Best hotel franchises to buy in 2027

What a hotel franchise actually is, and why brand choice decides the deal

Buying a hotel franchise is not buying a business the way buying a landscaping company is buying a business. You are buying, or building, a physical asset — land, a building, a parking lot, 90 to 130 guest rooms, a mechanical plant — and then separately licensing a brand to sit on top of it. Those are two different transactions with two different risk profiles, and conflating them is the single most common error first-time hotel buyers make.

The franchise agreement is a license: you get the flag, the reservation system, the loyalty program, the brand standards manual, and the right to appear in the brand's booking channel. In exchange you pay a royalty on gross rooms revenue, a program or marketing fee, loyalty program charges, reservation contribution fees, and technology fees. Stack them and the total "brand cost" for most major US select-service flags lands somewhere in the high single digits to low teens as a percentage of rooms revenue. That is the number that matters — not the headline royalty alone, which is the number brands quote and brokers repeat.

Why does the brand choice dominate? Because in hotels, the brand controls demand delivery. A well-placed independent hotel with no flag has to buy every single guest through online travel agencies at 15 to 25 percent commission, or through direct marketing it funds itself. A franchised hotel under a major system typically receives a large share of its business through brand.com and the loyalty channel, which is dramatically cheaper per room night. The loyalty database is the real asset. Marriott Bonvoy, Hilton Honors, IHG One Rewards, Wyndham Rewards, and Choice Privileges each have well over a hundred million enrolled members. When a corporate traveler with status is choosing between two properties at the same intersection, the flag on the building is frequently the deciding variable.

There is a second reason brand matters more in 2027 than it did a decade ago: financing. Lenders and SBA-eligible lenders underwrite hotels partly on flag quality. A Hampton by Hilton or Fairfield by Marriott in a secondary market gets materially better loan terms than an unflagged or soft-branded property of identical physical quality, because the lender believes the brand's revenue floor is more defensible in a downturn. Brand choice therefore changes your cost of capital, not just your top line.

The adjacent lesson worth borrowing from other franchise categories: in restaurants or fitness, a weak franchisee can survive a mediocre brand because the real estate is leased and the exit is cheap. In hotels, the real estate is the majority of your invested capital and the exit horizon is 7 to 15 years. You cannot cheaply un-ring the bell. Pick the flag as if you are marrying it, because the property improvement plan cost of switching flags mid-hold is often seven figures.

The brands and segments worth the closest look in 2027

Extended stay is the segment most seasoned operators point to first, and the logic is structural rather than fashionable. An extended-stay hotel with a five-to-seven-night average length of stay cleans far fewer rooms per occupied room night than a transient hotel turning over daily. Fewer turns means fewer housekeeping hours, which means a labor line that can run meaningfully below a comparable full-service or even select-service transient property. In a period where wage growth has outpaced average daily rate growth in many secondary markets, a model that structurally consumes less labor per dollar of revenue is not a preference — it is a defense.

Within extended stay, the tiers matter:

Economy extended stay. WoodSpring Suites (Choice) and similar economy extended-stay concepts run very lean: minimal common area, no breakfast, no pool, weekly-rate guest base drawn from construction crews, traveling healthcare, relocation, and insurance displacement. Construction cost per key is at the low end of the new-build spectrum. The trade-off is a guest profile that requires disciplined screening and a management culture comfortable with long-stay dynamics. These are not passive assets.

Midscale extended stay. Home2 Suites by Hilton has been one of the most consistently developed new-build brands in the US pipeline for years, and for good reason: it's efficient to build, has a defined prototype, and slots into markets where a full Hilton Garden Inn would be too much box. Choice's Everhome Suites is the newer midscale extended-stay entrant built specifically for this gap. Marriott's TownePlace Suites plays the same lane. Wyndham launched ECHO Suites Extended Stay as its own new-build economy extended-stay prototype, and it has been among the faster-signing new brands in the industry.

Upper-midscale and upscale extended stay. Residence Inn by Marriott and Homewood Suites by Hilton sit here. Higher build cost per key, higher rate, stronger corporate and project-based demand, and — importantly — better resale liquidity because institutional buyers will actually bid on them.

Outside extended stay, the select-service transient brands remain the backbone of franchised hotel ownership: Hampton by Hilton, Fairfield by Marriott, Holiday Inn Express, Comfort Inn & Suites, and La Quinta. Hampton and Holiday Inn Express in particular have enormous unit counts and correspondingly deep brand recognition in interstate and secondary markets. The trade-off is that these brands are mature — the whitespace for a genuinely undersupplied new-build site is narrower, and you are more likely buying an existing asset with a property improvement plan attached.

