Investing in Hotels

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If you are considering investing in hotels there are a number of items which should be at the forefront of your mind and driving the decision-making process. Understanding all the variables is the first step to making a sound investment. Here are a few of the things you should be contemplating:

Inspect the Property

Once you have a property in mind, it is vital that you have a full inspection performed. While this seems like real estate buying 101, an alarming number of investors lose money investing in properties that look good on the surface but carry an imbalance of financial burdens in necessary renovations and repairs. Things like mold, termites, vermin infestation and structural issues can all have a crippling effect on your investment if you don’t know about them ahead of time. Have all the above issues checked as well as others recommended by a professional inspector.

Know the Management Company

If you are considering using a hotel management firm to run your business, it is important that you have a verifiable set of references and can observe their work for other properties. Consider the company’s operating performance and ask direct questions about their ability to maximize revenue and maintain control of expenses long term.

Know your Visitor Segments

Hotels that attract visitors from all segments (including leisure, business, group and commercial) are the most successful. Those that cater to a specific segment will not have the same earning potential.

Know the Dates of the Hotel’s High Season

Hotels with shorter high seasons will logically amount to smaller profits. Those that operate under high occupancy for longer periods (six to eight months) are the most lucrative. It is also very important that the hotel’s most busy months are consecutive. You do not want to invest in a property that only sees a major influx during the summer, fall foliage and during the holidays, for example.

Keep Your Terms Simple

The eventuality of your situation is that you might very well sell the property at some point. Keep this in mind when deciding to invest. Prepare your franchise agreement and management contract in a way that makes them easily terminable. Assign or pre-pay your mortgage, buy out existing partners and work with your accountant or tax attorney to minimize your tax exposure.

Choose Your Hotel’s Branding Carefully

This goes back to attracting multiple segments of travelers. Be certain of what segments you are identifying and choose a hotel that has a clearly defined identity already. Those that are still trying to figure out their niche will be more volatile investments.

These are just a few of the guidelines you should be considering when deciding to invest in hotels but they represent some of the most important ones. Don’t just sell off your existing investments and mutual funds to buy into an available hotel. Heeding this advice is a smart first step in the process.

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