How much does it cost to open a small hotel?

A small boutique hotel with 20 to 50 rooms typically costs $500,000 to $5 million, depending on property purchase versus lease and renovation extent. Converting an existing building is usually 30 to 50 percent cheaper than new construction. Location, room count, and finish level are the biggest cost drivers.

What is the biggest expense when starting a hotel?

Property acquisition or lease and renovation together account for 60 to 80 percent of total startup costs. Even when leasing, the build-out required to meet safety codes, ADA requirements, and guest expectations makes renovation the dominant expense category.

How long does it take for a new hotel to become profitable?

Most small hotels take 2 to 4 years to reach consistent profitability, though well-located boutique properties can break even within 18 months. The ramp-up involves building occupancy through OTA visibility, direct bookings, and review reputation. Budget at least 6 months of operating expenses as working capital.

Hotel Startup Cost Comparison

Ann Arbor, MI vs Chicago, IL

Ann Arbor, MI

$564,000 - $5,412,000

COL Index: 108

Chicago, IL

$693,000 - $7,040,000

COL Index: 107.8

Detailed Cost Comparison

Expense	Ann Arbor, MI	Chicago, IL	Difference
Business Registration & Licenses	$2,000 - $10,000	$5,600 - $10,900	-27%
Property Purchase or Lease Deposit	$182,600 - $2,434,800	$293,500 - $3,913,000	-38%
Renovation & Build-Out	$157,500 - $1,575,000	$172,500 - $1,725,000	-9%
Furniture, Fixtures & Equipment (FF&E)	$100,000 - $800,000	$100,000 - $800,000	Same
PMS Software & Technology	$15,000 - $60,000	$15,000 - $60,000	Same
Business Insurance (Annual)	$10,000 - $50,000	$10,000 - $50,000	Same
Marketing & Pre-Opening	$10,000 - $50,000	$10,000 - $50,000	Same
Working Capital (6 Months)	$86,400 - $432,000	$86,200 - $431,200	Same
Total Estimated Cost	$564,000 - $5,412,000	$693,000 - $7,040,000	-23%

Local Market Factors

Factor	Ann Arbor	Chicago
Cost of Living Index	108	107.8
Commercial Rent ($/sqft/yr)	$18 - $38	$25 - $65
Labor Rate Index	1.05	1.15
Sales Tax	6%	10.25%
Minimum Wage	$10.33/hr	$15.80/hr
LLC Filing Fee	$50	$150

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