With the U.S hotel industry experiencing exponential demand growth over the last few years, it’s no surprise that many investors are now paying more attention to the leisure and hospitality sector. And it’s not only the United States—the undisrupted growth of the tourism and travel industry has significantly influenced the hotel of the hotel market worldwide.
And there are other advantages of investing in the hotel business as well—with the real estate component being a primary one. Furthermore, hotel businesses have a proven ability to generate income as well as the potential to increase it.
Read on to learn why investing in hospitality industry is a great idea—and how you can fund your investment.
High Risk-Adjusted ROI
One of the biggest reasons why hotels are a good investment is the high yield. Hotels typically trade at higher cap rates compared to the Bog Four asset classes. But with that being said, there are more risks to manage in the hotel business. A good investment manager is aware of the risks and will constantly make efforts to optimize the upside while protecting the downside.
Direct real estate ownership is one of the most tax-efficient investments you can have in your portfolio. The most significant benefits that come from real estate investments include tax-free exchange, equity growth, and depreciation. While this applies to all real estate investments, hotels take each of these to a new level.
Factors such as functional obsolescence and wear and tear cause real to lose its value over time. The US tax law allows you to apply a depreciation expense schedule over time and reduce your taxable income. Hotel businesses have a diverse array of personal, intangible, and real property. Consequently, they can gain more from the tax laws that accelerate depreciation.
A Variety of Value Enhancement Options
A large portion of a hotel’s value is derived from its operations. This superb flexibility is another great reason to invest in the hotel business. There’s a variety of ways through which you can enhance the value of your investment. They include:
- Improving employee engagement and customer loyalty
- Contract positioning
- Structuring the capital stack appropriately
An experienced investment manager identifies the areas where improvements are needed most and know how to balance their impact among the areas of value enhancement mentioned above.
Funding Your Investment with a Hard Money Loan
If you’re looking for a means of finance to fund your hotel investment, a hard money loan is a good option. In fact, many real estate investors prefer hard money loans over conventional unsecured bank loans. Why? Well, typically, hard money lenders can fund the loan much quicker compared to banks, where it can take weeks and even months for your loan application to be processed. This is a real advantage, particularly if the property you’re trying to acquire has other investors bidding for it.
Another reason a hard money loan is a good option is that you don’t need a lengthy credit history to secure one. A bank may turn down your loan application due to an insufficient income history—even if you make a healthy income. Hard money lenders, on the other hand, will generally look past such issues as long as you’ve invested enough equity in the property and the loan is going to repaid.
Looking to secure a hard money loan for your hotel business? Get in touch with Global Capital Partners Fund LLC. They offer a wide range of financial solutions, including hard money loans, to commercial clients in Chicago, IL and Kansas City, MO. Contact them at 1-800-514-7350 for details.