The 4 Things to Know When Investing in Hotel Rooms
Not everyone aspires to invest in hotel rooms as part of their investment plans. Selling hotel rooms or buying them requires sound knowledge about the hotel real estate market. Finding the trusted source of information to be adept with buying and selling hotel rooms can be daunting.
Today, the hotel real estate business is soaring heights. As such, the market is quite likely to face fluctuations at times. And if you plan to invest in hotel rooms during this phase of the market, you need good knowledge about sustaining them.
Investing in hotel rooms would require you to answer some heated questions to make the right choice in the hotel real estate business. This blog will shed light upon four things you should know before investing in hotel rooms.
With such knowledge, you can make a better and sound decision and not regret it later. So, are you ready? Let’s get started!
Review Demand Drivers
As an investor, it is typical to take risks. However, you should know the risks you may have to take and decide wisely. It is essential to realize that the hotel investment market is slightly different from the traditional real estate assets.
Hotel developers do not think of customers later and build the hotel before. Instead, they create the hotel around their customers. Major demand drivers are to be considered before investing. The design and amenities of the hotel would be built targeting the customers.
Additionally, positive economic forces, like strong job growth, consumer confidence, rising to entail consumption, etc., influence the drivers. The three general demand drivers are group demand, tourism, and business travel.
The ideal hotel room to invest in would be a property that appears attractive to travellers for business and pleasure pursuits. The main idea for you is to aim towards the growth of these demand drivers.
Your Tax Options in Your Target Destination
Investing in hotel rooms requires knowing the real estate and investment taxation options. These options vary from state to state and from country to country. Remember that you have an amount to pay back.
Furthermore, tax efficiency is one of the pros of hotel investments. Hotel investment is similar to commercial real estate investment and falls within the same category. Therefore, you can expect plenty of tax-efficient opportunities available, driving you extra returns on your investment.
Annual Returns
The primary reason for making investments is to double your returns. Thus, you should know the average returns to expect from your first investment. The best part about investing in hotel rooms is that you have the potential of getting annual returns exceeding 5%. Therefore, some even believe instead of keeping your money in the bank, invest in hotels.
Also, the common misconception of investing in hotels within Indian is no more applicable. You can invest in hotel rooms in booming cities anywhere in the world.
The Brand Matters
As you move forward in making investments in hotel rooms, bear in mind that every hotel brand is different. Each comes with a unique value proposition targeting their guests. The type of hotel you invest in, irrespective of full, limited, or select service, will have a high importance on the performance during various market cycles.
For instance, a full-service hotel is more likely to witness increased demand during a strong economy. As such, tourism and business travel will also increase. On the contrary, the market demand during a recession will drop, and travellers expect cheaper lodging options.
Limited-service hotels offer favourable prices in a down market. However, these prices pose a lower profit margin in an up market.
The Bottom Line
Now that you’ve reached the end of this page, you are adept at the four crucial considerations to make before investing in hotel rooms. These critical factors influence your decision and help you get better returns on your investment.
Once again, it is essential to remember that hotels behave differently compared to the traditional real estate asset classes during the investment procedures. However, the hotel industry offers a steady yield profile and attractive investment opportunities.
