Thursday, September 10, 2015

What I Learned from Operating a Lodge

I feel like I could write a novel with at least a dozen chapters regarding this topic, but I'll just write the abridged version here.

For those that don't know, my sister and I inherited a lodge business when out father passed away in 2007. For about 5 years, I operated the lodge and am more than willing to share my notes with anyone who is interested.

With the sale of the property and business now finalized, I wanted to write some thoughts while they're still fresh in my mind.

When I first took over The Lodge Near Mt Rainier, it was October 2008 and a little more than a year after my dad passed away. He left the business to me and my sister. Some might have wondered why I waited so long to get involved, but we had people and processes in place and I didn't want to jump in and make changes. We had a full time manager as well as a caretaker, and my sister was the one who stepped up and said she would take care of everything that my dad left behind.

So why the change? If all the rooms were rented every night at the listed price with no discounting, the business would have made around $550K per year in income. Instead, it made $55K in 2008. I had no hotel experience, but thought half a million in annual sales should be our goal.

Sidenote: We had other issues as well, including an outdated website that I desperately wanted to redo, and a staff member who refused to return our calls or emails. July 4th was historically one of our busiest times, yet in 2008, it was empty and we had no reservations.

Lesson 1 - Occupancy Rate - Set a Realistic Goal
One of the first things I learned, you can't set 100% occupancy as your goal, especially when you're just starting out. To increase business 10 fold, I would need more cleaners, more people to answer phones, questions and emails. And if done incorrectly, expenses like utilities, labor and cleaning supplies could increase just as much, eliminating any profit. Instead, I needed to take baby steps.

I read that nationally, hotels average between 55 to 60% occupancy. A quick Google search confirms this general range. Considering that most hotels are in city-cores or just off major highways or near tourist attractions, I figured that those hotels would have the highest occupancy rates. While specialty hotels, like cabins and lodges, have even lower occupancy rates, often 25-35% (I don't have a direct source for these numbers other than from talking to neighbors and a friend who works for a company that funds / finances hotels). All of a sudden, my goal of doing $500K in sales was looking more like $150K to $200K at best.

Early on, my goal was to just get weekends booked. 2 out 7 days each week would mean an occupancy rate of 28.6%. I would end up using this figure as my goal during my entire experience, and we would consistently meet or beat these numbers. The only exceptions to this goal would be during July and August when we would be nearly 100% booked.

Lesson 2 - If you can't fix up your own house, don't bother buying a hotel
I constantly felt like I was taking care of 10 homes. Even though we only had 6 units that we rented out, we also had a storage facility, a building for owners, an office, and a vacant building that we thought about fixing up. You're always cleaning, dusting, taking out trash, vacuuming, fixing little issues and thinking of the next step and the next thing to address. My mindset was, if it bothered me, it would probably bother our guests.

PS - Even though that 'vacant building' wasn't rented out, it still needed to be inspected by health inspectors since it was part of the property. It also had to pass these inspections. I always felt that was ridiculous, but that's just one of the many rules of owning a business like this, at least here in Washington State.

And if that wasn't enough, there's always things you're neglecting, things that need more attention, like remodeling and deferred maintenance. These things ranged from needing new furniture to new paint, siding and roofing.

Imagine if you live in a condo with a strong homeowners association. You wonder why you pay so much every month in dues, but then realize you never have to pay for paint, repairs, siding, roofing, or any of that. Part of that higher payment each month should go towards a reserve account that allows the complex to address deferred maintenance.

When you own a hotel, you are your own HOA. You need to set money aside to address these issues. No one does that for you. This is probably the toughest financial lesson I learned, as most people would want to treat any profit as just that... "profit", but it should really be reinvested into the business.

Lesson 3 - You should treat your website like an employee
When I took over the business, the website was one page and all it had was a name, address, contact information and a couple pictures. It was like looking at a physical brochure. There was no current availability and no dynamic content. It was all static, meaning the information was set once and rarely, if ever, changed.

The worst part, though, was the amount of phone calls we received. Phone calls that ranged from, "Does your complex have wifi?" and "How far are you located from the entrance to the National Park?" to questions about availability, pricing per unit and so on. All of these questions could be answered with a simple FAQ page and an updated website.

