A motel conversion pencils because three things line up at once: the asset trades at a steep discount to replacement cost, the building is simple enough to renovate room by room, and the zoning already exists. Budo Bunul, founder of Kiteville, puts an 80-unit repositioning at roughly $2-3 million against $10-15 million to build the same unit count new, with three to six months to revenue instead of two to three years.
That spread is only half the story. The other half is the operating surgery after close — killing the 24/7 front desk, shedding franchise fees, and centralizing housekeeping, maintenance and accounting — because a motel’s cost structure is what killed its NOI in the first place.
Below: what these assets actually sell for and why, the conversion budget and timeline, the buy criteria that separate a workable motel from a full-service hotel money pit, and two scaling lessons from a team that bought 800 single-family doors before abandoning the model.
Key takeaways
- Budget roughly $3 million all-in per property — acquisition, renovation, and a stabilization reserve — against $10-15 million to build equivalent units ground-up.
- Three to six months from close to revenue, because the zoning, foundation, and utility runs already exist. Ground-up entitlement alone can run past a year.
- Buy single- or two-story, no-elevator properties with uniform rooms and straight-line utilities. The renovation becomes copy-and-paste across the portfolio.
- Franchise fees of 10-20% of revenue buy almost nothing on an underperforming asset. Dropping the flag is often where the first chunk of NOI comes from.
- Buy in clusters of five to eleven assets per market so one contractor base, one supplier list, and one operating team serve the whole group. Scattered doors create scale without density.
From the Real Estate Pros Show
This article draws on an interview with Budo Bunul of Kiteville on the Real Estate Pros Show, hosted by Meghan Escobar.
Why Distressed Motels Trade So Far Below Replacement Cost
Motels have been a declining business for decades, and the math of that decline compounds. Low occupancy means no cash flow, no cash flow means no reinvestment, and no reinvestment means the property gets worse — which pushes occupancy lower still.
Bunul has walked motels with carpet and furniture that are 40 to 50 years old. The furnishings are original. The brand standards, if there is a flag, haven’t been met in years. The owner has no capital to fix it and no lender interested in funding a turnaround on an asset with declining revenue.
What survives all that is the dirt and the bones. These properties sit on busy highway frontage in townships people actually want to live in, because that’s where motels got built in the first place. The structure is frequently sound — the problem is cosmetic and operational, not structural.
Add community stigma. A tired motel that locals associate with problems is an asset nobody in the market wants to own, operate, or stay in. That’s what produces the discount. Bunul describes acquiring at 10, 20, or 30 cents on the dollar relative to what the asset should be worth.
The underwriting implication matters more than the discount itself. You are not buying a cap rate on current operations, because current operations are the problem you’re paying to remove. You are buying square footage, location, and entitlement at a fraction of what it would cost to create them — and then underwriting the income to a different business model entirely. If you price these off trailing NOI, you will either overpay for a property with no path forward or walk away from a good one.
Conversion Math: $2-3M to Reposition vs $10-15M to Build
The side-by-side Bunul runs is straightforward. Take an outdated branded 80-unit motel bought at a deep discount to the dollar. Infuse $2-3 million of renovation capital. Delivering those same 80 units through new construction — land at a premium, new-build construction costs, and the time to get there — runs $10 to $15 million.
His stated average across the portfolio is about $3 million per property all-in. That figure is not just purchase price. It covers three things:
- Acquisition of the asset
- Renovation to the new standard
- A budgeted reserve for the stabilization period before the property is running at target occupancy
Underwriting the stabilization money separately is the part most buyers get wrong. A repositioned motel does not fill up the week the last room is finished. If your capital stack only funds acquisition and construction, you’re carrying operating losses on your own balance sheet during the exact months you have the least flexibility.
The scope that fits inside $2-3 million is a facelift, not a gut. Bunul’s description: rip out the 40-year-old carpet, replace the furniture, paint the walls, add new accessories. Rooms are 300 to 400 square feet and designed to function as living space rather than a one-night stay.
That scope discipline is what protects the budget. The moment you are moving walls, replacing elevators, or re-running utilities, the cost advantage over new construction starts evaporating — which is exactly why the buy criteria in the next section matter as much as the price.
