When investing abroad, there are usually two problems. The first one is the legislation of the chosen country and its overall safety, but of course a smart investor wouldn’t put money without warranties. The second is the matter of management which can cause a lot of trouble. And that’s where hotel investment comes out.
Where can you buy a hotel room?
Nowadays hotel investment opportunities include not only purchasing a hotel business together with the building itself and the staff, but buying a single hotel room as well. Such model is used by developers in the UK and the USA, other countries in Europe, at fast-developing hospitality markets of the Middle East, Africa, the Caribbean, and other regions.
Who would want to purchase a hotel room?
This investment model attracts both institutional and private investors – individuals, pension and investment funds. While the interest of organizations is self-explanatory (they diversify their money across a variety of assets), why do private investors buy hotel apartments?
First of all, individuals may seek for diversification opportunities just like institutional investors. If you already have securities, precious metals, and residential property, why not invest in hotel real estate as well?
- Owning a hotel room for vacation
For some people, purchasing a room in a hotel is a good alternative to owning a residential apartment or a house in a resort area. Many people with enough money want to have a place to spend vacation at, but don’t want their property to stay vacant most of the time. In hotel industry, it is a typical practice to let the room owners occupy their property a few days a year – usually about two weeks.
- No need for management
One of the best advantages hotel investment opportunities offer is the fact that the hotel is managed by an operator. No need to look for tenants, to keep the room clean, to advertize, etc. All of it falls on the shoulders of the hotel’s professional staff.
What hotels are best for investment?
Despite all that, you can’t expect good profit from just any hotel.
The first thing that matters is destination. Investors usually prefer well-known and highly demanded resorts and business destinations with dense tourist flow. Look for well-established resorts with lots of attractions, restaurants and entertainments or for fast-growing tourism industries, which are usually more profitable.
Second, choose hotels carefully. It is considered best to invest in 3 or 4 star hotels as they serve the widest categories of tourists – individual visitors, couples, families, business travelers, etc.
Lastly, make sure the business is run by a well known brand or hotel chain. Customers tend to trust familiar brands and they know what to expect. Besides, having your hotel room managed by famous operator is vote of confidence since large hotel chains share experience and expertise required for efficient work.
Depending on market conditions and individual features of the given destination, you can expect ROI of not less than 4%. Established markets tend to offer less because of fierce competition and high purchase prices, while developing markets are often more profitable and easier to enter because of lower prices.