Investing in Hotel Rooms

Investing in hotel rooms is a fairly new concept but one that may well find favour with investors looking for a Buy to Let investment that generally requires a lower capital investment coupled with good returns without the responsibility of managing the property.

Investment Advantages

Lower cash requirements – Investing in an hotel room generally requires a more modest level of investment compared with the more normal forms of BTL investment. Where an average hotel room can cost in the range £50,000 to £80,000, purchasing a typical BTL property through the conventional route will expose the investor to the UK’s average property prices which are around around 216,000.

Mortgage Free Investment – Mortgages for this type of Buy to Let investment are not generally available so investors need to have access to sufficient cash sums to make their purchase. However, with no mortgage payments to make, all income is retained by the investor, subject of course to tax.

Hands Free Investment – as your BTL room will be managed by the hotel operator, you effectively have a purchase and forget investment while owning the room. This makes this type of investment very suitable for Ex-pats and other overseas investors who wish to diversify their portfolios.

No Stamp Duty to Pay – Purchasing an hotel room is classed as a commercial property transaction with the advantage that it should be exempt from stamp duty tax.

(SIPP) Inclusion – UK Residents only – An option, not usually available with BTL investment is that you could benefit from investing via a Self-Invested Personal Pension (SIPP). You will need to take advice on this but if suitable, you could boost your net returns.

Typical Investment Returns

Investing in an hotel room can give you great returns on your savings when compared to typical interest rates offered by banks and other savings providers. The annual rental yield you might expect from a well managed hotel room could be in the region of around 10% or more. This should be set out on your contract and is usually guaranteed.

Most hotel room investments will have fixed terms of around five years and at the end of your term you will should be able to sell the room back to the hotel operator and you may see capital growth of around 15% on your original investment.

Things to Consider

Investing in an hotel room can be beneficial to all concerned. The investor should receive a known monthly income during the period they are invested while the hotel operator gets the finance to fund and grow the business. However, there are a few fundamental things to consider before making your investment to ensure everything goes as you intended.

Hotel Location – Where the hotel you make your investment in is situated will be very important because its success is dependent  on its ability to attract visitors.

Quality Hotel Management – Choosing the right hotel will be crucial and well-run hotels with a good track record will be less affected by the ups and downs of the economy ensuring that your income will always be there. Check out the hotels turnover and profit in recent years and pay particular attention to how the management intend to use your money to grow the business.

Building State of Repair  – Assuming the hotel you are considering is already established and not a new build, check the condition of the building and consider the investment that would be involved to bring the hotel up to the standard that you need it to be.   Where you are considering an hotel that is yet to be built, extra care is needed and it may only be a suitable investment if the operator has other hotels that are seen to be operating profitably. This may also be applicable where the hotel is needing extensive refurbishment.

Position in the Market – Know what kind of Hotel you want to invest in but it is Generally accepted that the high end of the market tends to provide more consistent returns. While midscale hotels can be very profitable and provide you with a steady source of income, they should be given that extra bit if study before committing.

Your Investment Exit Plan – Prior to investing, it is wise to set out your exit plan. You should be free of the usual worries about how long it will take to sell or how much you will get for it as this should be covered in your contract.