For over 14 years I’ve been watching Hotel room investment spring up and fail. Yet I never really understood the one key component that gave some hotels a much greater edge over others. This one distinction I feel makes a massive difference in the success or failure of your investment.
BTW I am not saying all fail, but I’ve seen enough to be extra cautious. In saying all this, I think Hotels are an awesome opportunity done right.
Hey guys, Property Search… Think Gladfish. I’m Brett Alegre-Wood and this is Property Rant.
So today, the question is why hotel rooms? Why have I gone into hotel rooms?
For many, many years, I’ve been doing new build off-plan, buy-to-let property. And that’s it. What we’ve actually done is we’ve now moved into a number of different things and they’ll be released over the coming months and years. But effectively, it’s now about being a property platform. But that’s neither here nor there. Why hotel rooms?
Well, quite simply, because they are a viable alternative. I’ve never really gone for the student accommodation and I haven’t gone for it because, largely, it’s a business where, I lived in student quarters when I was in university for awhile and I know what happens to those places. So they’ve got to be constantly renewed. And a lot of those things aren’t beings old, plus they’re very hard to sell as well. So there’s a lot of things like that which go against the student things. I know they’ve been very successful and I’m sure people have made money out of them, but I’m just not sure the long term of them.
But anyway, so why hotel rooms? Well, because…and understand, I’m not advocating by any hotel, because I’ll tell you, there are so many stories out there of investors getting totally ripped off. A lot of those are where there’s construction projects.
So the first thing I’ll say is that I don’t really go for hotel construction. That doesn’t mean that I won’t if I find a particularly good area or a proposition that I may well go for it, but for the most part, it’s going to be stuff that’s already built, already in existing business. Because what I want is, I want to buy the asset which is the property, and then the other asset which is the business, the trading company. And put the two together, because oftentimes with hotels, when you’ve got the two, the property asset, and the one I’m talking about is a freehold there, and also the business, with accounts, let’s say three years, and you can look at the accounts and you verify the accounts, you can get into the data room and actually have a look at it, when you look at that, then straight away, you can go, “Actually, you know what? That’s a good business.”
And the great thing about that… that for me is proven, because then you’re coming in and if you can put in a really good management team with some good oversight, good reporting, then you can actually increase the efficiency of that asset which is what we’re looking for. And that’s the hotel rooms that I’m talking about.
Some other things, you don’t have to worry about mortgages. Look, mortgages have really turned ugly right now, and that’s because of the government playing around with it, it’s the EU playing around with it and everyone trying to restrict individual borrowers from getting ahold of money. What it has done, which always happens, this is where…politicians are stupid. They really are. If they think they’re going to clamp down somewhere, there’s another thing going to spring up.
So we’ve got now all these crowdfunding sites that have sprung up. We’ve got lenders, individual lenders, lending money. So the money is still there. It’s still circulating, it’s just not now the bank’s controlling it, which actually is a good thing. It’s a good thing if you know what you’re doing. It’s a bad thing if you don’t. So the reason I love hotel rooms is because there’s generally no mortgages. There’s generally below the £100,000 mark for an individual room that you’re taking control of. And that’s great, because the ease of entry is a lot better.
Obviously, if you haven’t got 100,000, then traditional bites, like get started, build up your capital, and then on to do this. I think the final point that I’ll make here is what a realistic rental returns and buy back. One of my problems with students is, it doesn’t have the exit, but a hotel room can be. Because generally, if you’re selling off the income by selling off the hotel rooms to that and giving it back to the investor, you’re getting a chunk of money or you’re getting your money you put in, back, so you can go and buy another hotel. That’s how the hotel operator gets out of it, or hotel owner gets out of it. And in five years’ time, they should be able to remortgage that if they’ve used the asset well, and it will be worth more. That’s the theory. Obviously, it goes up and down with cycles and things like that.
So you’ve got to play it right. You’ve got to have good management in. But all those things are taken care of. And all those things are things that I’ve addressed in the way we’re doing hotel rooms. So I’m not saying here just do any old hotel room, because some of the stuff I see out there, number one, they’re overpriced. Number two is the balance sheet, you sort of look at it and think, “How is that possible for a seasonal thing that they’re getting such a high rate, when I phone up the hotel and ask for their rates, they look totally different?” So the books have been fiddled, or something’s going on there. I don’t even look any further. So realistic rental returns. And look, guaranteed, who’s guaranteeing them? It’s generally a separate company or it could be the company that’s actually investing in, so you’ve got to look at those things. But what I mean by realistic is if somebody’s coming to you and saying, “You’re going to make 15% return,”
which is what’s happening with a lot of these hotel construction projects, generally, that’s a load of rubbish. You can’t commit to that over a long period of time. But 8%, 6%, those are realistic figures. Anything sub of 10, you can sort of stomach and think, “You know what? That is possible over the long term.”
But remember, you as an investor have to make your money, the person running it has to make their money, the person selling it has to make their commission. When you add all that up, that takes away a lot of the money that’s in the pot. So if it’s unreasonable, then it’s likely to fail, and that’s my concern. The buy back which is a great thing for me, 3, 4, 5, 10 years, I think is just a little bit too far off. That really is. Because by that stage, you’ve forgotten who sold it to you. They could be selling you anything.
Five years, for me, is the sort of horizon that I feel comfortable with. Three years might be a bit short because you’ve got to work the asset, but that’s sort of why I do hotel rooms and why I’ve looked at hotel rooms and why we’re now starting to do hotel rooms. I just think that as a guaranteed income strategy, not necessarily… and obviously, some of the buy backs are at a high price, which is great. Inflation, all those things, allows for that.
But really, it’s not a capital growth play, it’s an income play and it’s just the money’s making no money in the bank account, and that’s unlikely to go in the future. So put it into a hotel room and actually, you’ll get a return out of it, which for me, that’s what investors are after, a realistic return, not all this hype and BS.
All right, guys, have a great day. Live with passion.