Hotel Room Investment Guide.
Hotel room investment is investing in to an individual hotel room within an operational hotel and becoming the leaseholder of the room, with a view to earning an income from the room over a given period of time. The hotel operator will take on the management of the room and ensure that they take care of all the tedious stuff that investors don’t have the time for i.e. finding guests, changing linen and cleaning rooms etc. In exchange for this investors will be assigned the lease of the room typically on a 99-150 years basis and given an assured return on their property typically for 5 or 10 year periods and often as high as 10% net per annum – A completely “hands off” investment.
The reason why this type of investment is becoming more popular is because it serves as a hassle free option for Hotel operators and owners who can sell the individual rooms within their hotels to help them raise cash without jumping through the hoops with a mainstream lender. In this way, investors get to benefit from above average returns from an already operational establishment with a track record.
Hotel room investments also offer investors a guaranteed or assured exit from the investment after a period of 5 or 10 years. All investors when choosing their investments must be mindful of their exit strategy, after all, nothing in life is forever. Unlike residential properties and student accommodation where one can only exit by selling to other investors on the open market, hotel owners simply buy the room back from investors after an agreed timescale and once more gain full ownership of their hotels. The buy backs are usually done at a premium to the investors also guaranteeing them a fixed appreciation over the 5 or 10 years. It’s one of the few asset classes where buybacks actually work since many hotel owners are keen to regain full ownership of their hotels at a later date.
In a nutshell, what this means is after 5 years of the investment and enjoying healthy returns of 10% net per annum, either you the investor can approach the owners of the hotel and contractually they are obliged to buy your room back from you at an agreed uplift, or similarly the owners can approach you from typically year 5 and ask you to sell the room back to them and similarly contractually you are obliged to sell the unit back to the owners. The good news is that most rooms are bought back for an uplift of typically 10-15% more than what you paid for the room and so in a way a hotel room investment can almost guarantee you capital appreciation.
The combination of these two factors have helped this industry become a multi-million-pound industry within the UK and is attracting interest from investors from all corners of the globe.