Hotel room investments allows many investors a chance to get a piece of the UK’s most profitable Buy-To-Let avenues. Buying into a single room or two can be a low cost yet effective way of providing a good stream of rental income over a period of time. This is no longer an investment exclusively for the wealthy as it had done in the past often buying entire hotels themselves. The playing field has opened up and enabled anyone with money to invest in one of the UK’s fastest growing asset sectors.
In this article, I will detail why hotel rooms can make for great investment opportunities for those looking to start or expand their property portfolios.
What are a hotel room investments?
Hotel room investments provide an opportunity to buy into a high yielding asset class at a fraction of the cost and stress of actually running a hotel. You buy and own a room in the hotel much as you would with a residential block or student building and earn money through people staying in the room you own.
The day-to-day running of the hotel is done by the management on-site. This means you don’t have to get involved with cleaning, cooking, tidying up or anything to do with marketing the room or taking bookings. For doing all of this, the management will take a cut of the profits made; although you as the owner take the lions share. This provides a hands-off income in the sense that you buy a room and essentially forget about it.
A fast growing industry
The hotel industry in the UK has been growing strongly in recent years and this looks set to continue. BDO recently detailed occupancy levels at record highs and room yields have been increasing for the last 5 years.
Other property sectors are prone to fluctuations in terms of prices, but because the demand for hotels is felt nationwide, they are more resilient to short term markets changes. In fact, though the 83% occupancy rates of London hotels is higher than the regions’ occupancy rates of 76%, the growth in yield per room produced by regional hotels is outstripping London. An investment in a hotel room now is an investment in a booming industry which is forecast to continue to grow.
How do I do it?
The process of buying a hotel room for investment is similar to how you would go about buying most property. You simply:
- Do your due diligence and pick out a location where demand is high
- Find a quality hotel which has trusted and established developers and management behind it
- Select the best possible unit for yourself according to price, specification and floorplans
- Earn your rental income and sell as and when you see fit
It really is that simple. It is vitally important however to make sure the managing company is a good one beforehand. Look for a team that has a solid track record in the hotel business, who are good people managers, and have a sensible, challenging, but achievable strategy for growth.
Pros of hotel room investment
There are a number of great advantages that investing in a hotel room can offer. These include:
- Low entry cost- this price can vary depending on the hotel and location but £50,000 minimum is a good starting point.
- High yields from 8-12%
- Guaranteed income- your assured yield will be written into the contract between yourself and management meaning they are obliged to pay you your income every month/quarter
- Hands-off investment- because your hotel room is managed all for you, you can basically forget it exists whilst you watch the money roll in.
- You own the room and your name will be on the Land Registry as an owner
A unique advantage of buying a hotel room for investment is that it doesn’t always have to be that. You buy the room and are usually guaranteed a set amount of days per year you can stay in the room yourself. Some hotels allow you do this free of charge, and some will charge a small fee at a fraction of what it costs the regular paying guest. Either way, you have a high class hotel room ready to stay in should you ever need it.
Buyback options guarantee capital growth
Some hotel room investments offer exit clauses in which the owner can sell their room after a number of years back to the developer for a guaranteed profit. The reasons for them doing this are to pre-empt the capital growth they know will happen on the room and incentivise people to buy their product.
For example, you might buy a hotel room for £50,000. If the developer offers a buyback option to sell the unit back to them in 5 years’ time at a 25% uplift in price, you are guaranteed a £12,500 profit on your hotel room when you sell it back. Combine this with the rent you’ve accrued in the last 5 years and you are well set for a great investment delivering on both rental yields and capital growth.
It’s worth noting however that these buyback options are not mandatory. Once you own the property, you are free to sell it on the open market whenever you wish. The option is simply there if you want an assured exit strategy.
An investment in a hotel room is a low-cost alternative to traditional buy-to-let property investment. It offers a hassle-free, high yield investment that is particularly attractive to income seekers. It’s a huge and ever-growing property sector and perfect for achieving rental income and good growth prospects.
For more information on some of our latest investment opportunities, contact one of the Tarquin Jones team on +44 (0)20 8445 6542 or take a look at our Investments page on our website.