Two adjacent segments deserve mention because they change the calculus for certain buyers. Conversion brands — Choice's Ascend Collection, Wyndham's Trademark Collection, Hilton's Tapestry, Marriott's Tribute Portfolio — let an owner bring an existing independent or tired-flagged property into a major system with a lighter physical renovation than a hard-brand conversion demands. For a buyer acquiring a distressed independent at a low basis, a soft-brand conversion is often the highest-return path, because you're buying the distribution and loyalty channel without funding a full prototype rebuild. And dual-brand development — pairing, say, a transient select-service brand with an extended-stay brand in one building on one site with a shared back of house — spreads land, elevator core, and management overhead across more keys. It's more complex to develop and finance, but the operating leverage is real.

The step-by-step process from interest to open

The sequence below is roughly how a first-time hotel franchise acquisition or development actually runs. Skipping steps does not save time; it moves the cost later, where it's more expensive.

A few notes on the steps that people underestimate.

The Franchise Disclosure Document. Every US franchisor must provide one, and you must receive it at least 14 days before signing anything or paying anything. Read Item 5 (initial fees), Item 6 (other recurring fees — this is where the real cost lives), Item 7 (estimated initial investment), Item 11 (what the franchisor actually does for you), Item 17 (renewal, termination, transfer, and dispute resolution), Item 19 (financial performance representations, if provided), and Item 20 (unit counts, openings, closures, transfers). Item 20 is the honest scoreboard: a brand with heavy closures and transfers relative to openings is telling you something the sales deck won't.

The feasibility study. For a new build, a third-party feasibility study is effectively mandatory because the lender will require it. It establishes a competitive set, projects penetration against that set, and produces a stabilized RevPAR projection. Do not let the developer or the brand pick the comp set unchallenged — a comp set stacked with weak comparables produces a flattering index and a loan you cannot service.

Brand approval of the site. This is a gate, not a formality. Brands run impact studies to protect existing franchisees from encroachment. Your site may be commercially excellent and still be denied because it cannibalizes an existing franchisee three exits up the interstate. Have a second and third brand in play before you fall in love with one.

The property improvement plan. If you're buying an existing flagged hotel, the brand issues a PIP as a condition of transferring or renewing the license. This is a line-item scope: soft goods, case goods, bathrooms, lobby, exterior, technology, sometimes structural. It is negotiable at the margins — timing, phasing, occasionally scope — but it is real money, frequently $10,000 to $40,000 per key depending on brand tier and how deferred the maintenance is. Get the PIP scoped before you go hard on your deposit, not after.

Costs, timelines, and the ranges that actually decide the deal

Numbers vary enormously by market, land cost, labor market, and construction cycle, so treat everything below as a framework for asking questions rather than a quote.

Initial franchise fee. Typically structured as a flat minimum or a per-room amount, whichever is greater — commonly in the range of a few hundred dollars per key with a minimum in the tens of thousands of dollars. Relative to total project cost this is a rounding error; do not optimize for it.

Ongoing fees. Royalty on gross rooms revenue is the headline. Then add a marketing/program fee, a loyalty program charge, reservation fees per booking through brand channels, and technology/systems fees. Across major US select-service systems, the all-in brand load commonly totals roughly 9 to 13 percent of rooms revenue. Ask each brand to model total fees on your projected revenue rather than comparing royalty percentages, because the composition differs a lot brand to brand.

Development cost per key. Economy extended stay sits at the bottom of the new-build range; midscale extended stay and select-service transient sit in the middle; upscale extended stay and lifestyle brands sit well above. Post-2020 construction inflation pushed all of these materially higher, and in many markets the delta between replacement cost and the price of an existing hotel is the whole investment thesis — buying below replacement cost is a durable edge when new supply can't pencil.

Acquisition of an existing hotel. Priced off a capitalization rate applied to stabilized net operating income, sanity-checked against price per key and against replacement cost. If someone quotes you only a cap rate, ask for price per key. If they quote only price per key, ask for the cap rate on trailing-twelve NOI, not on a pro forma.

Timeline. New-build select-service hotels commonly run 18 to 30 months from land control to opening once entitlements, brand approval, financing, and construction are sequenced — and entitlement delays are the single most common schedule killer. An acquisition with a PIP is far faster to cash flow: 60 to 120 days to close, then a renovation window that can often be phased around continued operation. Ramp to stabilized performance after opening typically takes 24 to 36 months for a new build, because the brand's loyalty channel needs time to route business to a property that has no history.

