Planning to increase your investment portfolio by investing in Hotels? The question is, is it a viable investment? Yes! Hotels are generally a profitable source of income. The hotel industry offers endless opportunities to investors. Due to their adaptability, investors have ample opportunities to grow their revenue in facets such as renovation and operations. In this revenue structure, there’s always an opportunity for negotiations in one facet without losing revenue from another.
These are just a few of the primary reasons why hotels are good investments. Now, it’s time to discuss how to invest in hotels. Read on to learn the best hotel investment methods.
How To Invest in Hotels
There are multiple routes one can take when choosing how to invest in a hotel. We’ve outlined a few of the best options below. For further information on investment options, the team at TCAN can assist in answering questions and providing you with quality financing advice.
1- New Hotel Projects
Building a new hotel concept is a courageous endeavor and it can be difficult without the appropriate financing. After all, constructing a new hotel concept has sizable expenses.
For this reason, you may seek the assistance of a hotel financing company that can guide your project and provide funding. Before you consult a hotel financing company, keep in mind that it may consider the history of the hotel management company.
2- Hotel Renovation
Enhancing an existing real estate asset can be safer than a new hotel project — it requires less capital, and therefore, less financing. That’s why hotel renovations are an attractive option for hotel investors.
3- Hotel Franchise
Buying into a successful hotel franchise like Holiday Inn, Hyatt, or Hilton is another attractive option for real estate investors. However, acquiring a hotel asset from a successful hotel brand isn’t cheap. According to FranchiseHelp.com, the cost to open and operate a Courtyard by Marriott hotel is between $7 million and $14 million. That’s after the initial $60,000 franchise fee.
4- Hotel Refinancing
Why look to outside real estate investments when you can refinance a current loan? Hotel refinancing is an asset management vehicle that can produce lower rates, cheaper monthly payments, and additional capital that can be applied toward hotel operations.
5- Hotel REITs
Hotel REITs are an ideal option for investors wanting to be involved in the entire hotel process. A hotel REIT allows you to invest in the development, acquisition, and management of a hotel. This investment option focuses on meeting the demands of everyone from vacationers wanting a relaxing stay to business professionals who need conference space.
Hotel REITs provide guests with accommodations that may not be available at an average hotel, such as meals, conference deals, exclusive parking, and more. As such an accommodating choice, hotel REITs often provide investors with high ROIs, making them an ideal investment option.
Other Hotel Investments
If you’re really looking to make investments in hospitality, there are a few other investment options to consider. Asset classes like individual stocks of publicly traded hotel companies are common investments. Additionally, newer tactics like crowdfunding are other hotel investments that may be appealing.
There are also internal investments a hotel can make to improve operations. RevPar (revenue per available room), room rate analysis, and other assets that give more operational visibility to a management team are worth considering. Regardless of the method, building your portfolio with valuable hotel real estate can be a lucrative venture.
Start Investing in Your Business Hotel
Investing in hotel projects can be a rewarding undertaking. And, with the appropriate financing, can be a successful business move. If you are in need of hospitality financing, consider TCAN. Here are a few tips that will help you to make a wise choice:
- Research Comes First
The first step to successful investing is to know your brands. Have you done your homework and got to know how the hotel is doing? Before making a choice you need to be well versed with the hotel, its profitability, its reputation, and marketing strategies. Make sure you gain insights into all the inner workings of the brand before investing.
- Location Matters
Before you move forward with the investment, take a look at the surroundings. Are there tourist attractions nearby? Shopping malls, stations, and activities in close proximity make a hotel more in demand. Destinations that are rising in popularity with tourists are often affordable and great options to invest in.
- Think Glocal
While investing in a popular tourist destination in the Maldives might sound interesting, look at local options as well. Analyze the market carefully and see what your local hotels have to offer, and where they will go in the future. Sometimes the best opportunity is right under your nose, literally!
- Create a realistic Budget
Consider how much you want to invest, especially if you are going to borrow. If the numbers don’t add up then look for a different game plan.
- Know the operators
remember that operator is the one who will be responsible for ROI. Do your research and understand who will be handling your investment before committing. Be very sure you know who you will be working with.
- Read between the lines
We all do this, but we will just remind you once again -read the whole contract carefully. Each hotel has a different ratio of what an investor will get, so understand this. Move forward with the contract only when you are satisfied that your investment will have a sufficient rate of return.
- Look for Guarantees
no investment has guaranteed returns, especially in the hospitality industry. Work on your negotiation skills and while creating the contract take a percentage that will make your investment worthwhile or opt for a hotel that assures guaranteed returns.
- Revisit the Risks
Before making a final decision, keep in mind that all investments come with a risk. So before proceeding make sure you understand the particular pitfalls of the hotel industry. Sometimes hotels may not reach their ideal occupancy in time so there might be a delay in returns, remember this. Delayed or less than expected returns are a normal occurrence.
Consider all the factors before making your investment. This is a good way to generate income in the long run and be a part of the business. But make sure you know exactly what you will be getting into. Research, Research, Research is our advice!
Final takeaways: key considerations when buying or selling a hotel?
For those in the position of buying a hotel, there is no adventure more exciting than this one. Hotels are a sizable investment of time, effort and money, but success in the hospitality business is financially lucrative and satisfying on a personal level too. To summarize the guidance given in this article, if you believe you have the right skillset to run a successful hotel you should consider the following points:
- Location, location, location.
- Work, more work and then some more work.
- Brand is important.
- Guest experience is key.