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Real estateinvestingcan be an incredibly lucrative and rewarding endeavor. However, there are manyfactorsto consider before making a commitment, especially if you’re considering properties in the travel and hospitality markets.
Hotelproperties have unique traits in their market demand and revenue structure, so it’s important to be as prepared as possible. To find out more, we asked members of theForbes Real Estate Councilwhat a prospective investor should consider when looking athotelproperties. Here are some important things tokeepinmindduring the process.
1. The Economy And Your Competition
Successfulhotelinvestingdepends on the tourist trade and the economy as it relates to people having money for travel. It's important to know your market and the local impacts of vacation rentals and short-term rentals, which can act as your competition. -Beatrice de Jong,Open Listings (YC W15)
2. Zoning And Mixed-Use Building Opportunities
From the multitude ofhotelinvestment options, choose the best. Consider zoning: M1 - light manufacturing and R - residential are excellent for hotels; others, not so much. Invest in mixed-use buildings, as they have higher potential than just hotels. Be equally open to a franchisehotelor independent brandhotel. Find the best equity partnership. -Elliot Bogod,Broadway Realty
3. Room Occupancy Rates
The first thing to learn are average occupancy rates in the area. Sixty to 65% is a solid rate in the states. A deep dive into market saturation and demand is also key and is easily ascertained through tourist bureaus, economic developers and the Chamber of Commerce. The average daily rate in similar rooms to those considered will dictate return on investment and determine amenities. -Kristin Geenty,The Geenty Group, Realtors
4. TheHotel's Existing Management
Ahotelcan be a great investment if you know how to operate them. Do you know how? Well, then you need to pay attention to the flag (management) running the place. Make sure your agreement covers what is necessary to operate and grow occupancy and value. If you have a well-known brand, expect to pay a premium in the flag department. -Michael J. Polk,Polk Properties / Matrix Properties
5. Operating Performance And Valuation
Investors should consider thathotelperformance and valuation can swing materially. They should appreciate that hotels are as much operating businesses as they are investments, and trade on a cap rate basis. Consequently, investors should consider their ability to improve operating performance to create value via targeted improvements, better management or marketing strategies. -Gary Beasley,Roofstock
6. Non-Room Revenue Potential
We've seen manyhoteldeals where non-room revenue potential greatly changed the economics of successful acquisitions at one year out. When valuing potential acquisitions, pay market for the room revenue, but seek out projects with low-hanging or underperforming revenue opportunities on ancillary services. -Colin Bogar,PropertyPassbook
7. Local Demand And Demographics
As ahotelinvestor, I need to have both parts of this equation: demand for rooms in the local area plus the demographic that would utilize thehotel'spropertyclass. For example, an investor that's purchasing a luxuryhotelshould seek a location that offers full-service amenities for the local population. -Ali Jamal,Stablegold Hospitality LLC
8. The Dynamic Nature OfHotelPricing
Hotelsare a speculative asset class. Class B and C apartments perform in tough times because everyone needs a place to live. Vacations are a discretionary item on most people's budget. In good times it outperforms many asset classes because of dynamic pricing, where the prices surge due to demand.Hotelinvestments have a place in a portfolio after more recession-proof assets are acquired first. -Lane Kawaoka,SimplePassiveCashflow.com
