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Hotel underwriting calculator: RevPAR to NOI, value, loan & IRR

Read first. Example inputs, not benchmarks or market data. Not financial, investment, lending, appraisal, or tax advice. Hotel results swing hard with occupancy and rate, so check every input against the hotel's own operating statements, the franchise agreement, the management agreement, and a lender term sheet.

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Rooms, occupancy, and rate

Rooms (keys)Days open per yearYear-one occupancy %Stabilized occupancy %Years to reach stabilized occupancyYear-one ADR (average daily rate)ADR growth % per year

Other revenue

Food and beverage revenue, % of rooms revenueOther revenue (parking, meeting space, fees), % of rooms revenue

Departmental expenses

Rooms expense, % of rooms revenueF&B expense, % of F&B revenueOther departments' expense, % of other revenue

Undistributed expenses (% of year-one total revenue)

Administrative and general, % of year-one total revenueSales and marketing, % of year-one total revenue, without franchise fees (enter those below)Property operations and maintenance, % of year-one total revenueEnergy, water, and waste (utilities), % of year-one total revenueInformation and telecom systems, % of year-one total revenue

Brand, management, and reserve

Brand royalty, % of rooms revenueBrand marketing, reservation, and loyalty fees, % of rooms revenueBase management fee, % of total revenueIncentive management fee, % of profit after base and brand fees (0 = none)FF&E reserve, % of total revenue

Fixed charges (year one)

Property tax per yearInsurance per yearExpense growth % per year (undistributed and fixed)

Price and value

Purchase priceClosing costs, % of priceCap rate to value year-one NOI %

Loan sizing

Max loan-to-value %Minimum DSCR (e.g. 1.45)Interest rate %Amortization in years

Hold and sale

Years to holdExit cap rate %Selling costs, % of sale price

RevPAR (year one): $98.60
GOP margin (before brand fees): 44.9%
Year-one NOI: $1,182,872
Value at cap rate: $13,143,018
Max loan: $8,450,000
Levered IRR: 22.2%

29,784 of 43,800 room nights sold at $145.00. Total revenue per available room (TRevPAR) is $114.38. NOI margin is 23.6%.

Year-one P&L, top to bottom

Year one	Amount	% of revenue	Per key
Rooms revenue	$4,318,680	86.2%	$35,989
Food and beverage revenue	$518,242	10.3%	$4,319
Other revenue	$172,747	3.4%	$1,440
Total revenue	$5,009,669	100.0%	$41,747
Rooms expense	−$1,036,483	20.7%	$8,637
F&B expense	−$404,228	8.1%	$3,369
Other departments' expense	−$77,736	1.6%	$648
Departmental profit	$3,491,221	69.7%	$29,094
Administrative and general	−$425,822	8.5%	$3,549
Sales and marketing	−$325,628	6.5%	$2,714
Property operations and maintenance	−$225,435	4.5%	$1,879
Energy, water, and waste	−$190,367	3.8%	$1,586
Information and telecom systems	−$75,145	1.5%	$626
Gross operating profit (GOP, before brand fees)	$2,248,823	44.9%	$18,740
Brand royalty and program fees	−$410,275	8.2%	$3,419
Base management fee	−$150,290	3.0%	$1,252
Incentive management fee	−$0	0.0%	$0
Property tax	−$210,000	4.2%	$1,750
Insurance	−$95,000	1.9%	$792
EBITDA	$1,383,258	27.6%	$11,527
FF&E reserve	−$200,387	4.0%	$1,670
Net operating income (NOI)	$1,182,872	23.6%	$9,857

USALI books franchise royalty and brand marketing fees inside sales and marketing, above GOP. This tool shows them on their own line below GOP, so GOP and GOP margin here read higher than on a USALI statement. NOI is the same.

Value and loan sizing

Value at a 9% cap rate	$13,143,018
Value per key	$109,525
Purchase price	$13,000,000
Price per key	$108,333
Going-in cap rate on price	9.1%
Loan at 65% LTV (of the lower of price and value)	$8,450,000
Loan at a 1.45 DSCR	$9,405,158
Loan (lesser of the two; LTV sets it)	$8,450,000
Annual debt service	$732,926
Year-one DSCR	1.61x
Debt yield (NOI ÷ loan)	14.0%
Closing costs	$260,000
Equity in (price + closing − loan)	$4,810,000
Year-one cash flow after debt	$449,945
Year-one cash-on-cash	9.4%
Break-even occupancy (covers debt service)	56.8%

