The Reality Check: What You MUST Know Before Converting Hotels to Apartments

There's undeniable excitement in the real estate world about converting hotels to apartments right now. Groups are executing these projects successfully, and on the surface, the numbers look incredibly attractive. But here's what most people don't see: the reality behind the glossy pro formas can be brutal.

As someone who's been in the trenches of hotel conversions with both spectacular wins and painful lessons, I'm sharing the unvarnished truth about what you need to know before jumping into this space.

Hotels ≠ Apartments (Even Though They Look Similar)

While both asset classes involve multiple units with shared amenities, the similarities end there:

The biggest mistake I see investors make is assuming that because the physical structures look similar, the conversion will be straightforward. It's not.

Before you fall in love with a property, you must confirm market demand using platforms like:

Critical Questions to Answer:

In my market (Chandler, Arizona), studios range from $1,750-$2,500. But knowing the numbers isn't enough—you need to understand the velocity of how quickly units lease up.

Here's a hard truth: Your buyer pool for a 100% studio apartment complex is significantly smaller than traditional multifamily assets.

Who Actually Buys These Properties?

Traditional multifamily buyers want unit mix diversity (1BR, 2BR, 3BR). If your exit strategy relies on conventional apartment buyers, you're setting yourself up for disappointment.

Conversions are expensive—often more expensive than you think, even with conservative projections.

Major Cost Categories:

Real Example: We've been in escrow on a Texas property for over three months due to bank complications, reappraisals, and endless documentation requests. Every month of delay costs money.

This is where deals live or die. Your contractor can absolutely tank your project, even if you buy the property right.

Non-Negotiable Contractor Requirements:

Red Flag: If they can't produce specific evidence of hotel conversion experience, move on immediately. Every contractor will claim they can do it—very few actually can.

You MUST hire a construction attorney. This isn't optional.

A construction attorney will:

The cost of not having one far exceeds the cost of hiring one. If the project won't work with proper legal protection factored in, it's the wrong deal.

Before you even consider purchasing, have detailed conversations with the Planning and Zoning Commission.

Key Discussion Points:

I've walked away from deals where cities were actively resistant to conversion projects. Sometimes it's better to move on than fight an uphill battle.

Capital calls are common in this space. Even with experienced operators and conservative projections, unexpected expenses arise.

Raising capital is a marathon, not a sprint. If you can't secure sufficient funding upfront, you're competing against operators who can. Some firms take 9-12 months to close deals—factor this timeline into your strategy.

The smartest way to enter any new business: find the best operators and learn from them.

Working with experienced hotel conversion specialists gives you access to:

Hotel-to-apartment conversions can be incredibly profitable, but they're also incredibly complex. The margin for error is slim, and the consequences of mistakes are expensive.

Before you proceed:

I regularly evaluate hotel conversion opportunities and work with investors on viable projects. If you have a potential deal or want to discuss the conversion space, reach out at [email protected].

Not every property that looks like a conversion opportunity actually is one. But when you find the right deal, with the right team, in the right market—the returns can be exceptional.

What questions do you have about hotel conversions? Share your thoughts in the comments below.

Andrew LeBaron is a real estate entrepreneur specializing in hotel/motel to apartment conversions and the founder of ULTRA Hotel Conversions™. He has completed over 150 real estate transactions and raised over $10 million for property acquisitions. Connect with Andrew at andrewlebaron.com or ultraextendedstay.com.