Converting motels into multifamily investment properties is becoming a smart, scalable way to meet rental demand in urban and suburban markets.
With housing shortages increasing nationwide and many motels sitting underused or distressed, savvy investors are eyeing these properties for transformation.
But turning a roadside motel into a stable, cash-flowing rental property isn’t as simple as repainting the walls and raising the rent. You need a plan, permits, and—most importantly—capital.
In this step-by-step guide, we’ll walk you through how to assess, finance, and complete a motel-to-multifamily conversion with help from Park Place Finance.
Start your application with Park Place FinanceStep 1: Evaluate the motel’s conversion potential
Before making an offer, you need to determine if the property can be legally and feasibly converted into a multifamily building.
Key considerations:
- Zoning: Check local zoning laws. Is residential use allowed? Will you need a conditional use permit or zoning change?
- Layout: Most motels have individual rooms with plumbing and HVAC, but not full kitchens. Can you add kitchenettes?
- Parking and Access: Ensure compliance with local codes for parking spaces and ADA accessibility requirements.
- Structure: Inspect the roof, foundation, plumbing, and electrical. Major repairs can quickly shift your budget.
Also consider the surrounding neighborhood. Is it walkable, near transit, or located in a developing area? These factors can significantly influence rentability and long-term value.
Regional tips:
- In Los Angeles, areas such as Koreatown and East Hollywood have older motels that are ripe for adaptive reuse, especially near transit corridors.
- In South Florida, cities such as Fort Lauderdale and West Palm Beach are reviewing zoning incentives to encourage the conversion of motels into high-demand rental areas.
Pro tip: Work with a local architect or code consultant early in the process. Some jurisdictions may offer streamlined approvals for adaptive reuse.
Step 2: Run the financial projections
Next, verify whether the numbers are correct. A thorough feasibility study is crucial for securing financing and attracting potential partners.
Run these calculations:
- Acquisition cost
- Renovation per unit (budget high for unexpected costs)
- Expected market rent per door
- Occupancy rate assumptions
- Cap rate and exit value
- Loan terms and interest-only periods
You’ll also want to model various hold scenarios—such as 5-year vs. 10-year holds—and stress-test vacancy rates or unexpected repair costs.
If the property won’t meet your target DSCR (debt service coverage ratio) or IRR (internal rate of return), it may not be the right project.
You should also run comps on similar converted units in the area, such as micro-apartments, studios, and efficiency units.
Review utility costs, potential tax assessments, and insurance premiums for older properties, as these can cut into net operating income (NOI).
Step 3: Secure the right loan product
Financing is the cornerstone of a successful conversion.
Park Place Finance offers several lending options that can fund every stage of this strategy.
Bridge loan
- Best for: Fast acquisition and short-term hold on rent-ready or lightly updated properties
- Terms: 12–24 months, interest-only
- Ideal for: Investors who need to close quickly and reposition a rent-ready asset
Ground-up construction loan
- Best for: Full gut jobs, major reconfigurations, or tear-down and rebuild
- Structure: Draw-based funding, interest-only during construction
- Support: Designed for experienced developers
- Includes: Draw schedule tied to inspection milestones
DSCR loan
- Best for: Long-term rental hold after lease-up
- Terms: 30-year fixed
- Approval based on: Property income, not personal debt-to-income
- Bonus: Great for portfolio investors scaling with cash flow
Use a bridge or construction loan to acquire and convert, then refinance into a DSCR loan for stable cash flow and lower monthly payments.
Step 4: Convert, rebrand, and lease-up
Once financed, it’s time to renovate and reposition the asset.
Common conversion steps:
- Install kitchenettes or full kitchens
- Add private mailboxes, upgraded HVAC, and energy-efficient lighting
- Improve exterior (curb appeal is key for lease-up)
- Add laundry facilities, security lighting, and new signage
- Convert common areas into tenant amenities: co-working spaces, package lockers, or bike storage
Rebrand creatively:
- From “motel” to “urban studio living”
- Name the property something aspirational or community-oriented
- Update online listings and signage to reflect the new use
Marketing matters:
- Create a digital lease-up campaign with 3D tours
- Offer move-in specials or short-term leases
- Partner with local employers or schools for tenant referrals
Lease-up with incentives if needed (e.g., 1 month free), and prepare for a 3–6 month stabilization period.
Step 5: Refinance and scale
Once 90% or more of the units are occupied with stable rents, you can refinance into a DSCR loan.
Benefits of the refinance:
- Pull out equity for your next deal
- Lock in long-term fixed rates
- Start building a rental portfolio
- Improve cash flow with lower monthly payments
Investor tip: Ensure accurate tracking of all capital expenditures (CapEx) and operating expenses. Lenders will review these closely during the refinance underwriting process.
Park Place Finance collaborates with experienced and first-time investors on these transitions, prioritizing swift approvals and flexible terms.
FAQ: Converting motels into multifamily investment properties
Is it legal to convert a motel into apartments?
Yes, but it depends on local zoning and building codes. Some areas are supportive of adaptive reuse; others may require zoning changes. Engage local planning departments early.
What kind of permits are required?
Typically, you’ll need change-of-use permits, building permits for renovations, and possibly fire/life safety upgrades. In some areas, you may need to meet new energy or accessibility codes.
How long does it take to convert a motel?
Timelines vary. A light rehab may take 3–6 months; a full gut job or reconstruction could take 9–18 months, depending on permitting, supply chain issues, and contractor availability.
Can I get 100% financing for the conversion?
Most lenders, including PPF, require skin in the game. However, you can finance a large portion of the acquisition and rehab with a bridge or construction loan. Additional equity can come from partners or private capital.
What happens after conversion?
Once stabilized, you can either sell the asset or refinance with a DSCR loan to hold and collect monthly income. Many investors also utilize cost segregation or accelerated depreciation to reduce their taxable income.
Turn your next motel deal into a multifamily win
Motel-to-multifamily conversions are a high-return strategy for real estate investors seeking to create housing and generate equity.
These projects repurpose underutilized real estate and tap into growing rental demand—especially in urban areas with limited housing supply.
With the right due diligence, team, and financing strategy, you can turn an aging motel into a profitable, stabilized multifamily asset.
Park Place Finance provides the capital and expertise to help you convert, stabilize, and scale your investment.