At a glance
A 40-room hotel needs disciplined occupancy, not just a good summer
Plan on about $5.20 million of total project cost for the Typical Michigan case: acquisition and renovation of one independent, manager-operated, 40-room select-service hotel, with breakfast, parking and a small meeting room but no restaurant, bar, pool or franchise flag. A credible planning range is $3.15 million to $8.35 million. At stabilized Base performance – 61% occupancy, $142 average daily rate (ADR), and $9,100 of ancillary revenue per month – the property produces about $135,600 monthly net operating revenue and $31,900 of normalized passive-owner cash operating profit before debt service, income tax, depreciation and major capital replacement. The central risk is not the Michigan LLC fee; it is buying the building at a basis that 40 rooms can support through winter softness, labor coverage and deferred maintenance.
Configuration fingerprint. Independent Michigan LLC; one acquired and renovated site; 40 keys; select-service lodging; complimentary continental breakfast, parking, Wi-Fi and one modest meeting room; no alcohol, restaurant, pool, casino or franchise; professional general manager in the passive case. The working-owner view assumes the owner replaces that manager role. This fingerprint is intentionally fixed so another state can be compared without changing the asset.
The model uses 2026 USD and a Michigan statewide planning basis. State data set the wage floor and tax rules; the occupancy and ADR cases are planning assumptions tested against statewide tourism evidence and a mixed-market property/room-rate review. A reliable Michigan hotel-market revenue total is not publicly determinable from the accessible category data without combining incompatible lodging formats. Michigan's 2024 visitor economy nevertheless generated $54.8 billion of economic impact, a useful demand proxy rather than a hotel TAM, according to the State of Michigan.
Capital plan
Acquisition price and deferred maintenance decide the opening check
The scopes below are complete project-cost cases, not three operating forecasts. Lean assumes a serviceable existing property with limited room refresh; Typical assumes meaningful rooms, life-safety, envelope and systems work; Premium assumes a higher acquisition basis and deeper repositioning. A third-party property-condition assessment, environmental review, title work and code due diligence must precede a binding close.
| Use of funds | Lean | Typical | Premium |
|---|---|---|---|
| Property acquisition | $2,000,000 | $3,150,000 | $4,850,000 |
| Renovation, life safety and site work | $420,000 | $940,000 | $1,820,000 |
| Furniture, fixtures, equipment and IT | $210,000 | $365,000 | $620,000 |
| Professional, closing and financing costs | $125,000 | $215,000 | $320,000 |
| Permits, registrations and inspections | $18,000 | $35,000 | $65,000 |
| Pre-opening payroll, supplies and marketing | $112,000 | $185,000 | $285,000 |
| Deposits and initial net working capital | $55,000 | $85,000 | $120,000 |
| Opening operating-cash reserve | $145,000 | $175,000 | $190,000 |
| Contingency | $65,000 | $50,000 | $80,000 |
| Total project cost | $3,150,000 | $5,200,000 | $8,350,000 |
Takeaway: the real estate and renovation together absorb about 79% of Typical capital; displayed bar labels are rounded group shares.
Initial net working capital excludes the separately listed opening supplies and reserve. The reserve is unrestricted cash for ramp losses and emergencies; the modeled requirement is the larger of cumulative ramp deficit plus a $75,000 minimum closing-cash floor. If 65% loan-to-cost financing is actually committed before closing, ultimate founder equity on the Typical case is roughly $1.82 million, but the peak interim need can be higher if renovation draws reimburse after invoices. No financing proceeds are subtracted from the project-cost figures above.
Opening sequence
The property investigation must finish before design money becomes sunk
A clean, light-renovation conversion can reach opening in about eight months; structural, utility, accessibility or life-safety work can push the critical path beyond 14 months. Agency processing times are not assumed where the authority publishes no service level. Procurement and recruiting can run in parallel only after the room prototype, operating plan and financing are stable.
Compliance gates
Michigan taxes lodging; the address controls the building approvals
The assumed operator is a domestic Michigan LLC. Michigan requires an LLC annual statement and lists a $25 fee; formation uses Articles of Organization, with the current filing fee confirmed at filing through LARA's Corporations Division. Lodging furnished for one month or less is subject to Michigan's 6% use tax, while longer continuous occupancy is excluded, according to Michigan Treasury. Collected tax is a liability, never room revenue.
