizes, bathroom ratios, accessibility, fire escape and any heritage or conservation restrictions. In many places a change of use can take months to years and can be refused; timelines vary widely by country and municipality, so build your plan on the authority's own indication.
• Structure and services. Hotel use usually needs more from the building than residential or office use: fire compartmentation, ventilation, plumbing for many bathrooms, lifts, back-of-house space and parking. A cheap building with a hard structure can cost more than a dearer one that is ready.
• Cost certainty. Get a cost consultant's estimate by element, with a contingency, and a fixed-price offer from a contractor before you complete. Typical industry practice is to hold a contingency of 10% to 20%, and more for old buildings (indicative, not from a verified source).
• Operator interest. Speak to operators before you buy. A hotel that no operator wants at your location, size and specification will struggle to be financed or sold. See hotel acquisition financing for foreign buyers.
• Timeline and carry. Add purchase, design, permits, construction, pre-opening and ramp-up. Interest, taxes and holding costs run through all of it.

What the works cost

There is no single reliable number for converting a building to a hotel in Europe, because cost depends on country, building, class and finish. For refurbishing an existing hotel, market sources quote roughly 15,000 to 25,000 dollars per room for a mid-range renovation, 25,000 to 40,000 for a comprehensive upgrade that includes replacing mechanical systems, and 15,000 to 70,000 for full furniture and bathroom remodels. These figures are drawn from US-oriented sources and are orders of magnitude only.

Worked illustration, our arithmetic and not a quote: for a 30-room hotel, a refurbishment of 20,000 to 40,000 euros per room gives a budget of 600,000 to 1.2 million euros before public areas, kitchen, plant and contingency. Add that per-room cost to the price per room when you compare an operating hotel with a conversion, and then add the months of lost income and the ramp-up. The cheaper entry price is only an advantage if the sum stays lower.

Comparing the two

• You want income soon and limited execution risk: an operating hotel, priced with the capex it needs.
• You have construction experience, local contacts and patience: a conversion can create value, but only if the permit is secured first.
• You have little time to manage: neither is passive. An operating hotel still needs an operator, and a conversion needs a developer's discipline.
• You buy in a strongly seasonal resort: look at the low months first for an operating hotel, and at the length of the season for any conversion.

How to protect yourself in the deal

• Conditions precedent: the permit or licence transfer, a satisfactory structural survey and clean title before completion.
• Price adjustment or retention for hidden liabilities, with the seller's warranties backed by a guarantee.
• Handover plan: staff, systems, accounts, suppliers, and a transition period during which the seller assists.
• A realistic opening budget with working capital for the first low season.
• Independent advisers: a local lawyer, a technical surveyor, and a hotel adviser who can read the accounts.

Who this is for, and who should not

This is for owners who intend to run or to appoint an operator for a whole hotel. If you want a hands-off return, a single hotel unit with a rental programme is a different product with its own risks, see hotel unit rental pools and guaranteed yields. If your budget is small, read hotel investment under 500,000 first.

FAQ

Is a conversion cheaper than buying an operating hotel? Not necessarily. The entry price per room is often lower, but permits, works, financing costs and the ramp-up period can erase the difference. Compare total cost per room, including time.

Do the staff transfer automatically when I buy a hotel? In an asset deal in the EU, employment contracts generally transfer on the same terms under the transfers of undertakings rules. A share purchase leaves the employer unchanged. National rules vary, so take local advice.

How long does a conversion take? It depends on the country, the municipality and the building. Ask the authority for its indicated timeline in writing and add construction and pre-opening time on top.

How we help

We help you check the numbers and the paperwork of an operating hotel, test the permit logic of a conversion with local advisers, and compare the two on total cost per room. See hotels in our catalogue for what is currently listed.

This article is informational only and is not legal, tax or investment advice. Cost and price figures are indicative orders of magnitude from market sources and change over time.