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Investing in hotel rooms is becoming increasingly popular, and rightly so: with a relatively low entry cost, you can make a strong return, with no rental or maintenance worries. At least, if you take into account some crucial conditions. What should you do, and especially not do, when investing in hotel rooms? Three tips to make money whilst sleeping.
1 Opt for fixed, indexed rental income
Some structures work with variable income, based on the occupancy rate of the hotel, or of a specific room. Therefore, opt for a formula where you always get rental income, regardless of the occupancy rate. More so, ask whether the rental income is indexed. Thus, inflation does not get a hold on your returns, which is the case, for example, if you park money in a savings account with a negligible interest rate. Moreover, taxes, set-up and maintenance costs are for the manager, so nothing can eat away at your returns.
2 Purchase with full ownership
Beware of contracts where you only acquire the structure (the hotel room) in full ownership, but acquire the land share on a superficies or ground lease basis. In addition to having a solid impact on the value in the event of a resale, this also has tax implications: when the leasehold right is resold (within five years), not only the profit but the entire price received is taxable at rates that can be as high as 50%. So only purchase a hotel room in full ownership, where you also own 100% of your land share. By the way, you can fully recover the VAT amount on your purchase afterwards.
3 Opt for a long-term contract with a solvent hotel partner
The best guarantee for a profitable, secure investment in hotel rooms is to work with a reliable hotel partner. Preferably a larger group with several hotels or chains under its wings. Always opt for a project that partners with a reputable hotel chain able to present excellent financial results. Then you can rest assured that your branch will also meet expectations in terms of service and occupancy. Also ask about the term of the lease with the hotel partner, always opting for a long-term contract. Some formulas give a prospect of more than 20 years of rental income.