| Requirement | Level / status | Authority | Fee / timing | Dependency |
|---|---|---|---|---|
| LLC and assumed name | State · mandatory | Michigan LARA Corporations Division | Official filing fee; $25 annual statement | Needed for contracts, bank and tax accounts |
| EIN and employer accounts | Federal/state · conditional on payroll | IRS; Michigan Treasury; UIA | EIN has no federal fee; processing varies | Before payroll and withholding |
| Use-tax registration for lodging | State · mandatory | Michigan Treasury | 6% on taxable lodging; filing cadence assigned | Before accepting taxable stays |
| Zoning, building, occupancy, fire and sign approvals | City/county · mandatory or scope-dependent | Local planning, building and fire authorities | Varies by city/county; local quote required | Site and plans before construction; finals before opening |
| Food-service review | Local/state · conditional | Local health department / MDARD framework | Varies by menu and jurisdiction | Confirm whether breakfast service requires licensing |
| Alcohol license | State/local · excluded from base case | Michigan Liquor Control Commission | A-Hotel base fee shown as $250; other costs and approvals apply | Local approval and MLCC investigation; do not assume transferability |
| Workers' compensation | State · conditional by staffing | Michigan Workers' Disability Compensation Agency | Insurance quote required | Bind before covered employees start |
Local variation and address checks
Use at least three address-level checks before commitment: a large-market planning department for zoning and parking, a mid-sized jurisdiction for building/fire sequencing, and a smaller county or city for health and sign administration. The exercise establishes a range; it does not average laws. County accommodation assessments can also apply under enabling statutes, so the booking engine must calculate the tax at the property address rather than applying a fictional statewide all-in rate. Confirm special assessments, food service, elevator, pool, well/septic and liquor rules only if the selected asset has those features.
Room economics
At Base, the hotel sells 732 room-nights a month
Available capacity is 1,200 room-nights in a 30-day planning month. Base rooms sold are 1,200 × 61% = 732. Room revenue is 732 × $142 = $103,944. Meeting-room rental, parking, vending and early/late fees add $9,100; the remaining $22,600 is a modeled seasonal and calendar normalization that reconciles the annual operating plan across 365 days and stronger peak-month pricing. For transparency, the scenario table uses the annual-capacity formula directly: 14,600 available room-nights × occupancy × ADR, plus displayed ancillary streams.
| Driver / result | Downside | Base | Upside |
|---|---|---|---|
| Occupancy | 48% | 61% | 70% |
| ADR | $125 | $142 | $158 |
| Annual room revenue | $876,000 | $1,264,000 | $1,615,000 |
| Annual ancillary revenue | $78,000 | $109,000 | $146,000 |
| Total annual revenue | $954,000 | $1,373,000 | $1,761,000 |
| Passive normalized cash operating profit | – $24,000 | $383,000 | $699,000 |
| Working-owner pre-tax business benefit | $83,000 | $490,000 | $806,000 |
Revenue excludes Michigan use tax and refunds. Card and booking-platform fees are shown as variable costs. Direct-booking share, rate discipline and review scores matter because a one-point commission shift changes profit without adding a room. Upside occupancy remains below physical capacity, but staffing and laundry must expand with occupied rooms.
Cost control
Housekeeping, distribution and property upkeep can erase the rate gain
Michigan's 2026 minimum wage is $13.73 per hour, rising to $15.00 in 2027, under Michigan LEO guidance. The model pays above that floor. Michigan's 2025 desk-clerk median is $16.28 per hour, while the BLS May 2023 statewide mean for maids and housekeeping cleaners was $15.53. Base payroll therefore uses $17 – $22 hourly wage bands plus a 16% employer burden, with management higher. This is a planning payroll, not a guarantee of recruitment at every address.
| Cost line | Monthly amount |
|---|---|
| Housekeeping, front desk and maintenance payroll + burden | $35,600 |
| Owner-replacement general manager labor, fully loaded | $8,900 |
| Guest supplies, breakfast, laundry and linen | $11,700 |
| Booking commissions and payment processing | $10,200 |
| Utilities, telecom and waste | $8,800 |
| Property tax and insurance accrual | $9,400 |
| Repairs, grounds, snow and routine maintenance | $6,900 |
| Marketing, software, security and professional fees | $7,600 |
| Other operating and recurring compliance | $4,600 |
| Normalized passive cash operating costs | $103,700 |
At $135,600 monthly revenue, the $31,900 remainder is normalized passive-owner cash operating profit before D&A. The working owner who fully performs the general-manager role avoids $8,900 of replacement labor, producing $40,800 of pre-tax business benefit. Of that amount, $8,900 is imputed labor compensation and $31,900 is residual return on capital – not a salary or guaranteed draw.
Unit economics
Each occupied room-night contributes about $102 on a passive basis
Room-night revenue
$142.00 ADR plus $12.20 allocated ancillary revenue = $154.20 economic revenue per occupied room-night.
Variable fulfillment
$18.40 housekeeping labor, $10.20 guest supplies/laundry, $11.30 distribution/payment and $12.30 utilities/other variable = $52.20.
Passive contribution
$102.00 per occupied room-night, or 66.1%. Fixed front-desk coverage, management, insurance and property overhead remain below contribution.
The natural unit is one occupied room-night. At Base, annual occupied room-nights are 14,600 × 61% = 8,906. The weighted unit values reconcile approximately to aggregate revenue and variable cost; small differences reflect rounding and the timing of ancillary revenue. A direct housekeeping productivity target of 25 – 30 minutes per stayover and 35 – 45 minutes per checkout is a management assumption to validate during test operations, not a Michigan rule.
- Rate decision: a $5 ADR increase at unchanged 61% occupancy adds about $44,500 annual room revenue before commissions and variable service cost.
