Essential considerations before investing in hotel rooms

Plan to profit from hotel room investment

Hotel room investment offers some tangible advantages for property investors. These include:

  • A low initial outlay.
  • The best hotel room investment deals, structured to provide guaranteed income and capital growth.
  • The ultimate hassle-free investment. An experienced management team does all the hard work while you watch the monthly income hit your bank account. Perfect for professionals with little time on their hands, or inclination to manage an investment on a day-to-day basis.

When you invest in a hotel room, everyone can be a winner. The hotel owner gets the finance to fund expansion. The management team benefit from that financing, and their efforts to expand and grow the business are rewarded with higher bonuses. You receive a known monthly income, and a guaranteed capital return when the investment period expires.

Hotel room investment is a much more affordable strategy than many property investment opportunities. The rewards could provide you with a new and highly lucrative passive income stream.

Of course, things can go wrong. All investments are prone to macroeconomic risks over which you have no control. Increased or changed regulation, high inflation and recession all affect the hotel industry. Natural disasters and terrorist attacks may also have a negative effect on hotel room performance.

However, more importantly, is to invest in a good, strong location, and in a hotel which benefits from a top-class hotel management company running the business.

Here are four other factors that you should consider before investing in hotel rooms:

1.      What type of hotel room should you buy?

There are hotels, and then there are hotels. Some hotel room investments are offered in hotels that are yet to be built. There is no guarantee that the developer will complete the hotel, and revenue and profit forecasts are based upon potential with no track record to back them up. Other investments may be offered in a dilapidated and underused hotel – it’s underused for a reason, and a bad reputation can take years to shake off.

Well-run hotels with a good track record are less affected when the economy turns south. Stable revenue underpins your hotel room investment, and as the economy improves you benefit from a hotel management company which is well placed to take advantage of growing guest numbers.

2.      How much can you invest?

A hotel room is a cash investment asset. You don’t need a mortgage or loan. From around £50,000 you could invest in a hotel room which offers a yield of around 8%. It is a net yield to you – there are no costs of day-to-day management, maintenance or repair that you need to pay for. All such costs are taken care of by the hotel management company as part of the costs of running the business.

The question you should ask yourself might better be posed as, how much can you afford to leave in the bank of an underperforming asset? Hotel room investment is the new opportunity for investors who want high income.

3.      What are the tax implications?

Whichever investment you make, whatever job you do, and however much income you receive, you can be sure that somewhere down the line the taxman will come calling. Before you make your hotel room investment, check the tax implications of doing so. For example:

  • You may have to pay income tax, which will be based upon your marginal personal tax rates.
  • When the investment matures, the capital gain will be liable to capital gains tax (CGT) – though this could be reduced by your personal CGT allowance at the time.
  • If you are a UK resident, you could benefit from the advantages of investing via a Self-Invested Personal Pension (SIPP) – an option which isn’t available when investing directly in residential property. It could boost your net (after tax) returns.

4.      What is your exit strategy?

Be aware that this type of investment is a fixed-term investment, with a set maturity date. The benefit is that you are guaranteed a buyer at the date of maturity, and you will also receive a fixed and guaranteed amount of capital growth. It is in addition to the income you have received while you held the hotel room investment.

However, if you need to sell before the investment matures, you may lose money on your investment: the guaranteed capital gain only kicks in at maturity. Make certain you can tie up your investment capital through to the maturity date of the investment.

Your next step

If you make an investment in a hotel room, you could benefit from market-beating income and a guaranteed capital gain at the end of the fixed term. We source hotel room investments for our clients, using a unique set of investment metrics to find the best hotel investment opportunities, in the best locations, and with the best management team in place.

If you want to know more, contact one of our team today on +44 (0)207 923 6100. We’ll be happy to discuss objectives, strategy and returns, as well as our latest recommended hotel room investment opportunities.

Live with passion

Brett Alegre-Wood