Build revenue from occupied room-weeks
Start with the number of legal, marketable rooms. Apply a room-specific weekly rate, then convert to annual gross potential. Reduce it by a stabilized occupancy assumption and separate allowance for concessions, collection loss, and non-revenue days during turns.
Gross potential is a capacity calculation. Stabilized revenue is an operating judgment.
Core formula
Annual room revenue = legal rooms × weekly rate × 52 × economic occupancy
Use different rates for private baths, room sizes, parking constraints, or other meaningful differences. Avoid averaging away weak rooms.
Make every operating cost visible
| Cost | Model as | Watch for |
|---|---|---|
| Utilities + internet | Monthly base plus stress case | Seasonality and full-house use |
| Maintenance | % of revenue and minimum reserve | Older systems, more service events |
| Turns and furnishings | Per turn / replacement schedule | Mattresses, locks, linens, damage |
| Platform/payment costs | Current contracted terms | Policy and pricing changes |
| Management | % of collected revenue or payroll | After-hours response and inspections |
| Taxes/insurance/licensing | Property-specific quotes | Use classification and reassessment |
| Capex | Annual reserve | Roofs, HVAC, plumbing, appliances |
Run three stories
Base case
Supported by market evidence, a realistic ramp, ordinary repairs, and fully loaded management.
Downside case
Lower rate and occupancy, slower stabilization, higher utilities, and elevated turns. This is the case to use when sizing liquidity.
Stress case
A temporary occupancy shock plus a material repair or regulatory delay. It tests survival, not target return.
Do not double-count optimism
If the model uses premium room rates, it should not also assume instant lease-up, minimal furnishings, lower-than-market management, and negligible turnover.
The acquisition scorecard
- Legality: written, address-specific confidence in intended use.
- Demand: real alternatives, employer nodes, transit, and current room evidence.
- Basis: purchase plus hard and soft conversion costs.
- Efficiency: legal rooms relative to total basis and recurring overhead.
- Operability: parking, bathrooms, systems, vendor coverage, and inspection access.
- Resilience: downside cash flow and adequate reserves.
- Exit: credible long-term rental, resale, or alternative strategy.
This framework is educational. Returns, financing, platform policies, and local requirements vary; verify every live input.