Hotel real estate is among the most attractive for investors regardless of how much savings or what type of business an investor has.
Commercial real estate (opposed to residential units) usually brings more profit and suits those who aim for pure commercial interest. However, unlike other types of commercial property, hotels have a number of other advantages.
What are the advantages of hotel investment?
In comparison to some types of property (such as villas, mansion, plants), a hotel room is much cheaper and can cost as much as a premium apartment. Besides, the price also depends on a hotel’s class. A room in a 5 stars hotel is certainly more expensive than in a 3 stars hotel. Lastly, its cost also depends on its size.
So an investor has a lot of choice here.
Another advantage of such investments is related to management issues. People generally consider residential property as the easiest to control while commercial real estate is regarded as more complicated and requiring more attention, experience, and knowledge.
When someone buys a hotel room, it is handed over to a hotel operator. Certainly, a hotel cannot operate with each and every owner pushing his or her own strategy. Instead, a team of professionals (usually a well-known hotel brand) takes the job.
Some consider it a disadvantage since you have little influence on the operator. But it actually makes such investments hassle free.
When you buy a retail property… what do you get apart from it? Or a plant? Or an apartment?
When investing in a hotel, you often get free stays as a bonus. Many investors prefer hotels to combine profitable investments with having a personal apartment in their favorite country.
Choosing the best hotel real estate
Despite all the advantages, buying just any hotel room does not guarantee a successful investment. One has to choose carefully and consider a variety of factors.
Since you want a hotel that attracts lot of guests, it is preferable to invest in those located in business hubs or popular resort cities. Caution! Mini hotels are a bad idea because operators usually don’t bother with such small assets and you’ll have to manage it on your own.
Occupancy rate serves as a good index of a hotel’s popularity. 60-70% is considered to be Ok. Everything higher is a very good sign.
Don’t forget that the success of a hotel and often its reputation depend on what operator manages it. So choose from a number of well-known brands (Hilton, Wyndham, Kempinski, Jumeirah, etc.)
But don’t ignore local brands. Sometimes a local company can successfully compete with international giants.
Your profit also depends on how many stars a given hotel has. Less stars means cheaper purchase which can be tempting, but not wise. In that case, you may think that buying a 5 stars luxury apartment will bring you lots of money. Not necessarily.
3 or 4 stars hotel is a good choice due to the balance between prices and demand. The money inflow may be not that much, but it’s more stable.
Hotel real estate offers a lot of options – both attractive and risky. So it’s up to you to find the one suiting your goals and finances.