5-year projection

Year	Occupancy	ADR	RevPAR	Total revenue	GOP	NOI	Debt service	Cash flow	DSCR
1	68.0%	$145.00	$98.60	$5,009,669	$2,248,823	$1,182,872	$732,926	$449,945	1.61x
2	70.0%	$149.35	$104.54	$5,311,722	$2,422,051	$1,301,069	$732,926	$568,143	1.78x
3	72.0%	$153.83	$110.76	$5,627,390	$2,603,649	$1,425,293	$732,926	$692,367	1.94x
4	72.0%	$158.45	$114.08	$5,796,212	$2,681,759	$1,468,052	$732,926	$735,126	2.00x
5	72.0%	$163.20	$117.50	$5,970,099	$2,762,211	$1,512,094	$732,926	$779,168	2.06x

Sale and returns

Year 6 NOI (what a buyer underwrites)	$1,557,457
Sale price at a 9.5% exit cap	$16,394,280
Selling costs	−$327,886
Loan payoff	−$7,727,611
Net sale proceeds to equity	$8,338,783
Levered IRR	22.2%
Unlevered IRR	13.5%
Equity multiple	2.40x
Total profit before income tax	$6,753,532

Departmental costs move with revenue. Undistributed costs, property tax, and insurance start from year one and grow at the expense rate, so margins widen as occupancy and rate climb. The loan is a fixed-rate amortizing loan sized on year-one NOI. No income tax, no PIP or renovation spend, and no refinance are modeled.

What this calculator cannot see

The PIP. A brand usually requires a property improvement plan on a sale or a new franchise. It can cost more than a year of NOI. Add it to the price before you judge the return.
Trailing numbers vs. your numbers. Start from the hotel's trailing twelve months, then change only what you can explain: a new brand, new management, a demand change you can name.
The agreements. Franchise and management agreements set the fees, the term, and what it costs to leave. Read both before you trust a fee line here.
Seasonality. A good annual DSCR can hide months when the hotel does not cover its payment. Ask for monthly statements.

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Example only. Not financial, investment, legal, tax, lending, or appraisal advice.

A hotel is an operating business that happens to sit in a building. Rent does not show up on the first of the month. Every night the rooms have to be sold again, and the price changes with the season, the day of the week, and the hotel down the road. This calculator takes rooms, occupancy, and ADR all the way down a USALI-style P&L to GOP and NOI, values the hotel at your cap rate, sizes the loan the way a lender would, and projects the hold to a levered IRR.

The form loads with example inputs for a 120-room hotel so you can see every line move. They are example inputs, not benchmarks or market averages. Replace them with the hotel's trailing twelve months, the franchise and management agreements, and a lender term sheet. Press Print or save as PDF for a one-page report of the inputs, the P&L, the loan, and the projection.

New to hotel numbers? Read how to underwrite a hotel, which walks the same example from RevPAR to NOI, value, and loan size. Want to test just one piece? Use the cap rate calculator or the DSCR calculator.

What this measures

Hotel underwriting starts with three numbers: rooms, occupancy, and ADR (average daily rate). Occupancy times ADR is RevPAR, revenue per available room. RevPAR times the room nights available is rooms revenue. Food and beverage, parking, meeting space, and fees are added as a share of rooms revenue to get total revenue.

From there the P&L follows the USALI order most hotel lenders and buyers read, with one change: brand fees get their own line below GOP instead of sitting inside sales and marketing. Departmental expenses come off first: the rooms department, F&B, and other departments. Then the undistributed expenses that keep the whole building running: administrative and general, sales and marketing, maintenance, utilities, and technology. What is left is gross operating profit, or GOP, before brand fees. Brand fees, management fees, property tax, and insurance come next, then the FF&E reserve for replacing furniture, fixtures, and equipment. The bottom line is NOI.

NOI drives everything after that. The cap rate turns it into value. The lender sizes the loan two ways, by loan-to-value and by DSCR, and lends the smaller amount. The projection ramps occupancy, grows ADR and expenses, sells the hotel at an exit cap rate on the next year's NOI, and turns the cash flows into a levered IRR and an equity multiple.

Formula

RevPAR = ADR × occupancy. Rooms revenue = rooms × days open × occupancy × ADR. Total revenue = rooms revenue × (1 + F&B % + other %). GOP = total revenue − departmental expenses − undistributed expenses.

EBITDA = GOP − brand fees − management fees − property tax − insurance. NOI = EBITDA − FF&E reserve. Value = year-one NOI ÷ cap rate. Debt yield = NOI ÷ loan. DSCR = NOI ÷ annual debt service.

LTV loan = max LTV × the lower of price and value. DSCR loan = the amount whose annual payment equals NOI ÷ minimum DSCR. Loan = the lesser of the two. Exit value = the NOI of the year after the sale ÷ exit cap rate. Levered IRR uses equity in, yearly cash flow after debt service, and the net sale proceeds.