Imagine you have 800 addresses and every one of them has an electricity bill. Imagine dealing with 800 internet services. Imagine dealing with 800 potential roofs that can leak. Imagine you have to take the trash bins out everywhere.
— Budo Bunul, founder, Kiteville
The Timeline Advantage: Three to Six Months Because It’s Already Zoned
Three to six months from close to revenue-generating. That is the number Bunul gives for a motel conversion, and the reason is entirely structural: the zoning exists, the foundation exists, the utility runs exist.
Compare the ground-up path. Two to three years, and Bunul notes that more than a year of that can be consumed by zoning permits alone before a shovel moves. You are paying carry on land and capital through an entitlement process with an uncertain outcome, then paying premium new-build construction costs on the back end.
Repositioning skips the entire front half of that timeline. The township already approved lodging use on this parcel decades ago. The sewer and water connections are in the ground and sized. The pad is poured. You are buying your way past the riskiest, least controllable phase of development.
There is a real counterweight, and Bunul raises it himself. When the use changes — when rooms become flexible long-stay units rather than overnight lodging — you may end up in a township rezoning conversation anyway. Beyond zoning, you are explaining an unfamiliar operating model to municipal officials and to lenders who want to underwrite something they recognize.
That’s where his timelines stretch. In his words, introducing a new idea to the people who have to approve and finance it takes time to be adopted. Build that into your schedule: if your model requires a use change in a township that has never seen one, the three-to-six-month construction clock is not your binding constraint. The approval conversation is. Start it before you close, not after.
Buy Criteria: Why Motels Beat Full-Service Hotels
The buy box is narrow and it’s narrow on purpose. Bunul looks for:
- Single-story or two-story construction
- No elevator required
- Uniform room layouts across the property
- Straight-line utility runs — simple electrical, water, and supply paths
- Simple foundations, no high-rise complexity
Every item on that list serves the same goal. As he puts it, all the rooms are pretty much the same, so the renovation is easy to copy and paste and scale. One furniture spec, one flooring spec, one scope of work, repeated across the building and then across the portfolio. That’s what holds the $2-3 million budget together.
Full-service hotels break every one of those conditions. They carry banquet and convention space — Bunul cites 50,000 square feet of it as a realistic figure — plus conference rooms, pools, gyms, bars, and restaurants. All of it needs capital to restore and staff to operate.
His argument against those amenities is a consumer argument, not a construction one. People marry later and increasingly hold smaller or outdoor weddings, so ballroom demand isn’t what it was. Guests already have gym memberships. And on food service: why pay $50 for a hamburger that’s overcooked or undercooked when you can DoorDash something rated 4.7 from a local restaurant at half the price, delivered to the door?
So the amenity square footage is both a capital drain and a revenue dead end. You pay to renovate it, you pay to staff it, and today’s guest routes around it. In a conversion model where the whole thesis is cost per door, that’s disqualifying.
Rebuilding the Operating Model After Close
The renovation creates the product. The operating model creates the NOI — and on a motel, the operating model is where the money was being lost.
Start with the front desk. A 20- to 30-room motel under traditional operation is often required to staff a 24/7 front desk. Bunul’s point is that overnight coverage is both expensive and hard to staff consistently, on a property that can’t afford it. Mobile check-in and check-out plus in-platform guest support removes that line item entirely while keeping 24/7 responsiveness.
Next, the flag. Franchise agreements with brands like Quality Inn or Super 8 carry 10-20% in fees plus brand standards you must spend capital to meet. On a property with limited revenue, that’s money out of pocket that adds no value. Dropping the flag is often where the first real NOI improvement comes from.
Then consolidation. Housekeeping, maintenance, marketing, HR, and accounting are run through one centralized system rather than staffed at each property. Bunul’s team is about 22 people across technology and acquisitions, with construction subcontracted. Housekeepers work in the field, support and bookkeeping staff work remotely, all scheduled and measured through the same platform.
Distribution replaces a property-level marketing hire. The platform integrates directly with Airbnb, Booking.com, Expedia, and apartment search engines. A correctly priced product in a market with real demand acquires guests organically through those channels.
The revenue mix is what justifies the room design. Those 300-400 square foot units take weekend stays, multi-month stays, and multi-year stays — the same inventory serving a traveler, a remote worker wintering somewhere warm, and a long-term resident priced out of apartment rents.
