Hotel Room Investment - Regular Rental Income
A Hotel room investment property can give you a regular passive income together with an exit strategy that can deliver a lump sum profit when you decide to sell up. As an investor you can enjoy the regular, passive rental income along with the lump-sum profit on exit without having to do any work at all – these are truly hands-free investments! As the investor, all you need to do is write the cheque and then sit back and collect your assured returns as everything is fully-managed on your behalf.
This article will consider the basics of a hotel room investment, the advantages that come with such a specialist investment. With a low entry price, regular income, the readily available advice in the market place and research at your fingertips, the risk is minimal. We will also go over how to mitigate common risks that come with a hotel property investment to give you an all-around guide to the hotel room investment property sector and how it can make you more money on your investments.
N.B. This post was updated in September 2019
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Hotel Investment - Why Investors Are Turning To Hotel Room Investment For Greater Returns & Assured Exit Strategy
A hotel room investment is a great way to turn your savings into a steady income and increase the health of your finances through serviced and fully-managed property whilst retaining and even growing your original capital. These investment opportunities make great investments because they can give you an average yield of around 8% each year. If you invest £100,000 into a hotel room investment, you can expect to receive an annual income of £8,000 from the rental returns which is over £650 each month!
Compared to other forms of investment such as a FTSE 100 shares portfolio (4%), cash deposit accounts (1%) and 10-year gilts (0.95%) a hotel room investment offers a much better return than any asset class outside of property investment.
Returns Compared With Other Investments
In terms of high annual yield, a hotel room investment property can give you great returns on your savings compared to other assets.
In comparison to other types of property investment, a hotel room investment property also offers higher returns despite the lower entry price. With a regular buy-to-let investment, depending on the area, the NET yields will only be around 7% or less in 2019, and generally the further down south you go the lower the yields due to expensive overheads. This brings us to another advantage of hotel room investment – there are no ongoing or hidden costs – once you have purchased the unit you will not be asked to make any further payments and the assured returns are NET returns which means that no deductions will be made from this income.
Furthermore, unlike a regular buy-to-let where the property market is a big factor in the profits you can make, a hotel room investment doesn’t rely on the trends in the UK housing market. Similarly the sector doesn't rely on students coming to the UK like the student accommodation sector. A hotel room investment is classed as a commercial property transaction rather than residential and so this means that there is the added advantage of being exempt from stamp duty tax.
Hotel Room Investment - The Best Property Investment of 2019 - 2020Making a hotel room investment is great for both you, the investor, and the hotel owners because they offer the hotel investor a high-yielding rental income, whilst at the same time giving the owner of the hotel more capital to run their business. The money that gets invested in the hotel will go towards the refurbishment, repairs, maintenance and other essentials, which will also benefit the guests because the standards will be higher. Your property investment returns will come through rental income. This is the money that comes from guests ‘renting’ your room for their holiday. A hotel room investment follows the same principles as a buy-to-let in that you buy a room in a development to let to tenants, and you make a percentage back each year from the tenant staying in your hotel oom. hotel investment property does not need to be managed by investors because the hotel continues to be run by the hotel staff, owners and management company. The repairs and maintenance will also be covered by the hotel. Essentially, as the investor, you will not be responsible for dealing with guests, making repairs, collecting ‘rent’, or advertising for guests. This hassle-free source of income is the perfect opportunity to get the most out of your money instead of having it sitting in a bank where interest rates are low. Long Term Hotel Investments Hotel room investments are also fairly long-term. In 2019 the best hotel room investments will offer a 5 year rental assurance at around 10% NET. However the hotel room investment can last for 10 years or longer as the investor legally owns the room (purchases will come with a title deed), which means investors can continue to receive a rental income of around 10% or more of the purchase price until they decide to sell it on. The very best hotel investment opportunities will also offer an exit strategy, generally in the form of an assured buy-back option of 110% or more after 5 years. This provides a built-in exit strategy for your hotel room investment with assured capital appreciation should an investor want to sell to free up cash.
What Are The Advantages Of Buy-To-Let Hotel Rooms Investment?
Low cash and no mortgage requirements – A hotel room investment has a low entry price compared to a regular buy-to-let property investment. Most investors who do invest in a residential buy-to-let will either need deep pockets or a mortgage to fund the majority of the investment. According to Nationwide’s House Price Index the average UK house price in August 2019 was £216,096.