With the help of a friend, we created a website that had some key elements,
- An active, up-to-date reservation calendar (it used AvailbilityOnline and iMagic to receive and manage reservations from the website, which, when combined, came out to less than $300 per year)
- A Frequently Asked Questions page that was updated at least twice a year. I believe at one point, there were about 40 questions on this list, but it greatly helped reduce the number of emails and phone calls we received.
- A listing of each unit, specific pictures for each unit, as well as pricing information based on the number of guests in each unit. Again, this helped reduce the number of times people asked questions about pricing. It also helped create some consistency in pricing. Sometimes people would call out of the blue and catch you off guard (especially when I had phone calls forwarded to my cell phone at one point). You forget if you just raised / lower the prices, or if a specific special you had just advertised was for 4 guests or 6.

One tip of advice, if you do create a website, I would also keep a separate Change Log. Anytime I made changes to the website, whether it was a new question added to the FAQ list, or a pricing change was made, or policy change was made, etc etc, I logged it on a document so I could go back and see which periods had the greatest conversion rates. One time, I did an across the board price increase so I could match some competitors. Unfortunately, we had a steep drop in new reservations during that period so I reverted back to the old pricing.

So this brings me back to the point of this section, but when done correctly, your website becomes an effective salesperson for you. Instead of hiring someone and paying them $10 an hour for reservations, emails and phone calls that may never come in, now you have a website that is up 24 hours a day that can answer questions and be on call for you. And, as I mentioned, it cost as little as $300 a year* and only required a few hours of updating every once in a while.

* There were free options for creating an active online calendar, but they were VERY difficult to fine tune and customize. I went with a system that many competitors were using and they were well worth the money.

If you still really want to get involved and own your own hotel, here are some tips;
1. Live on-site. If you can't live on site, try to live within 30 minutes. This was my biggest issue, because there were people I trusted and people I didn't trust. Being 2 hours away meant that any issue would require a half day of driving just to get to the property and back.
2. Consider alternatives. Hotels, and generally any business classified for commercial purposes, have so many regulations. Be prepared to hear from the Department of Health, Department of Licensing, Department of Labor and Industries, Department of Revenue, and so on. How does one get around it? Maybe start by renting out your own place on AirBNB or VRBO / Homeaway. If you can't deal with guests for one unit, maybe owning multiple units isn't for you.
3. Don't get too excited! So many people have this dream of buying a property like this, retiring away from the city and just running a business during their retirement. Once the property was listed for sale, we had a lot of inquiries, but few were mentally prepared. I was always honest with the numbers and people were always surprised at the bottom line. Income was about what everyone expected, but the expenses were always much much higher than anyone expected.
4. Consider the neighbors and neighborhood. My biggest pet peeve about the town of Ashford is that Highway 706 East becomes a dead end road in the winter. You can drive up to Paradise, but due to road closures, people can't drive through the National Park.

Why is that a big deal? Because the amount of traffic that drives by during the winter months is a fraction of what it is during the summer. People avoid Ashford and drive around, they avoid the entire region altogether.

Compare that to, what I consider, an ideal neighborhood like Leavenworth. There are plenty of events during both summer and winter seasons. Even during Ashford's slowest months (April and October), Leavenworth still offers spring skiing nearby at Stevens Pass and Octoberfest. Highway 2 is a major alternative to I-90 for getting across the state. And best of all, my cell phone works in Leavenworth!

Wednesday, September 09, 2015

No more MDX

I finally gave up on the Acura MDX and traded it in for a brand new vehicle that 1. had around 30 miles on it when I bought it and 2. is under the manufacturer's warranty. The monthly payments stayed the same and I didn't have to pay anything out of pocket, so it was a no brainer for me. Size wise, it's a similar vehicle. Features wise, they couldn't be more different. I went with a new Jeep Wrangler Unlimited.

No leather, no navigation, no 3rd row seat, no roof rack, no heated seats.

4 months in, I'm still ecstatic about the decision and I don't think I'll go back to an Acura anytime.


The things I've noticed about the Wrangler.

1. Other people in Jeeps wave at you.

2. The gas mileage is about the same as the MDX. Except I don't need to use Premium anymore! (sidenote: the gas mileage was a few MPGs better with the stock Sport wheels / tires, until I put BFG All Terrain tires on them.)

3. The Jeep is noticeably narrower than the MDX. That might suck when I try to fit 3 adults in the backseat, but it's great when parking and maneuvering in tight spaces.