Hospitality is a complicated and fluctuating industry, but it also has the potential to provide investors with lucrative returns.
Americans spend $162 billion on hotel and motel stays every year, which shows the incredible scale of the industry. But before you dive in, there are many variables you need to keep in mind.
Here’s a brief guide to investing in hotel properties that will get you off to a great start:
The economy and competition
The success of your hotel property investment depends on the prevailing economy. Cities where people have high purchasing power and where tourists come for vacations generate better returns on investment (ROI).
It’s also important to assess the competition and learn exactly what they’re offering and compare that to your own hotel property to remain competitive.
Tracking performance and growth
Unique key performance indicators and metrics should be used to track the performance of a hotel. Common ratios that are used in the industry include Revenue per Available Room (Rev Par) and Average Daily Rates (ADR).
Creating a forecast for the next three to five years will provide you with a good idea of the feasibility and viability of the project.
However, it’s important to use relevant figures, incorporate risks, and use data of similar-sized hotel properties to create a forecast that reflects a close estimate.
Assessing demand for hotels is pivotal to the success of your investment. Areas, where tourists and business travelers visit often, are ideal for hotel property investments.
Tourism drives demand during weekends and holiday seasons, while business travelers use hotels during weekdays all year round.
Assessing the needs of different demographics will enable you to provide amenities and on-site services that are tailored to them.
Other factors such as attractions, colleges, special events, etc. also add to demand, but shouldn’t be used as the basis for your investment.
Financing is the key!
If hotel properties offer high rates of return, why doesn’t everyone invest in them? Because they’re not meant for everyone!
Hotel properties aren’t like other commercial real estate investments that appreciate over time and derive income through rental payments; they require a certain degree of expertise and business knowledge.
But the most important reason why investors are unable to capitalize on lucrative hotel property investments is financing.
The hotel industry is highly liquid and managing cash flow can be a huge problem for investors unless they have a good source of financing.
Therefore, it’s critical to have a financing partner that can provide acquisition and development funding for your investment on flexible terms.
If you’re looking for commercial financing for the acquisition and development of a hotel property, you might want to explore financing options. At The Global Capital Partners Fund, you will find various types of acquisition financing options, including commercial real estate funding for hospitality properties. To find out more, visit their website today!