Why Invest in Hotels

Have it all! Capital growth, high income and hands-off – the ideal property investment.

Hotel room property investments are the fully-managed, hands-off, high-yield, lower-risk asset class that should be a part of every investor’s portfolio - whether a pure hotel room or an apartment-suite in a resort or hotel. Hotel rooms are widely regarded as a superb turnkey investment product that are fully managed for the investor by the hotel operator and require very little involvement.

Some Great Reasons to Invest in Hotel Rooms :

• Hands-off property investment - fully managed by the hotel operator
• Relatively low risk investment due to the booming hotel sector
• High yields of between 6% and 10% plus achievable
• Capital growth potential as well as a high income - compares well to different investment classes such as bank savings accounts (offering income only), bonds (offering fixed income and variable positive or negative capital growth according to bank interest rates) and high dividend yielding shares/equities
• Some hotels are well-known brands and command higher prices/lower yields, others are less well-known brands but offered on higher yields
• Some schemes come with rental guarantees during the hotel start-up period
• Some hotels have been operating for years or even decades and are now available to purchase on a room-by-room basis
• Intensive nightly rentals typically produce much higher income per month than traditional longer lets on buy-to-let
• Finance is available of up to 80% loan to value (but more limited in SIPPs/pension purchases)
• Many schemes can be purchased by SIPP/pension investors as a qualifying property investment
• Some schemes come with developer finance or easy stage payments
• City-centre, regional towns, holiday resorts - UK or overseas, premium brands, budget brands - you choose!

Buy-to-let hotel rooms are superb income generators that are normally cash-positive from year one even if fully mortgaged. As well as being tax-efficient, hands-off investments, they also offer lifestyle advantages as many are located in luxurious holiday locations where investors can take advantage of free personal usage that is often included in the investment (strictly forbidden if you purchase via a pension).

Individual hotel room property investments were introduced commercially several years ago by GuestInvest, the London hotel developer and operator founded by Johnny Sandelson. Johnny was previously a successful buy-to-let investor who saw hotel room investments as the next big thing several years ahead of most others. Now the GuestInvest model is working well in London and will shortly roll out across other European cities, but several other hotel room investments are now coming to the market, generally at lower prices to the £350k+ GuestInvest level.

Hotels that Assetz for Investors sources or develops are fully operated under established, branded hotel companies. There are generally no ongoing maintenance, refurbishment or furniture renewal costs for the investor as these are absorbed by the hotel management company under the terms of the lease.

Revenues from buy-to-let hotel rooms are typically allocated at around 40% to 50% to the investor (varies per scheme) with the balance going to the management company/operator. All food and beverage income is typically retained by the operator. Due to the room income being shared so equitably, the hotel operator is well motivated to maximise room revenues, rental returns and occupancy rates and hence benefit the investor. This is completely unlike the traditional buy-to-let letting and management agency on a mere 10%-15% income share of the rental income for their management services.

Hotel room investments can offer very high NET yields in the region of 6% - 10% plus in comparison to normal buy-to-let apartments that may offer only 3.5% net rental income after costs (voids, management and letting fees, service charges etc). All rooms in hotel schemes are normally supplied fully-furnished and the furnishings are normally maintained, repaired and replaced by the operator out of their income share.

Investors typically receive quarterly accounts with full publication of revenues generated by their room. Rooms are usually offered on a long-term leasehold basis. In some cases, the room income is pooled for the whole hotel or for a class of room. In other cases, the rooms are let on an automatic rotation basis to ensure fair income apportionment.

Hotel rooms are a robust deferred income investment if purchased with a mortgage in order to reduce the cash investment required, and the high income levels are used to repay the debt relatively quickly. This gives a greater yield on the original cash invested in years to come versus paying cash for the hotel room now and receiving immediate income.

Some newspaper articles on this booming sector :

• Gloom or boom for budget hotels? - BBC
• A budget boom for the hotel market - Mintel
• A room with a view to a profit - Guardian
• After London, buy-to-let hotel rooms go nationwide - Telegraph
• Buy-to-letters check in to room service - Telegraph
• Bed and benefits - Investors Chronicle
• Axa SIPP allows investors to buy hotel rooms - IFAOnline
• Hotel room bug bites Aegon sipp - IFAOnline

Hotel Rooms As A Pension Investment

Hotel rooms are classed as commercial assets and are one of the very few property types allowed to be purchased directly by a pension/SIPP. Investors can purchase a room through a Self Invested Personal Pension (SIPP) either individually or in a group and take advantage of the tax relief available upon the income and capital growth. A pension purchase could receive up to 66% income tax 'top-up' (for a 40% tax payer) from the government.

 

 

Online Articles on Hotel Room Investment

Newspaper articles on this booming sector

• Gloom or boom for budget hotels? - BBC
• A budget boom for the hotel market - Mintel
• A room with a view to a profit - Guardian
• After London, buy-to-let hotel rooms go nationwide - Telegraph
• Buy-to-letters check in to room service - Telegraph
• Bed and benefits - Investors Chronicle
• Axa SIPP allows investors to buy hotel rooms - IFAOnline
• Hotel room bug bites Aegon sipp - IFAOnline

Hotel Rooms in Pensions/SIPPs

Hotel Rooms As A Pension Investment

Hotel rooms are classed as commercial assets and are one of the very few property types allowed to be purchased directly by a pension/SIPP. Investors can purchase a room through a Self Invested Personal Pension (SIPP) either individually or in a group and take advantage of the tax relief available upon the income and capital growth. A pension investment could receive up to 66% income tax ‘top-up’ (for a 40% tax payer) on their contibution, as a tax refund from HMRC. Read More on Hotel Room Finance