What is more profitable a hotel or apartment building?
Common sense, along with my own research, would tell you that a hotel is a more profitable investment than an apartment complex. They are basically the same building, except that hotels charge a higher rate and the guests turn over faster. Much more rent is collected from a hotel.
The hotel investment outlook is good. The reason is that the hospitality industry in general is a great investment option for generating income and building long-term wealth. People constantly book overnight stays and holidays.
Renting business is one of the highest paying businesses nowadays, especially in the Philippines. The demand for a space or apartment for rent is high due to the fact that there is a huge population of families, employees, and college students every year – which even increases every now and then.
The profit, or the money you get to take home, is the money that's made after all the business expenses are paid off. While the industry is pretty tight-lipped about it, it's estimated that the average profit turned by a hotel chain owner is between $40,000 and $60,000 per year (source).
Monthly average revenue per available room of U.S. hotels 2011-2020. In November 2020, the monthly average revenue per available room (RevPAR) was 36.67 U.S. dollars for hotels in the United States.
Owning apartments guarantees an income and reduces the risks of high vacancies. If you manage to rent out half of them, you can guarantee that your business is paying for itself. You can also make sure that your business is capable of maintaining mortgage payments.
Buying a small apartment building is a great investment option, especially for new real estate investors. The rental income you can earn from apartment investing can provide you with a solid and consistent cash flow that allows you to re-invest and grow your wealth.
Apartments offer an affordable entry point for first time investors. The lower outlay means fewer risks and more investment choices. It also gives investors who are cashed up the opportunity to buy multiple apartments, enabling them to create a diversified portfolio and spread their risk.
Investing in hotels can be an exciting way to own real estate. If you are wealthy, you can franchise a hotel concept directly from one of the major hospitality companies. To buy a business-class hotel could cost $15 million. Luxury hotels can easily require $30 to $60 million or more.
According to IbisWorld, there are 74,372 hotels, and the hotel industry generated $166.5 billion in revenue in the United States alone last year. This represents an annual growth rate of 4.7% over the past 5 years. Industry profits were $26.0 billion, and wages paid to hotel employees totaled $42.7 billion.
Why do hotels fail?
More expenses, less income: When your expenses exceed the income, it is natural that your business will suffer from a loss. And this is one of the primary reasons why hotel businesses fail. Thus, make sure to reduce your costs and hike your profits before it's too late.
The average cost of starting a hotel in the US ranges from $750,000-$1,000,000 for a small motel, to the national average being around $22,000,000 for a hotel with around 115 rooms, and much higher for luxury and high-rise hotels (source.)