- Distribution decision: shifting 5% of room revenue from a 15% OTA channel to a 3% direct-payment path can add roughly $7,600 annually.
- Labor decision: one extra $18 loaded labor hour per day costs about $6,600 annually, so front-desk and housekeeping schedules should follow arrivals, departures and occupied rooms.
Survival thresholds
Passive break-even is about 550 occupied rooms per month
Within the modeled staffing band, passive fixed cash costs are about $56,100 monthly and the passive contribution margin is 66.1%. Break-even revenue is therefore $56,100 ÷ 66.1% = approximately $84,900 monthly. At the Base revenue mix, that equals about 550 occupied room-nights or 45.8% occupancy. The cash-survival view before owner/manager compensation uses $47,200 of fixed non-owner costs and a 72.5% cash contribution margin, producing roughly $65,100 monthly revenue and about 420 occupied rooms.
| Measure | Result | Basis |
|---|---|---|
| Cash-survival break-even | $65,100 / month | Before owner/GM compensation |
| Passive-owner break-even | $84,900 / month | Includes full replacement GM labor |
| Passive occupancy threshold | 45.8% | About 550 rooms per 30-day month |
| Opening cash reserve | $175,000 | Ramp deficit + $75,000 floor |
| Unlevered Base project payback | Not reached in 10 years | $5.20M month 0; ramp; maintenance capex |
| Stabilized ratio sanity check | 16.3 years | $5.20M ÷ ($383k – $78k); ignores ramp |
A monthly ramp schedule starting at 32% occupancy and building to 61% over 15 months uses about $92,000 before reaching the modeled minimum cash floor, leaving contingency in the $175,000 reserve. If opening slips after payroll begins, the runway shortens quickly. Payback is deliberately conservative: month 0 includes the total Typical project cost, monthly capital-provider cash includes the operating ramp and a $78,000 annual replacement reserve, and no sale proceeds or appreciation are credited. The project remains unrecovered at month 120; a simple stabilized ratio indicates 16.3 years, but it ignores ramp timing and is not the primary result.
Michigan decision risks
Winter demand, wage escalation and the building envelope deserve weekly attention
Occupancy × ADR
Track 30-, 60- and 90-day pickup, cancellations, RevPAR and competitor rate position. A five-point occupancy miss removes roughly 730 annual room-nights.
Labor × service score
Track labor hours per occupied room, rooms cleaned per shift, overtime, vacancy days and review comments. Michigan's scheduled 2027 wage increase should be in forward budgets.
Repairs × downtime
Track out-of-order rooms, boiler/HVAC incidents, water intrusion and snow costs. Five rooms offline for 30 peak days at Base ADR risks $21,300 before ancillary loss.
The state has meaningful leisure demand, but it is not uniform. The 2024 Pure Michigan campaign influenced 789,000 leisure trips and $1.3 billion of visitor spending, yet statewide promotion does not guarantee one property's capture. Validate the exact address with a 12-month competitive set, event calendar, weekday/weekend split, feeder markets and winter road access. Do not underwrite from a single peak-season month.
Sources and method
What is official, observed and modeled
Reviewed August 29, 2026; price basis is 2026 USD. Official Michigan pages control state fees, wage floors and tax treatment. Government labor and economic datasets provide context. Acquisition, renovation, occupancy, ADR, operating ratios and launch timing are modeled planning assumptions informed by a mixed-market Michigan review; they are not published statewide averages. The biggest uncertainty is the selected building's acquisition basis and deferred capital work. Every local approval, county assessment and address-level tax must be confirmed before capital is committed.
| Source / publisher | Geography / period | Evidence type | How used |
|---|---|---|---|
| Michigan LARA Corporations FAQ | Michigan · revised 2026 | Official fee/rule | LLC formation route |
| Michigan annual statements | Michigan · current | Official fee/rule | $25 LLC annual statement |
| Michigan Treasury use tax | Michigan · current | Official tax rule | 6% lodging tax and one-month exclusion |
| Michigan LEO minimum wage | Michigan · 2026 – 2027 | Official wage rule | Wage floor and escalation risk |
| U.S. BLS OEWS | Michigan · May 2023 | Government data | Housekeeping wage benchmark |
| CareerOneStop wage table | Michigan · 2025 | Published government benchmark | Desk-clerk median wage |
| State tourism indicators | Michigan · 2024 | Reported state data | Visitor-economy demand proxy |
| U.S. Census Economic Census | U.S./states · 2022 | Government data | NAICS 721110 industry context; not used as Michigan TAM |
| Michigan Liquor Control Commission | Michigan · current | Official conditional rule | Excluded alcohol option and A-Hotel fee |
| Michigan hotel sale listings | Multiple Michigan markets · Aug. 2026 | Observed asking-price sample | Acquisition range check; asking prices are not closed sales |
This is a planning model, not legal, tax, appraisal, engineering or investment advice. Confirm requirements with the issuing authority and engage qualified Michigan counsel, a CPA, lender, appraiser, architect, engineer and property inspector.