A boutique inn owner who built their business one season at a time is planning for the future of their business. When they’re asked what their EBITDA is rather than their revenue, the owner admits they’ve never had a reason to understand what it measures. It shows up on the financial statement, but why would a buyer build an offer around it?
EBITDA is the number the hospitality market uses to determine a property’s worth and how much a lender is willing to fund. For owner-operators managing every business function, let us help clarify how it changes the way a property’s books are read.
What is EBITDA in Hospitality?
Before getting into what a hotel is worth or what it costs to borrow against, it helps to understand what is being measured.
The acronym EBITDA stands for earnings before interest, taxes, depreciation, and amortization.
For hotels, it’s how much cash your operations generate before accounting for how the property is financed and taxed. Even if one hotel is heavily financed and the other has been recently renovated, they may still have similar EBITDA if their daily operations perform similarly.
NOI is a related term, calculated specifically for real estate valuation without the add-backs that might apply to EBITDA. Hotel properties are generally valued from both perspectives, since a hotel operates as both a business and real estate. While related, these two numbers aren’t interchangeable
For an owner who built their accounting functionality from scratch, it’s useful to treat EBITDA as a running number to track monthly. With a systematic bookkeeping routine, your monthly budget review and eventual business valuation might be easier.
What EBITDA measures is the first thing to know when it comes to understanding what that number is worth in today’s market.
What Are Independent and Boutique Hotels Trading for in 2026?
This year’s valuation data shows independent and boutique hotels are trading at roughly 6x to 9x EBITDA in 2026, with cap rates of 7% to 9% as of mid-2026. However, these two figures come from different valuation approaches and shouldn’t be cross-converted.
To put it in context, a cap rate, short for capitalization rate, is the return a buyer expects on the property’s NOI. A lower cap rate generally means the asset is seen as lower risk and a buyer pays more relative to the property’s income.
Where a specific property lands in that 6x-to-9x range depends heavily on two things:
- Brand distinctiveness: A boutique property with a strong, recognizable identity in a market with durable demand tends to price toward the higher end of the band.
- Location: A similar-sized independent property in a softer market, or one that reads as generic rather than distinctive, tends to price lower.
Neither outcome says anything about how well the property is run day to day. Instead, branding and location reflect how a buyer weighs the durability of the demand supporting the income, which matters for different reasons than how clean your books are.
Think about two 40-room independent hotels.
Each property generates $700,000 in annual EBITDA and could sell for very different prices. If one carries a distinct brand story and a supply-constrained location and the other doesn’t, the former could sell at 9x ($6.3 million) and the latter at 6x ($4.2 million), even with identical trailing financials.
EBITDA sets the baseline for any future sale, but that extends beyond just the price. This metric also looks at how much the lender is willing to finance against the property.
What Does it Cost to Borrow Against EBITDA?
As mentioned, EBITDA has more of a function than deciding what a hotel sells for. Lenders use this metric to determine how much debt a property can support, and the hospitality industry has a higher risk profile than other industries.
Lenders are more sensitive to property quality and brand affiliation. This is primarily due to perishable inventory and seasonal revenue fluctuations, which can lead to higher hospitality debt. An empty room tonight can’t be sold tomorrow. Lenders price for that.
Across commonly used hotel financing structures, the borrowing rates range roughly from 6% to 12%, but depend heavily on which structure fits your property’s deal:
- Commercial mortgage-backed security loans are common for stabilized, branded limited-services hotels, sitting between 5.85%-6.85% for 10-year fixed terms. CMBS offers long-term rate certainty but generally comes with prepayment penalties and standardized reporting requirements that smaller conventional loans don’t have.
- SBA 504 loans pair a below-market, government-backed debenture with a conventional bank loan, pricing near 5.72%-5.94% for 25-year terms. This structure often comes up when discussing PIP financing and is one of the more accessible paths for an independent owner-operator without a franchisor’s financing to lean on.
- Bridge loans are used for properties that aren’t stabilized enough for permanent financing. These typically price higher in exchange for faster closings and flexible underwriting.
Beyond just branding and location, the rate an owner gets can depend on how clean your EBITDA is. For a lot of independent owners, borrowing costs are part of hospitality financing, and a PIP is another, which doesn’t always get explained clearly.
Understand more about earnings in M&A transactions.
Do Independent Hotels Use PIPs?
First, it’s important to understand that a property improvement plan is a capital improvement plan required by a hotel’s franchisor. These are typically triggered by a change of ownership, franchise renewal, or a brand standards review, and they are not optional. An owner is given a set timeline, and the cost can vary drastically depending on the brand tier and the property’s condition.
However, independent hotels generally do not have this obligation. Without a franchise agreement, there is no franchisor-mandated deadline to force a specific renovation through a PIP.
This sounds like a benefit, but in certain cases, hotel owners that defer such capital needs can fall behind when competing against cyclically refreshed branded properties. Pushing off routine refreshes can lower the average daily rate and occupancy rate, reduce asset value, and attract fewer repeat customers.
Read more about your property metrics that are important to track.
Comparable reinvestment, new soft goods, updated systems, and refreshed common areas still need to occur on a set schedule. Yet, independent owners get to set that date rather than a franchisor.
Why EBITDA Matters Even Without a Future Sale
An owner doesn’t need to have a sale lined up for this information to be useful. Tracking clean earnings and well-documented add-backs can make future financing conversations more straightforward.
This level of monthly tracking also doubles as a forecasting tool. Owners can better understand seasonal cash flow by knowing which months drive the business and which rely on reserves, making it easier to plan capital projects.
Independent owners tend to be better positioned when their earnings already reflect clear operations. That alone places more emphasis on the discipline of knowing, at any point in the year, what your property’s numbers show.
How a Hospitality Accountant Can Help
Building a clean EBITDA number for your hotel is something most owner-operators don’t have the capacity to do while also running the front desk and managing seasonal staff. Independent ownership handles even more than daily managerial operations, which is where outsourcing to a hospitality-focused accountant can help free up time.
Opting for an ongoing partnership can support the pieces that are easy to get wrong and expensive to fix later:
- Setting up a monthly closing process that separates operating performance from financing and tax decisions.
- Documenting add-backs properly so they hold up if a lender asks for support.
- Establishing PIP-equivalent reinvestments into a capital plan.
- Matching financing structures to structural projects or furniture, fixtures, and equipment.
When you partner with MBE CPAs, our hospitality team can draft a plan to implement some of these processes you may lack the bandwidth for. The monthly discipline that makes EBITDA a number you can trust is what our team helps hotel owners build and clean. If you’re wondering what your earnings say about your property right now, you’re in the right place to start a conversation.