Hotel Property Investments – How to Invest For Great Returns

January 19, 2015 Updated: April 23, 2016

Hotel investment has ceased being just a niche alternative to standard property investment – it’s a fast-accelerating goldmine for investors making all the right moves. Generally speaking, the process involves a property investor making an outright purchase of a hotel room or suite, which may have already been built or is part of a planned development for the future. In order to fund the building of many hotels, developers often sell large quantities of rooms prior to breaking ground. And, more often than not, the investor will be guaranteed a fixed return for a set period of time by the developer, regardless of the room’s occupancy performance during that period.

A Fast-Accelerating Market

You need only look at the standard nightly hotel room prices in major cities like London and New York to understand how fast the market is accelerating. The simple fact of the matter is that in most major population centres, space is at a premium and demand for quality rooms is accelerating by the day. The result is a veritable goldmine for hotel property investors as to secure a desirable room or suite in a sought-after location is to acquire a property where long-term yields of a very high nature are all-but guaranteed.

Why Invest in Hotel Property?

As for why hotel property investment makes a more attractive choice than more ‘conventional’ property options, it all comes down to both ease of operation and initial accessibility. For example, there’s practically limitless scope in terms of budgets covered, with low-end hotels often selling rooms for the low five-figure mark and those of a more luxurious nature asking countless millions for investment opportunities. As such, no matter what level the investor in question is looking to get in the action at, there’s a suitable property to be found somewhere.

Something else to consider is the way in which investing in a hotel property generally means a fully-managed and maintained property where personal input in a physical sense is not necessary. From letting to maintenance to repairs to upkeep in general, the hotel’s management or owning company takes care of everything. As such, it’s technically one of the easiest forms of property investment to handle.

In terms of returns, the average price for a hotel room stay in practically every major city the world over is currently accelerating like never before. This is something market analysts do not see slowing down at any time in the near future at least, so while long-term guarantees can never be offered in any area of property investment, hotel properties have a unique bright future. And as previously mentioned, in most instances the developer will guarantee a certain yield for a fixed period of time anyway.

Deposit requirements are generally much lower for hotel properties than standard residential buys, which again makes the idea much more appealing and plausible to first-time investors and those with lower-end portfolios. In addition, future resale potential can be extraordinary in desirable areas and with the more desirable properties, which again will in most cases be handled entirely by the hotel’s management group.

Topped off with the potential for personal usage of the hotel room at any specific times of the year as specified when penning the agreement in the first instance, it’s easy to see why this kind if investment is currently making waves across the UK and beyond.

Making the Right Choice

When it comes to maximising returns, of course, it comes down to making the right choice of properties in the first place. Exactly what makes sense and what doesn’t will be determined by the region chosen and market conditions at the time, but there are certain underlying rules and tips to follow at all times.

For example:

  • Remember that bigger, more luxurious hotel rooms do not necessarily generate higher yields – often the opposite can be the case
  • Beware the boom and bust nature of many towns, cities and resorts – there’s a big difference between a flash-in-the-pan fad and an area of consistent demand
  • Established hotel development groups always represent safer investment bets than those just starting out – don’t take risks on a brand that may go bust
  • Consider future development plans across the region of interest as exclusivity can soon be wiped out by thousands of additional rooms emerging over the coming years
  • Don’t be fooled by too-good-to-be-true bargains and when a deal on a hotel property investment seems something of an inexplicable steal, there’s usually a rather sinister reason for this.

“Hotels have grown to become one of the mainstream property investments in recent years,” says Ian Spencer, from property investment specialists TheMoveChannel.com. “Specific events such as the 2012 Olympics in London have driven spikes of activity but the sector’s strength stems from its universal nature: in the right city centres and tourist hotspots, there will always be demand for accommodation. In terms of the UK market, regional cities, such as Leeds, have become increasingly popular among investors thanks to high returns.”