Buying a Hotel Room as an Investment
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The hotel or resort rooms investment is not a new concept and has been around for a while and if chosen wisely, it can offer fantastic returns and security. Back in the post-war era, rich Americans would buy rooms in their favourite European hotels so that it would be available when they go there for a holiday. The hotels received a lump sum and could sell the rooms to other paying guests when the owners were not using it and in return, the owners would receive income from it.
Today, there is a wider range of investors. Anyone can benefit from the income paid by this high-yielding hotel investment.
There are subtle differences but investing in a hotel room is just like a buy-to-lease investment, whereby a person buys the room with a guaranteed rental to safeguard your investment while the management company will drive occupancy and ‘leases’ it out to paying guests staying at the hotel.
If you have ever considered running a B&B (bed and breakfast) to earn some income but without the hassle of cleaning the rooms regularly or having the time to market and take bookings, then investing in a hotel room might just be the right choice for passive income.
How do you pick the right hotel to invest in?
There is a big range of hotels out there, but bear in mind that not all offer opportunities to invest, so it is best to check which hotels offer such programmes.
After you have listed a few choices, there are some other factors that you should consider getting the best capital growth. Here are some notable factors to consider.
A survey conducted by Market Metrix on 40,000 travellers around the world found that location is the biggest single factor in hotel choice. And just like any property investment, location plays an important role.
However, different locations will attract different types of guests and provide different facilities. A hotel in the Central Business District area will attract different types of holidaymakers compared to a resort with a golf course.
For the best appeal, consider hotels that are close to transport links as well as local attractions. Such hotel location would have the widest appeal for both travellers and business travellers alike.
Facilities and Features
Today, hotels are just a base for travellers to explore local surroundings or travel to work. Usually, in-room facilities play one of the most important part of the hotel’s amenities and facilities. Sure, facilities such as pools, spas, golf courses and so on will increase the success of investments, but they appeal to a niche market and are generally associated with resorts.
An in-house restaurant and bar, onsite parking, and especially Wi-Fi are equally appealing; and if managed by an experienced hotel management company and a good marketing team to maintain the high-quality standards of its facilities and customer service will also increase re-visits which would lead to higher yielding hotel rooms.
This is probably one of the most important factors to consider. Invest in a hotel that benefits from a reputable, first rate management team. Hotel room investment offers the potential for great income and capital growth so success in any investment depends on how well the business is run. Poor management can destroy even the best hotel in the best location.
Examine how well the management team has performed with its previous hotels. Today, many hotel rooms are booked online and one of the most important factors to look for in a hotel management company is its online presence. Make sure the hotel is connected to the major travel booking engines. As the hotel’s reputation increases, a top-class management company will ensure that the hotel benefits from higher-than average repeat bookings. Reputation can be easily found online these days.
According to TripAdvisor, 93% of hotel guests find reviews important and 53% would not book a hotel without reading a positive guest opinion. Having good positive ratings and comments will most likely bunk your hotel up to the first page of the Online Travel Agency (OTA) sites.
The income and occupancy rates of the hotel industry traditionally follow the tide of the economy. Albeit suffering a lot during this pandemic, the local economy is slowly picking itself back up. Therefore, the hotel industry will adjust itself as the economic climate changes and improves. Just be aware that when it comes to hotel rooms as an investment, in most cases, they should be viewed as a long-term hold to reap the best returns. An investment in hotel rooms is an investment in the economy.
It is extremely important to know that there is no ‘one size fits all’ type of agreement. Every agreement is different and unique; therefore, both the investor and developer are at liberty to negotiate and agree on the terms of the investment. It is always a good idea to seek legal advice to make sure that you are fully aware of the terms and conditions stated because the rights and liabilities of the investor and the developer depend solely on the terms stated in the agreement.
Motels were the most common form of overnight accommodation for salespeople. As the economy evolves, today, the type of business traveller has broadened, from company execs visiting other business locations, business clients, to freelancers and start-ups, or business travellers attending conferences, conventions and trade events.
Hotels which are close to business areas will attract a sizeable stream of business travellers who look for basic facilities such as Wi-Fi, in-house restaurant and/or room services and laundry.
Another aspect which affects the hotel’s success is tourism. The tourism sector is notably the worse sector to have been hit by this Covid-19 pandemic. However, once the economy starts picking up, you may want to find out what sort of efforts are being done to boost tourism to the surrounding area such as unbeatable promos, cultural events, places of interest etc.
Attractions around the hotel will surely affect occupancy rates. However, in the case of city centre hotels near convenient facilities, bookings can be expected to be consistent without relying too much on tourism.
The views and opinions expressed in this article are those of the authors and not intended to malign any company, individual or necessarily reflect the official policy or position of any agency or organization. Focal Times is a subsidiary of Maxworld Consulting Sdn Bhd, a regional organization founded by a mixture of agile and experienced corporate finance, venture capital and industrial experts. This establishment focuses on sharing current banking affairs, latest property developments and updates and more.