Four Factors to Keep in Mind When Investing in a Hotel Property
Many people find real estate investing to be a rewarding endeavor. However, there are a never-ending number of different property types to invest in. When making a commitment with your money it’s important that you do your research so that you are fully prepared. This is especially true if you find yourself considering an investment in the travel and hospitality markets. The revenue structure and market demand of hotel properties are different than other investments.
Here are four factors to keep in mind when investing in a hotel property.
Your Competition & the Economy
Of course when investing you need to understand what’s going on with the economy. That will directly relate to the success of the hotel, as people need to have money to travel. Also be aware of the market and find out how many local vacation rentals are in the area. Apps such as Airbnb have changed the way people look for a place to stay while traveling. This is an investment that depends heavily on the tourist trade.
Invest in Mixed Use Buildings
Mixed use buildings have higher potential than just a hotel. When people travel, factors such as tired children or bad weather can keep them close to the hotel. Spaces that offer things to do near their stay are seen as a great bonus. Mixed use buildings can house things like restaurants, a small water park, a spa, or a performing arts center. When you have an understanding of the local market be open to both independent and franchise hotels offering this type of space.
Room Occupancy Rates
As you continue looking at the existing market and demand make sure you’re speaking with people already deeply involved in real estate. Places such as tourist bureaus and the Chamber of Commerce are great resources to help you learn about the average occupancy rates in the area. To be able to predict what kind of return you’ll get on your investment you should look at the average daily rate in rooms similar to the hotel you are considering. This can also help you to determine amenities.
Paying attention to the existing management is vital to the success of your investment. This is particularly true if you don’t have any personal experience with operating a hotel. You’ll have to reach an agreement covering everything to keep the place operating and growing occupancy. With the right management team fulfilling the goals of your investment the value of the property should grow as well.