Financing. Hotels are considered a business, not passive real estate, which is why SBA 7(a) and 504 programs are used heavily by owner-operators at the smaller end. Above SBA loan limits you're in conventional bank, credit union, or CMBS territory. Expect meaningful equity — hotels are not a low-down-payment asset class — plus a franchisor comfort letter, personal guarantees, and reserve requirements. The furniture, fixtures and equipment reserve is typically a fixed percentage of gross revenue set aside annually for capital replacement; the franchise agreement will require it and the lender will police it.

Operating economics. Gross operating profit margins for well-run select-service and extended-stay hotels are healthy relative to full-service, precisely because there's no restaurant, no banquet department, and minimal food and beverage. But below gross operating profit sit the deductions people forget: management fee, franchise fees, property taxes, insurance, FF&E reserve, and debt service. Insurance in particular has become a major swing item in coastal and wildfire-exposed markets, and it has moved enough in recent years to break otherwise-sound underwriting. Model it from an actual quote, never from a percentage rule of thumb.

Where buyers get it wrong

Underwriting to peak-year performance. Trailing-twelve numbers from an unusually strong year — a one-time construction project in town, a pipeline crew, a stadium build, a disaster-recovery displacement — are not a baseline. Ask what percentage of room nights came from the top five accounts. If a single crew or contract represents a large share of occupancy, you're buying a contract, not a hotel, and that contract is not transferring with the deed.

Ignoring the PIP until it's too late. Buyers routinely underwrite an acquisition and then discover a seven-figure PIP that vaporizes the return. The brand will scope the PIP for a new owner; the seller's old PIP is not your PIP. Get it in writing during diligence.

Treating it as passive income. A hotel is a 24/7/365 operating business with a payroll, a reputation score updated hourly by strangers on the internet, and a physical plant that fails at inconvenient hours. Absentee ownership without a competent third-party management company is the fastest route to brand-standard violations, which escalate to default notices, which escalate to loss of the flag — at which point the loan covenants are also breached. If you don't intend to operate, hire a real management company and budget the fee.

Choosing the flag on royalty percentage. The cheapest royalty is often attached to the weakest demand delivery. What matters is net RevPAR after all brand costs and after channel cost. A brand charging two points more but delivering a much higher share of direct and loyalty bookings can be strictly cheaper in dollars.

Misreading the market's supply pipeline. Check what's entitled and under construction within your competitive radius before you commit. A market that looks undersupplied today can have three new-builds in permitting. Brand impact protection covers you against the same brand, not against a competing brand across the street.

Underestimating labor. Housekeeping availability, not demand, is the binding constraint in many secondary markets. Ask the seller how many rooms they're actually able to sell versus how many they're licensed for — some hotels quietly cap sellable inventory because they cannot staff full turns. That's a real haircut to your revenue ceiling and it won't show in the STR report.

Skipping the encroachment and territory language. Item 12 of the FDD covers territory. Many hotel franchise agreements grant limited or no exclusive territory beyond a defined radius or impact-study process. Understand exactly what you're protected from and for how long.

Forgetting the exit. Franchise agreements run for a defined term, often 15 to 20 years for new construction and shorter for conversions, with liquidated damages for early termination. If your hold period is seven years and your agreement has a decade left, your buyer inherits the flag and the PIP timing. That's fine — as long as you priced it.

Decision framework: matching brand and structure to your situation

There is no single "best" hotel franchise. There is a best fit given your capital, your market, your appetite for operations, and your time horizon. This is roughly how experienced buyers triage.

If you're capital-constrained and hands-on, economy extended stay is the most defensible entry: lowest cost per key, leanest labor model, and a guest base that's less rate-sensitive to the transient cycle. You will work for it. The management intensity is real.

If you have moderate capital and a good secondary market site, midscale extended stay under a major system is the workhorse: Home2 Suites, TownePlace Suites, Everhome, ECHO Suites. Efficient prototypes, defined build costs, strong loyalty pull, and genuine buyer depth when you sell.

If you're acquiring an existing asset, the question is almost entirely about the PIP and the remaining franchise term. A tired Comfort Inn at a great interchange with a manageable PIP can outperform a shiny new-build with $200,000-per-key basis in a market that can't support the rate. Basis is strategy.

If you own a quirky independent with real character, soft-brand conversion is the underrated move. You keep the property's identity, you keep the rate premium that identity earns, and you plug into a reservation and loyalty system that would take you a decade and a fortune to replicate.

If you're deploying serious capital across multiple assets, a multi-unit development agreement with one franchisor buys negotiating leverage on fees, ramp-up royalty relief, and key money on some deals. Brands compete hard for developers who can deliver several properties, and the concessions available to a five-hotel commitment are not available to a one-off.