Example

The sample hotel: 120 rooms open 365 days at 68% occupancy and a $145 ADR, so RevPAR is $98.60 and rooms revenue is $4,318,680. F&B at 12% and other revenue at 4% of rooms bring total revenue to $5,009,668.80. After departmental and undistributed expenses, GOP before brand fees is $2,248,823.05, a 44.9% margin (36.7% with brand fees in sales and marketing, as USALI books them). Brand fees, a 3% base management fee, $305,000 of tax and insurance, and a 4% FF&E reserve leave NOI of $1,182,871.63. At a 9% cap rate the hotel is worth about $13.14 million against a $13,000,000 price. A 65% LTV caps the loan at $8,450,000, below the $9.41 million a 1.45 DSCR would allow, so LTV sets the loan. Debt service is $732,926.16 a year, the DSCR is 1.61, and the debt yield is 14.0%. Year-one NOI is $1,182,872. Value at cap rate is $13,143,018. Max loan is $8,450,000.

Illustrative example. Every input is a sample so the math is visible, not a real hotel, a market average, or a deal RE Underwrite Lab did. With a 5-year hold, occupancy rising to 72%, 3% ADR and expense growth, and a 9.5% exit cap, the example shows a 22.2% levered IRR and a 2.40x equity multiple. Change one input and both move. The guide to underwriting a hotel walks the same numbers line by line.

Example

Second example

Illustrative example. An 80-room hotel runs 75% occupancy at a $120 ADR, so RevPAR is $90 and rooms revenue is $2,628,000 (21,900 room nights sold). Other revenue at 5% brings total revenue to $2,759,400. If GOP is 40%, or $1,103,760, then brand fees of 9% of rooms revenue ($236,520), a 3% management fee ($82,782), $180,000 of tax and insurance, and a 4% FF&E reserve ($110,376) leave NOI of $494,082. At a 9.5% cap that is about $5.2 million of value, and a lender asking for a 1.40 DSCR would cap debt service near $352,916 a year. These figures are made up and are not the sample in the form above.

When this ratio misleads

A single year of NOI can flatter a hotel. If the trailing twelve months included a one-time event, a stretch with a competitor closed, or deferred maintenance that kept costs low, the cap-rate value and the loan size both inherit the mistake. A hotel that needs a brand-required renovation can also show a strong IRR here while needing millions the model never sees. Treat the IRR as a sensitivity tool: move occupancy down five points and the exit cap up half a point, and see what survives.

Common pitfalls

Growing rate and cost at the same speed forever. Wages and insurance can outrun ADR for years. Test an expense growth rate a point higher than ADR growth.

Leaving out the FF&E reserve because the seller's P&L does. Lenders and buyers take it off before NOI, so the value and the loan you get will be based on the lower number.

Valuing on a stabilized year you have not reached yet. The calculator values year one on purpose. If you pay for stabilized NOI, you are paying the seller for work you still have to do.

Ignoring the PIP. A franchise change or a sale often triggers a property improvement plan from the brand. Price it before you sign, and add it to your equity.

Questions

How do you underwrite a hotel?

Start from rooms, occupancy, and ADR to get rooms revenue, add the other departments, and take off departmental and undistributed expenses to reach GOP. Subtract brand and management fees, property tax, insurance, and an FF&E reserve to reach NOI. Then value it with a cap rate and size the loan by LTV and DSCR.

What is the difference between GOP and NOI for a hotel?

GOP is profit after the departments and the undistributed operating expenses. NOI goes further and takes off management and brand fees, property tax, insurance, and the FF&E reserve. Value and loan size are based on NOI.

How is RevPAR calculated?

RevPAR is ADR times occupancy, or rooms revenue divided by available room nights. A hotel at 68% occupancy and a $145 ADR has a RevPAR of $98.60.

How do lenders size a hotel loan?

Most test the loan against value (LTV), against cash flow (DSCR), and often against debt yield, then lend the smallest amount that passes every test. This calculator runs LTV and DSCR, shows which one sets the loan, and reports the debt yield.

Why is there an FF&E reserve?

Furniture, fixtures, and equipment wear out on a schedule, and franchise and loan agreements commonly require money set aside to replace them. Treating the reserve as a cost every year keeps NOI honest.

Is this an appraisal or investment advice?

No. It is arithmetic on the numbers you type. It does not know the market, the brand, or the property's condition. Use an appraiser, a lender, and your own advisors before you buy.

Estimates only. Not financial, legal, tax, or investment advice. RE Underwrite Lab calculators and PDF reports provide educational estimates based on the numbers you enter. Actual purchase costs, rents, expenses, financing terms, taxes, insurance, vacancy, rehab costs, refinance eligibility, and returns vary by property, market, lender, and local law (including short-term rental rules). We do not guarantee any outcome, profit, cash flow, or appraisal. Some content and tools may be generated or assisted by artificial intelligence and can contain errors. Always verify assumptions with licensed professionals and your own due diligence before making decisions.