Hotel investment is not really a new concept and the way it works is not actually unique in the investment arena. However, these types of investment opportunities seem to be popping up more regularly and are becoming more popular among all kinds of investors.
But how does hotel investment work?
The basic concept is that an investor will purchase a portion of a hotel or resort (for example a room) from the hotel operator for a specified period of time – similar to a lease-hold property purchase – and then leases it back to the operator. During the period of “ownership”, the investor will receive a fixed percentage return on the investment benefiting from both the income that the hotel generates as well as growth. When the period expires, the operator will then purchase the property back from the investor, usually at a slightly higher price than the investor paid for it at the outset.
So why do operators choose this type of investment to acquire capital?
Banks and other financial institutions are often not inclined to provide financing for the purchase or development of leisure real estate such as hotels and resorts. This means that property developers or hotel operators often need to look for other means to accumulate the capital that they require for the development and/or purchase of the property. This is where private investors come in and this can be a very financially viable opportunity for individual cash investors, pension investors as well as group investors or companies.
What are the risks involved?
Like any type of investment, there are risks involved with this type of opportunity. However, understanding how does hotel investment work and ensuring that the operator is financially stable and a healthy company can reduce the risks. It is also recommended to choose an operator that has been in the industry for a while and has a good track record in providing hotel investment opportunities.