How does hotel room investment work?
While hotel room investment differs from more mainstream buy-to-let property investments, many of the principles are the same.
Essentially, you purchase the hotel room and in return the hotel manages and ‘lets out’ the property on your behalf giving you a regular income stream.
What’s the appeal of hotel room investment?
Investing in hotel rooms is generally considered to be a low-risk investment which will offer good returns on the acquisition price.
It’s regarded as an accessible investment that’s highly suited to both cash and pension investors (via a SIPP or SASS). It’s also completely hands-off as your investment becomes part of the hotel’s stock and is managed on your behalf by the operator.
Established hotel operators will already have ‘tenants’, i.e. hotel guests, in place, providing you with immediate income. The hotel will take a deduction to meet management costs.
What’s the benefit for hotel operators?
Even the largest, most successful hotel operators need to be able to raise capital for further developments and many do this by offering investment in their existing hotel stock. It’s a way for them to expand and grow.
The contract will usually offer a buy-back option for the developer / operator, though as an investor you may be able to stipulate an optional buy-back, allowing you to hold onto the asset and benefit from long-term yields.
How are hotel room investments structured?
This depends on the investment type being offered by the hotel operator and can also be influenced by whether you’re buying off-plan or buying into a hotel that’s already up and running.
The operator will either take a percentage of the income from your rooms, or you take a percentage of the hotel’s overall income. Investors can also benefit from strong capital growth.
What type of hotels are best suited to investment?
Naturally, you’re going to want to invest in hotels that benefit from strong demand and high occupancy levels. Luxury and boutique hotels, particularly those that offer a unique lifestyle experience, are well suited to hotel room investment.
The hotel industry uses a metric called RevPAR, or revenue per available room, to measure performance. RevPAR is calculated by multiplying a hotel’s average daily room rate by its occupancy rate. An increase in a property’s RevPAR means that its average room rate or occupancy rate are increasing and marks it out as a strong contender for investment.
An experienced hotel room investment broker, will be able advise you on the best hotel types and worldwide locations for investing in hotel rooms. As always, do your research and seek professional financial advice before entering into any contract.
Authored by Melvin Lunn
Melvin has over 20 years’ experience in global property sales and investment. For more information on investment opportunities in the hotel sector contact him 03333 034 767.
The above article is written as a guide only and does not constitute financial advice. Professional advice should be taken before entering into any property investment or financial agreement.
