Here’s why beginner property investors love hotel room investment
Buy-to-let property investment has produced stunning returns for investors in the UK. For a beginner investor, the idea of investing in property today could make you feel nervous. You’ll probably gain from the benefits of leveraging in property investment, but, in an uncertain economy and with Brexit negotiations under way, the size of investment required might be daunting.
Investment in hotel rooms provides some exceptional benefits for beginner investors. If you want to own an investment that works like buy-to-let, but with guarantees and a lower cost of entry, then hotel room investment could be for you. It’s also a great introduction to buy-to-let property investment.
In this article, we’ll discuss the key benefits of hotel room investment, and why owners sell hotel rooms. You’ll also learn what you’ll need to make your main consideration for successful investment, and we’ll outline how to invest.
A lower-cost alternative to buy-to-let
You don’t need to borrow to invest in hotel rooms. For the cost of a deposit on a residential property investment, you could own an income-producing hotel room. If you’re nervous about committing a large amount to a single investment property, buying a hotel room is a far cheaper deal to strike.
High and guaranteed returns from day one
Hotel room investments usually generate higher incomes than buy-to-let investment properties. The hotel owners will sell a room and guarantee income to the buyer. They can do this because the room is like a buy-to-let, but with a continual stream of tenants. Income guarantees are around 8% per annum. Unlike buy-to-let investment, the property investor doesn’t have costs such as a mortgage, maintenance, or repairs to worry about. So, the yield you buy is the yield you receive.
A hands-off investment
For the busy investor, hotel room investment is a hassle-free way to invest in property. You don’t have to worry about finding and vetting tenants, and nor do you have to concern yourself with cleaning, maintenance, and other day-to-day landlord duties. The hotel management team carry out all this. Hotel room investment is the ultimate passive income generator.
Capital gains are locked in
One way in which hotel room investments differ from a buy-to-let property is that they are ‘fixed term’. They are sold with a definite resell date. This is between five and ten years. Providing you hold the investment through to maturity, the hotel will repurchase the room from you. The best hotel room investments guarantee some capital growth on your original purchase price.
The capital growth is fixed, unlike traditional property investment. Investment property growth could be higher over the term of your hotel room investment, but it’s not guaranteed.
No stamp duty, and available for pension investment
There’s no stamp duty on hotel room investments, either. And for those who want to benefit from the tax advantages of pension funds, it is possible to put a hotel room in a Self-Invested Personal Pension (SIPP). It is because hotel rooms are commercial property investments rather than residential.
Why do hotels sell rooms to investors?
Hotel room investment can be made either off-plan or into existing hotels. The reason that hotels sell their rooms is similar for both types of investment. It’s cheaper and more accessible financing for development.
In the case of off-plan hotel room investment, the money raised helps towards the cost of building the hotel.
In the case of existing hotel room investment, the money raised helps to pay for development of the business.
Here’s a caveat for investors: if you invest in off-plan hotel rooms, your income is not guaranteed. Nor does it start from the month after you’ve invested. Remember, the strategy of hotel room investment is to provide guaranteed income – why would you invest in a hotel that can’t do this?
What is the main consideration when you invest in hotel rooms?
A hotel is a business. The most important element of successful hotel room investment is to ensure that it benefits from top-class management. Hotel owners tend to employ a hotel management company to run their hotel. Make sure that the management company is incentivized to perform. A retention fee and cut of the profits will encourage management to build out and execute a business plan that will protect your income and capital growth.
How does the process of investment work?
When you invest in hotel rooms, the process is similar to investing in buy-to-let property:
- Research the opportunity
- Do your due diligence
- Review the legal documents and agreement
- Pay for your investment
- Receive title deeds
- Bank the monthly income
If you’d like to know more, contact one of our team today +44 (0)207 923 6100. We’ll discuss your objectives, and how hotel room investment could help you meet them. We’ll also tell you about our latest hotel property investments. You could be just a phone call away from guaranteed income and capital gain – what’s stopping you?
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