Hotel room investment is a growing trend in the UK and around the world. Along with the different type of investments such as buy to let or care homes investment, those who invest in hotel rooms do so for the same reason behind any investment type – returns. So what is a hotel investment? Hotel investment in the UK involves purchasing a hotel room and receiving returns through guest stays within the hotel. This works similar to investments in property, but with much shorter tenancies.
Companies offering hotel room investment opportunities claim that by buying a hotel room, you’ll recieve a host of benefits like guaranteed returns with yields of around 7 and 8%, and a hands-off investment strategy. However, is investing in hotel rooms really the best route to take? It’s always a good idea to use investment guides and investment news to find out more about the available options for investors looking to make lucrative returns. That’s why we’ve put together a helpful hotel property guide with information on the disadvantages of UK hotel room investments. Here are some reasons why you might want to avoid a hotel investment in the UK and explore alternative options to get the most out of your investing efforts.
Negative Reviews Can Damage Your Hotel Investment
Hotel room investments market themselves as high yield investments, but without enough tenants, returns will end up suffering. With a hotel room investment, you will rely on a regular stream of guests in order to recieve an adequate rental income. So how do you ensure guests keep coming back? While making sure your hotel room is well-maintained, clean, stylish and comfortable are all important, you can’t control the experience that your guests will have within the hotel as a whole. This is one of the downsides that come with this type of hands off investment.
If one of your guests has a bad experience in the hotel, with staff, for instance, they may leave a bad review online, which will negatively affect your occupancy rates and influence your annual return. This is one of the perils of running a business in the digital age, as even just one of two unhappy reviews could make a huge difference to the popularity of your hotel room investment. Not only would a bad reputation and negative experiences mean that the existing guests of the hotel would fail to return, but more people would also be put off from staying there after reading bad reviews. The only way to avoid this would be to make sure you choose a trusted hotel owner and hotel management company with a good track record before making an investment, but even doing this wouldn’t leave you in full control of the actions of individual staff.
The Hotel Company Could Fail
You need to keep in mind that a hotel is a company in itself. Unlike purchasing a buy to let property where you’ll own the entire property, with a hotel room investment, the entire hotel is owned by a separate company. If this company fails and goes bust, you could end up losing your money. To minimise your chances of this happening, you’d need to be sure that you found an investment hotel room for sale within a highly established company. This wouldn’t completely stop things from going downhill, however, as even the most popular companies can face rocky periods. This level of uncertainty is what tends to turn professional investors away from these types of commercial property investments.
Capital Growth Is Limited
Compared to buy to let investments, capital growth is not a key element when it comes to hotel investment. Most hotel room investments will include a ‘buy-back’ option, where the investor will be able to sell the hotel room back after a certain period of time in exchange for their original capital or an increased amount. This means that in order to benefit from any returns through capital appreciation, the investor would need to opt for an assured buy-back deal with a high amount. With property investing, the chances of making significant returns through capital growth are a lot higher, especially in prime areas.
If you’re set on investing in hotel rooms, you’ll need to be prepared to rely on rental returns. This means that the location you choose is majorly important to ensure a high level of demand from guests. Unlike its suffering property investment market, the hotel room investment London offers is likely to be a good option, especially in some of the major tourist spots. It’s worth keeping in mind, however, that a room in a London hotel for sale is going to be more costly than a room in a more affordable UK tourist city.
Costs Can Add up Quickly
While every investment tends to come with added costs, such as buy to let and stamp duty tax, hotel room investments could come with additional maintenance costs. With hotel room investment, there are a number of additional costs that come alongside the initial purchase price. Contrary to property investment, where you will typically leave maintenance tasks like cleaning down to your tenant, things are different when you buy a hotel room. Hotels need to be maintained and cleaned regularly, as the guests won’t be doing this. This means that a large amount of money will likely need to go towards the upkeep of the hotel room, with regular cleaning, restocking and updates required.
Alternative Investments to Hotel Room Investment UK
So we know about the downsides to hotel room investment and the reasons to avoid it, but what are some good investment ideas for UK investors to consider? The buy to let market is one of the most profitable investment asset classes to explore in the UK, offering some excellent yields and growth prospects.
Residential Property Investment
Residential property investment is one of the most popular UK property investments and focuses on purchasing a residential studio flat, apartment, or house. There is a lot of demand for residential rental properties in the UK right now, especially in areas with booming city centre markets like Liverpool and Manchester. Residential property investment can offer you the same type of yields as hotel investments can, but with the added benefit of bringing returns through capital growth too. There’s no limit to the amount that residential property in the UK could grow by, but predictions show that by 2022, house prices in the UK are expected to increase significantly, with the biggest growth anticipated in the north-west of around 18.1%.
In London, however, capital growth predictions are less impressive. Unlike the strength of a hotel room investment in London, where returns would be high, London property investments are suffering due to negative house price growth. This is why it’s important to research the best areas as part of your property investment strategy, as well as finding the best property investment company.
Student Property Investment
When it comes to good investment ideas, UK Student accommodation is another fantastic option. Compared to buying a hotel room, purchasing a student buy to let investment property comes with a strong likelihood of growth as well as high yields. Student properties are in high demand around the country, especially in areas like Liverpool, which has a reputation as one of the country’s top student spots. Since Liverpool is home to one of the fastest-growing property markets in the UK, investing in Liverpool properties in the form of a student accommodation opportunity such as those we currently have available will significantly boost your chances of capital appreciation. Just like buying a hotel room for investment purposes, student property and residential property investments also offer the option of a hands-off investment if the investor opts to use a property management company.
One of the main attractions of student property is affordability. Hotel room investments tend to be priced at a similar rate to student accommodation and come with similar rental yield percentages. This ultimately begs the question – why bother with a hotel investment when you could purchase a fantastic student UK property, with less risk and better returns, for the same price?
Are you ready to explore investment opportunities in the UK? Contact us today, and we’ll help you find an investment property that perfectly fits your needs.