Investments Explained: The highs and lows of hotel investment

The principle is the same as the majority of commercial property investments, but with a slightly difference: instead of buying a piece of real estate, you buy an individual room. This room is then rented out to guests, generating your income.

Prices can start as low as £20,000 and usually give investors a certain number of days – for example,. 50 – of private use per year in one of the rooms. For the rest of the year, the hotel rents out the room in their standard way, giving you a percentage of the takings.

Of course, there are risks involved. Unlike standard buy-to-let properties, to which these are very similar, the option to sell on your hotel room at a later date can be difficult. And, unlike buy-to-let investments, the unit is unlikely to gain in capital value over a period of time, which reduces the potential for profit. With landlords turning to vanilla buy-to-let deals more and more, hotel rooms are relatively niche, which can restrict the number of mortgage options available to buyers.

There is always the chance, as well, that the hotel will simply have no guests.

However, there are highs to hotel investment too. The product relies upon regular turnover of guests to generate income, but this is also makes it more flexible for tenants than residential buy-to-let: rather than have to commit to a long period of residence, visitors can stay in the hotel for one night or a few, which can encourage bookings.

Equally, unlike buy-to-let, hotel investments have flexibility in location too. Hotels are usually only developed in areas where there is demand for them, either because they are close to a tourist hotspot or because they are in a steady business or conference location. And then there’s the room service, which guarantees a fully-managed and clean property without any hassle or effort on the part of the buyer.

With low entry costs and the potential for high returns, hotel investments can be a strong addition to a buyer’s portfolio.

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