Hotel Room Investment – Your questions about hotel room investment answered
The UK’s hotel industry is booming. It’s worth over £40bn annually, with around 45,000 hotels and over 730,000 hotel rooms. Tourism added £121.bn to the UK’s economy in 2014, and is expected to grow at an annual average rate of 3.8% by 2025. Tourists will need somewhere to stay, so it’s safe to say the industry will be thriving for the foreseeable future.
One of the main selling points of hotel room investments for many investors is the low entry point. A typical opportunity usually starts from around £50,000. It can be more affordable than a buy-to-let property, and you don’t need a mortgage to pay for your investment. Great news if you have bad credit, or would struggle to get a mortgage.
What do I get for my money?
When you buy your hotel room, your property is registered to you on the Land Registry. The room is yours, and you start earning an income from day one by leasing the use of the room to the hotel. You receive your income on a recurring basis, most often on a monthly basis.
You can even stay in your room now and then by booking a stay as you usually would. Though remember, you’re buying an investment, not a timeshare.
What’s the difference between a hotel room investment and buy-to-let investment?
Lower entry point and the lack of a mortgage aside, one of the main differences is how you make your money. A residential investment property is great if you’d like to achieve capital growth. If you’re looking for a monthly income, then a hotel room investment with a guaranteed rental yield will be a better option.
It could also be a good idea to balance your portfolio with both hotel room investments and residential property. This would ensure you get the best of both worlds. Speak to your Property Consultant to see if this can work for you.
Are hotel room investments time consuming?
We refer to hotel rooms as a proper ‘hands off’ investment as there’s no effort required on your part. All you have to do is invest in your room and start earning income.
We recommend only investing in hotels that are already operational to reduce risks. Choosing an investment that’s owned and run by experienced operators and management teams is vital.
How can the operator pay a guaranteed yield?
Guaranteed yields are possible when an operator has a good strategy. For example: An operator buys a hotel for £1.2m and splits up the rooms. These are then sold for £65,000 to £70,000 per unit, earning the operator around £2m, a £1m profit.
The £1m is used to buy a new hotel and continue investing. Yields are paid to investors by using the hotel’s profits.
What happens if the hotel folds?
It’s important to choose any investment vehicle wisely, including hotels. Brett used to be wary of hotel room investments, because they tended to focus on off-plan hotels. Often, investors would put their money into a project, only to see it never come to fruition. Just as often, they wouldn’t see any of their hard-earned money again.
That’s why we focus on hotels that have been running for at least three years, and have a proven track record of attracting guests and business. Not only do these hotels make money from rooms, but they have other sources of income. For example, they operate as a wedding venue or attract non-guests to their restaurant.
It’s important to remember that you own your hotel room. It’s an asset that’s yours to sell. In the worst case scenario, you may have to sell for a cheaper price, though it’s an unlikely outcome if you’ve done your due diligence well. You and the other investors are the owners of your rooms. You would join up as a freehold management before a new management company would come in and take over. This is why it’s important to invest in an established hotel with a history and reputation. These will attract new operators due to their profitability.
How important is the hotel management company?
As an investor, you’re a passive owner of your room. You earn your income, but you don’t get involved in the day-to-day runnings of the hotel. All day-to-day issues are handled by the hotel management company. This includes things like insurance and refurbishment (at their expense!)
It’s vital to choose a hotel operated by an experienced and reputable hotel management company that knows what it’s doing.
We work with a management company run by two of the hotel industry’s most respected names. They have more than 50+ years’ collective experience in the industry, and obtained an MBE and a knighthood for their services to the UK’s leisure, hotel and tourism industries.
With all this in mind, hotel room investments make perfect sense if you want decent capital growth and guaranteed yield.
To learn more about hotel room investments in the UK, speak to a member of the team today on +44 (0)207 923 6100.