Are you looking for your next great investment? Are you looking for something with higher returns than the normal options? Do you want your investment to bring passive income? If yes, hotel room investment could be the perfect solution.
What is hotel room investment? Perhaps the biggest misconception regarding this option is that, once invested, you’ll be responsible for the room and it somehow becomes a part-time job. However, this couldn’t be further from the truth because you’ll be the owner of the room on behalf of a hotel management company.
The Basics of Hotel Room Investment
Ever since the global financial crisis, banks have been cautious about where they lend money and it seems the current trend isn’t helping hotel companies. With hotels struggling to get mortgages all over the country, many are now turning to the public as a source of funding. In some cases, they do have the money but they don’t want to buy the whole hotel outright and so they raise capital in this way instead.
As they buy the freehold of the property, individual rooms are sold to the public. Under your ownership and their management, the hotel will hopefully improve, increase in popularity, start hosting events, and be a success within the local market. Although you own the room, you’re essentially leasing it back and earning a passive income at the same time.
When asking ‘what is hotel room investment?’, one of the most important questions leading from that regards earnings. If you’re only going to see a small return, there’s little point wasting your time. Fortunately, many hotel room investment opportunities are paying owners around 10% per year. According to one report, those who choose this field will receive between 125% and 150% of their initial investment. In fact, many contracts will be set up with a buyback price around this mark so they can buy the room from you as soon as they have the money or are confident in its success.
Benefits of Choosing a Hotel Room Investment
Of course, we couldn’t answer ‘what is hotel room investment?’ without discussing the many benefits you could enjoy as an investor!
High Returns – As we’ve already discussed, the returns from hotel room investments are healthy and much better than anything else you’re likely to find at the moment. Along with the 10% returns, hotels will also normally want to buy the room back somewhere down the line. If this clause in the contract is optional, you could hold out and enjoy the benefits a little while longer. Even if it isn’t optional, most contracts will be fixed between five and ten years.
Accessible Market – Rather than buying a house or another type of property, a single hotel room is more achievable for many investors and this allows an opportunity to enjoy some passive income. What’s more, there are now lots of hotel companies looking for investors so you have options too.
Low Risk – All investment comes with risk, this is just a fact of life. Yet, some opportunities you find will be with reputable hotel companies that have a fantastic success rate in the industry. While there’s always a risk they will fail because nobody’s invincible, you can certain reduce the risk somewhat by choosing a reliable and experienced hotel company.
Passive Income – As we’ve already mentioned, isn’t the dream to be able to earn money without having to even move? Well, with hotel room investments, the hotel company is managing the room and ensuring that customers fill it. Even so, you still earn income and this can be a great way to supplement your own income or boost retirement.
High Demand – If we use some numbers released by Statistica, hotel rates increased by nearly 4% in 2018 as a result of demand. Compared to 7% in 2017, international tourist numbers are increasing too and this is expected to continue into 2019. As flights are cheaper and technology improves, the whole world is more accessible and hotel rates are enjoying the growth. Not only does this reduce the risk of your investment, it potentially increases the resale price too.
Airbnb – A Concern?
Often, when we ask ‘what is hotel room investment?’, we get questions regarding Airbnb and whether the hotel industry is dying out. However, the impact of Airbnb on hotels has actually been surprisingly small. According to RevPAR (revenue per available room), the change is almost non-existent. Furthermore, in locations of above average review scores on Airbnb, hotels actually charge a slightly lower price.
All things considered, many experts believe Airbnb will complement the hotel industry and the two could actually work together quite well. While some people travelling look primarily on Airbnb for their accommodation, most will actually start with hotels and then use this supplementary service if they’ve left it too late or can’t find anything appropriate.
How to Get Started
As with any investment, there are some risks you need to consider including a failure with the hotel company. Although rare, the hotel company could fail to improve the standing of the hotel or could even do the opposite and ruin its reputation. Also, no matter how unlikely in the UK, we should also mention the tiny risk of extreme weather and damage to property. If you choose a hotel close to the sea, for example, extreme tides could cause flooding.
If we were to go even deeper, a small amount of your income will pay for management (to ensure your income remains passive!) and you’ll have little say in the direction in which the hotel goes.
On the whole, we believe the benefits outweigh the drawbacks…so long as you choose a reliable company. If you need help looking for real opportunities, we can offer it at Property Invest UK. With support regarding exit strategy, income, legal ownership, legal fees, and more, we have experience and can explain exactly how the process works so you feel confident before investing your hard-earned money!