Have you considered a hotel room investment?
Buying a hotel is out of the question for most of us. But buying a hotel room can be an attractive proposition as it gives you a foot in the door of a high yielding industry.
Hotel and leisure are consistently high growth sectors – and with a good location, your hotel investment could appreciate in value in a short space of time. Buying a hotel room is a straightforward property transaction that doesn’t attract Stamp Duty on purchases up to £150,000 and can offer the investor a lease and title deed with the land registry.
And as the hotel is fully managed and serviced all you’re required to do is to collect your share of the revenue. It’s a stress-free way to earn passive income.
How does it work?
In most cases, as an investor, you will share your profits with the hotel’s management. They will run the hotel while you earn income from your room. But there are several way in which this can work.
Sometimes profits are pooled together and shared out equally among investors – like a company paying out dividends on shares. In this scenario, no single room produces more profits than another.
Or, in a guaranteed income situation, you as the investor will get paid a fixed income – this model incentivises the hotel’s management team to always let the room to generate as much profit for themselves as possible. This method of return can be combined with a guaranteed capital growth at the end of a fixed period.
With guaranteed capital growth, you buy the room and are guaranteed a fixed price to sell the room back to the hotel management after a set period. This gives the investor the certainty of capital return while the hotel’s management team gain from the capital injection that allows them to invest in the business.
Finally, you can simply buy a room and agree a set amount of days every year when you use it. The rest of the year, the hotel lets the room to paying guests. In this scenario, you can generally reduce the number of days you use the room and instead take the extra revenue generated by the paying guests.
How to choose your hotel investment
As per any investment – do your homework. Take a look at hotel brands and research their popularity both nationally and internationally – who generates the strongest income all year round?
If you’re thinking about investing in a local or independent hotel, consider whether it’s likely to succeed in its chosen area and will it appeal to the clientele it’s aiming for?
As well as the hotel itself, get to know the management team running it as you’ll be relying on them to generate your income.
Essentially, look at the hotel, location, management team, and finally, developers, if it’s a new hotel. It can be exciting to invest in a new hotel development – however, it can also be risky as it’s an unknown business venture. If you’re looking for a faster return on your investment, choose a hotel that’s well established and can guarantee reliable income.
Would you like to learn more about property investment?
At PMA we run a Mentoring Programme to show you how to invest in property as well as a range of courses aimed at beginners and seasoned property investors.
Join us on one of our Discovery Days to find out more.