Finally: interview existing franchisees before you sign. The FDD gives you a list of current and former franchisees in Item 20. Call the former ones too. Ask about brand-standard enforcement, mandated technology changes, revenue management system quality, the real cost of the loyalty program, and whether the brand's central reservation channel actually delivers what the pitch claimed. Ten phone calls is the cheapest diligence you will ever do, and franchisees are usually blunt.

Related questions

Is it better to build a new hotel or buy an existing one in 2027?

Buying existing is usually faster to cash flow and often below replacement cost, but carries PIP risk and deferred maintenance. New build gives you a modern prototype and a full franchise term, at the cost of 18–30 months and construction-cost exposure.

Can I use an SBA loan to buy a hotel franchise?

Yes — hotels are among the most common SBA 7(a) and 504 uses because they're treated as operating businesses. Expect personal guarantees, real equity, and lender scrutiny of the flag, the market, and your operating experience.

How much of hotel revenue goes to the franchisor?

Royalty alone is only part of it. Add marketing/program fees, loyalty charges, reservation fees, and technology fees; the all-in brand load commonly totals roughly 9 to 13 percent of rooms revenue across major US select-service systems.

Do I need hotel experience to be approved as a franchisee?

Not always, but brands and lenders both weight it heavily. Buyers without operating experience typically get approved by pairing with an established third-party management company, which satisfies both the franchisor's standards concerns and the lender's execution risk.

What is a PIP and why does it break deals?

A property improvement plan is the brand-mandated renovation scope required to transfer or renew a license. It's frequently $10,000–$40,000 per key and, if discovered late in diligence, can erase the entire projected return on an acquisition.

FAQ

Which hotel franchise segment has the best labor economics?

Extended stay, by a clear margin. With average stays of five to seven nights, housekeeping performs far fewer full turns per occupied room night than a transient hotel does. There's typically no restaurant, no banquet operation, and a limited breakfast offering, all of which strip out labor-heavy departments. In markets where wage inflation has outrun rate growth, that structural efficiency is the difference between a property that holds margin and one that slowly bleeds it.

How many rooms should a first hotel be?

Most select-service and extended-stay prototypes land in the 90 to 130 key range, and that's not accidental. Below roughly 80 keys, fixed costs — the general manager, the front desk coverage, the maintenance tech, insurance, property taxes — get spread across too little revenue. Above 130 keys you generally need a deeper demand base and often a larger management structure. The prototype ranges brands publish encode decades of that math.

Is a soft brand better than a hard brand?

It depends entirely on the asset. A soft brand — Ascend, Trademark, Tapestry, Tribute — lets a distinctive property keep its identity and rate premium while accessing a major loyalty and reservation system, usually with a lighter renovation requirement. A hard brand delivers stronger, more predictable demand and better lender treatment, at the cost of full prototype compliance. Distinctive property with a rate premium: soft brand. Commodity property at a commodity interchange: hard brand.

What kills hotel deals most often in diligence?

Three things, roughly in order. First, the PIP coming in far above the buyer's assumption. Second, insurance quotes — especially in coastal, hail, and wildfire-exposed markets — landing well above the pro forma. Third, revenue concentration: discovering that a large share of occupancy came from one crew, one contract, or one temporary displacement event that will not renew under new ownership.

How long is a hotel franchise agreement?

Terms vary by brand and deal type, but new-construction agreements commonly run in the 15 to 20 year range, with conversions and relicensing often shorter. Renewal typically triggers a fresh PIP and a renewal fee. Early termination carries liquidated damages, usually calculated from historical royalty payments over a defined lookback. Read Item 17 of the FDD carefully — it governs renewal, transfer, and termination.

Should I hire a third-party management company?

If you're not going to be on property regularly, yes. Management fees are typically a percentage of gross revenue, sometimes with an incentive component tied to profit. A good operator earns the fee through revenue management, brand-standard compliance, labor scheduling, and purchasing scale. A bad operator costs you the flag. Interview several, check references from owners who fired them, and make sure the fee structure aligns with profit rather than just revenue.

Sources

• https://www.ftc.gov/business-guidance/resources/franchise-rule-compliance-guide
• https://www.sba.gov/funding-programs/loans/7a-loans
• https://www.ahla.com/
• https://str.com/
• https://www.hospitalitynet.org/
• https://www.hotelmanagement.net/
• https://www.costar.com/news/hotels
• https://www.hvs.com/publications
• https://www.franchise.org/
• https://www.jdpower.com/business/travel/north-america-hotel-guest-satisfaction-study

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