Similar to student pods the hotel room investments scene is lively right now. Lot’s of people are selling them. So what’s the hype about, should you be putting your money into a hotel room investment?
It’s being sold as a hands off investment with high yields and low risk. However as impressive as the marketing material may seem there is a lot more to consider.
We could earn huge commissions selling a hotel room investment to our clients but the reason why we won’t is because we wouldn’t buy it ourselves.
The five main issues I have with hotel room investments are:
1. Fractional Ownership
2. Capital Growth
3. Lack of leverage
5. Resale options
Fractional Ownership aka Timeshare
Many of the hotel room investment options are fractional ownership. Fractional ownership no matter what the marketers say is Timeshare reborn. You only own a fraction of the property exactly like a timeshare. We all know what happen with the timeshare market and if you don’t a quick Google search will show you how millions of pounds was lost by investors. For me this is a deal breaker if you are offered a fractional ownership investment don’t walk away, run!
Very similar to student pods a hotel room investment will struggle to grow in value. On average a UK property has doubled in value every ten years. A hotel room investment will not enjoy the same growth. Why? The value of a hotel investment will only rise if the yield increases, because the only person who will buy it from you is an investor.
Lack of leverage
Most hotel room investments do not allow you to borrow against it, on a property this would be called a mortgage.Leverage is one of the best wealth tools property investment gives you and without it you are seriously damaging your wealth. Learn more about leverage here.
How long is a piece of string might be easier to answer than what is a hotel room investment worth? It’s difficult evaluate the value of a hotel room investment because there are so few comparables. If you wanted to asses the value of a property you have the land registry to refer to and professionals like RICS surveyors who value property for a living.
I believe however that hotel rooms are vastly over-priced.
The commissions paid to property companies is staggering, 10%-20%. If a developer can price in such huge payments to the sellers then this immediately sets off alarm bells for me.
But I think it becomes really apparent that hotel investments are overpriced when you look at your exit options
With any buy to let property you have the whole of the market to sell to. Your exit options are endless if you’re prepared to price competitively. Unfortunately you are limited if you want to sell a hotel investment.
Have you ever seen a hotel room investment for sale? No you haven’t because is absolutely no second hand market.
Estate agents don’t sell them and you won’t see them on Rightmove. Your hands are tied the only person who would buy from you is another investor and a novice investor at that!
If you are considering a hotel room investment then make sure you accept all the above and that you aren’t being lured by expensive marketing brochures and hard sales tactics. If you’re looking for an alternative to a hotel room investment stick with normal UK property.