A relatively new concept, the hotel room investment or simply hotel investment is fast becoming one of the most popular ways to diversify an investment portfolio. The idea originated from the US, was popularised by tycoon Donald Trump and is beginning to take off around the world.
Similar to Buy to Let investments, hotel investments allow you to purchase a hotel room and rent it out to paying guests, with the hotel acting as the management company, overseeing the entire process from start to finish. There are already hundreds of success stories, which have all included the employment of large, well established hotel investment companies to take over the management of hotel room investments.
A Buy to Let hotel room investment is a fully-managed and hands-off asset class with which you can expect yields of between 6% and 10%. But savvy investors with their finger on the pulse are snapping up this type of investment not only for their returns but because they are extremely low maintenance and require far less involvement than a buy-to-let property. And when compared to other classes of investment, such as bonds and bank savings accounts, hotel room investments offer higher capital growth as well as a high income.
However, be aware that some of the better known hotel brands may command higher prices and as a result, you could end up with lower yields. By opting for a lesser known name, it’s more likely that you will achieve the opposite. Many schemes can be bought by self invested personal pension (SIPP) investors to qualify as a property investment, some of which come with developer finance or easy stage payments.
Hotel room investments may be tried and tested and a big success in the US but in countries such as the UK, this concept is still very much in its infancy. The track record on hotel investment funds and returns has not yet been tested, therefore it’s not just investors who are approaching with caution, it’s the lenders too. It appears that they are uneasy about the prospect of a client defaulting on their mortgage payments then having to reclaim their security.
Before you decide on which hotel you want to invest in, do your homework. It is important that you pick out a selection of attractive hotels and compare the latest guest number statistics, as these will directly affect yields. Once you’ve found and bought a hotel room, you can take advantage of capital gains tax business asset taper relief, should you decide to sell up. This will cut the tax you pay on any gain to 10% but also bear in mind that once you’ve invested, it’s won’t be as easy to sell as most other assets.
*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.