If you think about someone who works in the luxury hotel industry, money will automatically spring to mind. Not only is the hotel industry worth trillions globally, but in 2015 the UK hotel industry alone generated a total revenue of £17.4bn.
Today, the UK hotel industry is performing very well. On CBRE’s European Hotel Investor Intentions Survey 2018 the UK hotel sector was named number 1 overtaking longstanding first place taker, Germany.
Is a Hotel Investment a Realistic Option for First-Time Investors?
Typically, a first-time investor will go with a residential property investment because it is familiar territory. In fact, this is where some investors underestimate the labour that goes into owning a property in the residential sector.
Some buy-to-let landlords are moving away from residential and into commercial. The hotel property investments sector is a great alternative to traditional buy-to-lets as the income isn’t being squeezed by government legislation and the market is less volatile.
Hotel investments are a great option for first-time investors as there is no landlord experience required to maintain the investment. Essentially, you are investing into a business who have their own staff and maintenance team to look after the rooms on your behalf. This significantly reduces the amount of time and money you will spend throughout your investment.
Another benefit of a hotel investment for first-time buyers is that the exit strategy is defined. At some point the hotel owner may want to regain control over their assets. Some investments are short-term and offer a buy back at the end of the 5th year. The buy-back makes the process of selling your room simple, by contractually assuring a 20% NET profit on the property upon selling and a guaranteed buyer.
How Does A Hotel Compare To Residential Property?
Investing in the Private Rented Sector typically requires more capital than investing in a hotel. For that reason, these investments are suitable for investors with smaller budgets. As well as the lower entry-level requirements, the returns are higher. Hotel rooms offer frequent and lucrative rental uplifts, that are often linked to inflation, ensuring that the investor is protected with higher rental returns.
Another advantage of a hotel investment over buy-to-let is the tax allowances. As hotels are commercial properties, they are exempt from stamp duty on purchases of up to £150,000. Many hotel room investments cost less than this, so generally hotel investments are not liable to stamp duty charges, which can significantly eat into your profits.
Furthermore, hotel investors will generally own a leasehold of 125 years. Residential property investments have freehold options, which means that you own the property for as long as you want. As a hotel is a business, they will want to claim their assets back, but do offer a generous lease, as well as a buy back option, should you wish to sell.
Finally, some hotels offer a personal use option each year or extra benefits such as discounted rates. This is an added bonus that residential properties don’t offer.
If you take away anything from this article, it should be the following:
– Hotels are a ‘set and forget’ investment
– Hotels are easy for the investor to manage because they don’t have to do any work.
– There is no valuing or worrying about the management of your investment.
The risks are low
Property prices can go up and down, but the commercial market is much less volatile than the residential market. Combined with the assured returns and buy back options the hotel offers you, the investment is reasonably low risk.
Effortless cash flow
Since the investment is managed for you, your main role is to receive a passive income. The yields are pre-set at around 9-10% NET annually and paid into your bank account quarterly.