Low Entry Price But No Mortgage Option
No admin required – A hotel room investment is very straightforward because there aren’t any admin or maintenance requirements. As the investor, you buy a room which is registered to you at the land registry. You receive income from the room every three-months for at least 5 years.
Hotel room investments also don’t have the complicated tax relief rules or associated cost deductions to calculate – as already noted, as a commercial property a hotel room investment is exempt from stamp duty.
Fast results – This kind of investment is also fast. As soon as you pay the full price of the property, you will start to see the money come in from the rental yield. Unlike other investments where the property may need refurbishing, a hotel room investment is usually ready to go as soon as the offer comes to market.
Diversifying your portfolio – You can diversify your portfolio with a hotel room investment. Many investors will focus on residential buy-to-lets and possibly student properties, however, a hotel investment can be a good way to balance your portfolio so that your eggs aren’t all in one basket. Diversification allows you to spread your risks should sectors in the property market experience volatility.
The hotel industry is also independent of the wider residential property market,so, if you are experiencing void rental periods with residential properties, having a hotel room investment in your portfolio can give you the income you need.
Furthermore with the political and environmental changes currently underway in the UK, the domestic leisure and tourism industry has been growing and is forecast to continue to do so;
RevPAR (Revenue Per Available Room) and ADR (Average Daily Rate) is expected to grow during 2019 and despite the Brexit uncertainty, the UK already beat their 2020 tourism target of 40 million annual inbound visits, with 40.9 inbound visits in 2018.
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Hotel Room Investment – How To Avoid Any Possible Risks
Not a quick win (very little capital appreciation) – Hotel property investments are generally suited to long-term investors, which is why they have assured rent for up to 5 years. Traditional buy-to-lets will have rental income as well as capital appreciation to make profits from, but hotel room investments aren’t known for their capital appreciation, although an investment with an assured buy-back will give you a reasonable level of capital appreciation - probably more than a residential property in the current market.
The location (it does matter) – The location is very important because it needs to be in an area where visitors are willing to stay in a hotel. There should also be a thriving tourist attraction near the hotel to attract guests to the area in the first place. Hotel room investments are investments in a property and also in a business, so you need to think about the ‘customers’ as well as the demand in the area of the hotel.
There will be competition – Many people disregard the possible competition that they may be facing if they pick a hotel room investment in a certain area. Similar to residential buy-to-lets in London and even Manchester, the competition is becoming fiercer because the supply of properties for tenants to rent is over-saturated in some areas. As a result, tenants have so much choice, they may not even see your property as an option.
What Competition Exists In Hotel Property Investments
For buy-to-lets, the competition will affect the rental yields over time, but hotel rates generally stay steady and are more affected by predictable seasonal changes rather than the whims of the property market. However there are hotels that market heavily to the local area as well as tourists and these hotels that are busy all-year round are the ones you really want to be investing in!
On the other hand, if there is no competition you may need to ask yourself if there is really a demand for the type of hotel room investment you are thinking of getting involved in and whether you will get your returns. Again, doing your research and getting good advice will help you avoid costly mistakes – at Sterling Woodrow, we do all the research up-front and only offer properties to our clients that have high assured yields and are underwritten by reputable development companies with a history of delivering for investors.
The track record of hotel management – Although the location and appearance of the hotel is important, the experience of the guests should be just as important to any investor. If the guests that stay at the hotel aren’t satisfied with their stay, will not return and are likely to leave bad reviews meaning future guests will be put off from staying at the hotel.
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Hotel Room Investment - Investors Summary
Every investment needs to be assessed on its own merits and cross-referenced with your own circumstances to ascertain how suitable it is for you. As far as hotel room investments are concerned, these commercial property investments are considered to be a low-risk/high-reward property investment because of the low-entry price, zero management costs and high NET yields, not to mention being stamp duty exempt with a built-in exit strategy should you wish to sell. As an investor, a hotel room investment would make a great addition to your property portfolio, adding diversity and security from tax changes and rental market dips.
Sterling Woodrow - Your Property Investment Partner
At Sterling Woodrow, we pride ourselves on helping new property investors get a solid start in the market and are happy to speak to you about your long-term goals and ambitions in property investment, specifically in regard to hotel room investment.
We also work with experienced investors to help them increase the value and profitability of their portfolios.
To book your complimentary hotel room investment consultation with one of our professional portfolio managers simply click the button below and complete the short form and we will call you back at the appropriate time.