Two Scaling Lessons: Cluster Acquisitions and the 800-Door Mistake
Kiteville didn’t start with motels. It started with houses, because Bunul already owned a few. Within three years the portfolio reached roughly 800 residential properties across greater Philadelphia.
The business was performing. The model didn’t scale. His description of why is worth reading literally: 800 addresses means 800 electricity bills, 800 internet accounts, 800 roofs that can leak, and trash bins to take out at every single location. That’s scale without density — the unit count grows, the per-unit operating burden never compresses, and no amount of technology fixes the fact that each address is its own standalone problem.
The team pivoted through several property types before landing on motels, where 80 doors sit under one roof, behind one utility meter, with one trash contract and one maintenance route.
The acquisition playbook now carries the same density logic up a level. Kiteville is closing a $33 million raise with U.S. Capital Global to acquire 11 assets across Michigan, Indiana, and Illinois as a single cluster. The point is that each market carries a shared operating base — one contractor relationship, one supplier list, one regional team amortized across multiple properties instead of one.
Cluster buying also creates fund-sized ticket amounts, which is what makes institutional capital workable. Acquire a cluster, renovate, stabilize, then raise the next round for the next region.
What that requires on the ground is a local solution-partner bench in every new market before you close: subcontractors who can deliver to your program, furniture and flooring suppliers, roofing and parking contractors, plus title, insurance, appraisal, and financing relationships. Bunul names building that bench as his biggest current constraint on expansion.
Frequently asked questions
How long does a motel conversion take from closing to revenue?
Three to six months is the working range, because the property is already zoned for lodging and the foundation and utility runs are in place. Ground-up construction of comparable units runs two to three years, with zoning permits alone often taking more than a year.
The exception is when your use changes enough to trigger a township rezoning conversation. Explaining a new operating model to municipal officials and lenders can extend the timeline well past the construction schedule, so open that conversation before you close.
What does it cost per property to convert a motel compared with building new?
Roughly $2-3 million in renovation capital for an 80-unit property, against $10-15 million to deliver the same unit count through new construction. Budo Bunul of Kiteville puts his all-in average near $3 million per property, which covers acquisition, renovation, and a budgeted stabilization reserve.
That number assumes a cosmetic scope — carpet, furniture, paint, accessories — on a sound structure. Structural work, elevator replacement, or re-running utilities will erode the advantage over building new.
Why avoid full-service hotels and focus on motels?
Full-service hotels carry square footage you have to renovate and staff but that modern guests don’t use: banquet and convention space, conference rooms, dated pools and gyms, bars and restaurants. Guests order delivery from a highly rated local restaurant rather than paying hotel food-service prices, and they already hold gym memberships elsewhere.
Motels are single or two stories, often need no elevator, and have uniform rooms on straight-line utilities. That makes the renovation repeatable room to room and property to property, which is what keeps the per-door cost down across a portfolio.
Do you have to drop the franchise flag to make a motel conversion work?
In this model, usually yes. Franchise agreements cost 10-20% in fees and require capital spending to meet brand standards, and on an underperforming asset that money buys very little incremental revenue.
The conversion also replaces the brand’s operating assumptions — the 24/7 front desk, the property-level staffing structure, the reliance on brand distribution — with mobile check-in, centralized support, and direct integrations with Airbnb, Booking.com, Expedia, and apartment search engines. Keeping the flag means keeping the cost structure the conversion is meant to remove.
Why buy motels in clusters instead of one at a time?
A cluster lets one contractor base, one supplier list, and one regional operating team serve multiple properties, so overhead compresses as the portfolio grows. Kiteville’s current raise of $33 million with U.S. Capital Global funds 11 assets across Michigan, Indiana, and Illinois as a single group for exactly that reason.
Cluster buying also creates ticket sizes large enough for institutional capital, which single-asset deals rarely do. The prerequisite is a local solution-partner bench in each new market — subcontractors, furniture and flooring suppliers, title, insurance, and appraisal — lined up before you start closing.
The bottom line
Before you underwrite your first deal, define the buy box and refuse to leave it: single or two stories, no elevator, uniform rooms, simple utilities, and a market where you can source four or five comparable assets rather than one. The cost and timeline advantages hold only on simple structures bought in groups — on a one-off full-service property, the same capital buys you a construction project and a staffing problem.
