Hotel room investment became popular after WWII in Europe and since then expanded to the whole world and almost every tourist or business destination including Great Britain, France, Switzerland, the United Arab Emirates and the United States to name a few. Often such investments are highly demanded among those with relatively low budget.
How it works
This investment scheme is pretty simple. Investors purchase one or several rooms in a hotel. After that, they can either manage the property on their own (which happens rarely) or delegate this task to a hotel operator.
In this case, the investor shares a part of the profit with the management company and has two options. The hotel can either offer a fixed rental payment or pay sums depending on the hotel’s performance. So it can be higher or lower depending on the hotel’s successes and failures, seasonality and other factors.
Some hotels sell their units for a period of time after which they redeem them for a higher price. It means that after a few years, the investor will have no problem finding a buyer.
Lastly, hotel room investment often offers additional bonuses allowing the owner to personally use his or her units. Some operators allow it right after the purchase while others offer it only after some period of time.
Advantages of hotel room investment
- The main advantage of hotel unit investment is a relatively low entry threshold. Units in 3 and 4 star hotels are the most popular choice as most tourists and business travelers prefer these options. In Europe, the prices for hotel rooms start at about €100,000.
- When you invest in residential property, you will most likely have to take care of this asset on your own. When investing in hotel units, you can delegate these issues to the operator. As a result, such investments can bring passive income allowing you to purchase hotel rooms not only in your home country but also abroad.
- Another advantage of hotel room investment is the opportunity to gain profit in other currencies. If the currency of your own country is not an option, you can invest in hotels situated in London or New York, Dubai or Cairo, Tokyo or Beijing.
Risks of hotel room investment
- If you are going to buy a hotel unit abroad, you will probably need to consult a local lawyer. While in some countries such a purchase is no different from buying an apartment, in other places you will have to thoroughly analyze the agreement and local laws.
- Delegating all management issues to a hotel operator is useful, but at the same time, the investor has no control over his or her property. So if the management company makes a mistake, you can’t fix it. That’s why it is extremely important to choose a hotel controlled by a world renowned operator with huge experience.
- If you can’t sell the unit to the hotel operator (if it wasn’t a part of the agreement), then finding a buyer may take very long.
Such investments require weighed and cautious approach but can become a valuable addition to your asset portfolio if everything is done properly. Fast developing tourism destinations are especially noteworthy since stable visitor numbers is of the utmost importance for successful hotel room investment.
