Is this investment opportunity the perfect Set and Forget?
In my last article, I wrote about the four property investment deals to avoid at all costs if your goal is to create an income stream. In this article, I will explain the three reasons why hotel room investment is perfect for income investors.
What do you want from an income investment?
You’ve considered your future. You know what lifestyle you want. You’ve also considered how you can achieve that lifestyle. You may even have consulted with a financial advisor. He or she may have explained to you that there is no such thing as a riskless investment. There is a trade-off between investment reward and investment risk. The higher the risk, the higher the reward.
It appears to you that unless you are willing to put in a lot of effort and take a lot of risks, your financial objectives will never be met. And therein lies the real problem. You don’t have the time to spend managing your investment money. And you don’t want to put your savings at risk. Isn’t it possible to earn a reasonable return on investment without the risk?
Three factors that make a great investment
When I started investing, I always looked for three things from property investment opportunities. I still want investments that satisfy these three simple investment needs.
1. A fair return on my cash
I work hard for my money, so when I invest it I want it to work hard for me. I want cash flow positive property investment that beats inflation. I know that if returns are less than inflation, my money is losing value. I won’t be able to buy the things I want to buy. I won’t be able to afford to travel to the places I want to visit. I won’t be able to do what I want.
If your investment doesn’t keep pace with inflation, your future lifestyle will be worse than your current lifestyle. That bucket list you’ve got (on paper or in your head) – you can forget it. And if your investment doesn’t grow fast enough, then you can wave goodbye to that early retirement you’ve been planning.
What constitutes a fair return? I like to consider this regarding inflation and savings rates. If I can earn 5% on the cash, I hold in a savings account, and inflation is 5%, then I’m at least keeping pace with inflation. For some people, this would be fair. However, I want more than this.
I want my return on investment to outpace inflation. When this happens, I stand a better chance of achieving my future lifestyle goals. The more my money grows or returns, the more value I can create for the future. For me, the bigger the positive gap between return on investment and inflation, the better. The words of your financial advisor are probably echoing inside your head: ‘the higher the risk, the higher the reward’. Are there no investments that give a fair return without taking the risk?
Getting back to defining a fair return. Inflation in the UK is around 2.7% as I’m writing this. The best savings rate I can find is around 1.5%. That’s not a fair return. Every year this continues, any cash I have in the bank is losing 1.2% of its value. I want to retire in 20 years, at this rate of depreciation of spending power, my money will buy only around 75% of what it does today.
So, a fair return for me means that the investment must pay me more than inflation.
Low risk to my investment capital
Now we come to risk. I hate risk. That’s why I love property investment in the UK. When you buy in the best places to invest in property UK, you’re investing in a market which has seen property prices double every eight to ten years for decades.
It’s a reasonably stable market, too. Even during the Global Financial Crisis (GFC), the average house price in the UK fell by less than 20%. The stock market collapsed by almost 50%.
Of course, there will be blips. Property prices do go down as well as up. But if you invest wisely, you’ll be protected against the worst of the falls. None of my UK property investments fell by more than 5% during the worst of the market falls during the GFC.
By doing your due diligence, you will reduce your risk. Get a little educated, learn how to measure the risks of property investment, and put in place strategies to reduce the risk when you invest. No property investment is without risk, but you can reduce the risk and maintain the reward. You just need to know how.
Easy to manage – Set and Forget
Finally, I want an investment that is easy to manage. I don’t want to spend an hour or more each day valuing, adjusting, or worrying about my investment. I want to Set and Forget. I want to buy an investment asset, and let it work for me. I don’t want to work for it. The less work, the better. That’s why I use investment property managers to look after my property portfolio.
I have better things to do with my time than looking after my investment. I have my wife and children. My friends. My hobbies. I love travelling.
So, there you have it. The three things that make for a great property investment:
- A fair return
- Low risk
- Set and Forget
Hotel room investment – the perfect Set and Forget investment asset
Hotel room investment achieves these three factors of a perfect investment asset. It’s simple to understand, too:
- You buy the hotel room from the hotel owner and own it for a pre-set period.
- In return, you receive a fixed income during the period of investment. It is paid monthly, starting the month after you invest.
- When the investment period comes to an end, your capital is returned, with a guaranteed amount of capital gain.
You don’t get involved in the management of the hotel room. That is all undertaken by the hotel management team. The benefits you receive vary from investment to investment, but are typical:
- 8% annual income
- 15% guaranteed capital growth after five years
What’s the risk of hotel room investment?
Now, your financial advisor is correct. There is no such thing as a riskless investment. The risk that you take when you invest in a hotel room is that it is a fixed term investment. To receive the full benefits of this type of investment, you must hold it through to maturity. In the example above, if you decide to sell before the five-year term is complete, you probably won’t have all your investment capital returned.
If you are an investor who wants to make inflation-beating returns, with little risk and no hassle, then contact one of our team today on +44 (0)207 923 6100. Ask us about our current best hotel investment opportunities. They are the perfect introduction to property investment.
Live with passion
P.S. Read more about hotel room investment by reading these articles: