Investing in hotel real estate can be lucrative, but it is not without its drawbacks. The following list of pros and cons will help you decide whether or not to invest in hotel real estate.
- Higher returns
The most obvious benefit of investing in hotel real estate is higher returns. The term hotel can be misleading in terms of rates as these investments may not yield a lot more than other properties, but if you look at the return on investment, then hotel real estate always comes out ahead. The reason for that is because investing in any type of property has income tax benefits.
- Buy and hold for high resale value.
The hotel real estate market is a stable market, with slow but steady growth. Holding onto your property as long as possible will give you the highest gains in this type of investment. There is also minimal risk involved because hotels are a basic need for many people, so there is always a steady market to sell the property.
- Hotel staff is available and willing to help at any time
The management of your hotel real estate can be done remotely in most cases. You will have constant contact with your property manager, who can guide you through the profit-making process and can help you find tenants and take care of any problems that may arise.
- Low returns on investment
The main drawback of investing in hotel real estate is the low returns it yields. For example, if you invest $1 million and bring in a 5% return each year, after 20 years, your property is worth just over $2 million. Investing that same amount of money in stocks might yield 10-20 times that amount.
- High capital needs
Investing in hotel real estate requires a lot of capital, and you will have to be ready for it because the process is much more complex than that of investment property or commercial property. You will need to consider taxes, insurance costs, and any other type of fee associated with bringing your investment up to code before you can start generating returns on the investment.
Consult a real estate agent and a financial advisor before deciding if hotel real estate is a suitable investment for you to make an informed decision. Make sure to consider all aspects of the investment, including taxes and insurance costs, in your budget. You will also need to decide how long you plan on holding onto the property and decide how to handle it best when that time comes.
When you are planning a budget, always factor in return on investment, even if it is low. Your long-term gains will not show until you sell the property years down the road.
Investing in hotel real estate can be a significant investment, as long as you do your research and understand all costs associated with your decision. It can be a lucrative investment in the long term if handled properly, so always make sure to look at both the pros and cons when making this type of investment.