The hospitality industry has shown a staggering growth since its inception. The key detail here is customer satisfaction and providing luxury amenities to customers. Any hospitality business should focus on satisfying the customers’ leisure needs as well as the basic ones.
Hotels are complicated to start and operate. You need to have patience and enough capital for the hospitality business if you expect it to be rewarding.
Let’s discuss how hospitality acquisition funding helps hospitality businesses:
Return on Investment (ROI)
Most hotels aim to have a consistent ROI at the cost of capital or lower with a number around 10-12% per annum. The period of payback can usually be 10 years or more. But if a hotel is well-managed and smartly run to cater to market needs, it can have a payback period of 4-5 years.
So a low ROI for a high cost built hotel and a high ROI for an efficiently built one is essential.
Annual Cash Flows
Hotels supply the annual cash flow from the real estate business – cyclical cash flow.
This replenishes the operating budget of the hotel. The funds will keep coming in as long as the hotel is well maintained and operations run smoothly. Similar to residential real estate, hotels are a high-risk reward too. However, unlike residential property, hotels don’t have a fixed income but it is still assured income depending on the patrons and season.
Hotels appreciate in value over time. That being said, the increased value is not seen in the balance sheet but the cash flow or the property itself can be leveraged for growth, as in asset-based lending.
Over time the land value increases while the hotel also increases in value and stabilizes its performance. Often, hotels become landmarks as a reminder of such resilience like the MGM Grand in Vegas.
Hotels offer diversity to a development portfolio, unlike other real estate forums. This diversification of products creates a balance in the portfolio in a strategic sense that serves company growth. By having the ability to change prices of goods and services like room rates, hotels have a unique exposure to the market and economic sentiment.
The Bottom Line
Hotels make money when the business model is designed efficiently and capital is invested wisely. And even then it’s a gamble for anyone to invest hard money loans without any guidance or market support.
Success in this industry demands blood, sweat, and capital from anyone trying. Reach out to Global Capital Partners Fund to discuss your business plans to get the most efficient financial solutions for your business’s guaranteed success. They offer hard money loans and bridge money loans all across the US.
Learn more about their services here.