Tips to Buy a Hotel Rooms

Sunday, February 15, 2015

It might sound like an odd question to ask, but how exactly does someone buy hotel rooms in the first place?

Let's start at the beginning. Experienced hotel developers, both domestically and abroad, have traditionally used bank and private investor finance to fund the development of major high-end developments. Many of these developers now allow private investors to buy hotel rooms within these upmarket developments in much the same way you might buy any other property.

As an investor you benefit from the capital appreciation in the same way as if you were buying a traditional property but with two added benefits. Firstly, buying a hotel room is essentially a buy to let investment - but without the need for you to find tenants or to manage ongoing requirements. As the hotel attracts guests you earn a percentage of the room rate - covering your mortgage costs and potentially delivering a healthy profit on top.

The suites in the hotel are pooled so that you're not reliant on your individual hotel room being rented but rather share in the overall success of the hotel. Being able to offset your individual exposure in this way is, for many, what makes buy to let hotel rooms such an attractive investment when compared to the risks inherent in buying an individual property to let.

Secondly, as an investor you'll also have the personal use of your suite for a fixed number of days throughout the year. In short, that means you'll have a high-end holiday home to enjoy for up to 8 weeks a year and you won't have to worry about who is looking after it while you're not there. For those investors that don't require personal use, buy to let hotel rooms are even ideal for purchase via SIPPs or other personal pension investments - giving them tax free capital growth and earnings.

Having said that, the most obvious attraction to investors considering who want to buy hotel rooms is that the developer and management company who run and staff the hotel are responsible for ensuring that the hotel rooms are full and the properties are maintained to the highest standard.

That includes everything from delivering a top-class finish to promoting the resort and managing the staff to ensuring a premier customer experience. The in-built management of the hotel makes buying a hotel room an ideal opportunity for the more 'hands off' investor more interested in capital growth and high yields than fixing broken toilets or placing 'to let' ads in the local paper.

Of course in both property and travel, location is everything. So, the first job when considering buying a hotel room is to find somewhere that will attract a steady stream of visitors. Opting for a more established tourist destination is often the safest bet. Somewhat unsurprisingly consistently popular places like Spain, Portugal and Dubai provide the best mix of solid tourist numbers and high-end developments that fit buy to let hotel rooms.

When considering the development itself, it's worth viewing it as both investment and holiday destination. Is this somewhere you would consider visiting yourself? Does it offer the features that will attract guests? How high will the standard of accommodation be?

Similarly, the quality and track record of both developer and management team that will run the hotel must be first class. One of the biggest attractions to investors is in knowing that an experienced team is running the show. Experienced operators will have access to thousands of travel agents and potential clients worldwide and a wealth of experience in managing high-end hotels.

Once you're satisfied with the development, location and management the final step is the deal itself. Although buy to let hotel rooms can offer a potentially safer investment than going it alone, if you are going to buy hotel rooms you need to do so at the right price. Buying hotel rooms can actually amount to a relatively low cost upfront investment. In most cases when considering a buy to let hotel room the developer's agents will have already negotiated bank finance and the developers may often agree to pay fees and costs.

Once you've done your homework and found a development and investment that suits you, the process of buying a hotel room is not vastly different than investing in any other buy to let property.
Overall it's not really the 'how to buy hotel rooms' questions that counts - that's the easy part - but rather the 'why buy hotel rooms' question that you should consider. Reduced personal exposure and the involvement of an experienced, professional management company are the factors that makes the idea of buying hotel rooms so attractive to investors in the first place.