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totallyproperty
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Hotels, guesthouses and lodges
The key to long-term success in the real estate market is diversification and not putting all of your eggs in one basket. One area of the market that has opened up in recent years is the hotel, guesthouse and lodge sector which is predominantly holiday based but can offer an interesting route to diversification. There are different ways to invest in this particular market such as fractional ownership, joint ventures or full ownership. However, there are many factors to take into consideration when looking at these types of asset.
Rental yields
While many would put hotels, guesthouses and lodges all in the same bracket, the potential rental yield can vary significantly between these assets. Hotels tend to have a relatively high cost base and therefore depend upon a high occupancy rate, while guesthouses and lodges may have less overheads but a more hands-on approach. Indeed, the Edinburgh authorities recently announced plans to introduce a tax on daily rates across Edinburgh’s hotels which would impact net returns going forward.
This is just one example of the need to remain vigilant, watch your local market and ultimately adjust your calculations where required.
Occupancy rates
It goes without saying that occupancy rates will vary across individual assets and obviously the higher the rate the better the return. While hotels and guesthouses may have all year round appeal (for business users, seasonal breaks, and special events) many lodges and private holiday lets may struggle to take bookings outside of the main spring / summer holiday season. These potential void periods need to be carefully considered when deciding on your rental pricing. Be aware that the holiday let market often boasts a higher headline rental yield, but perhaps this only relates to 5 or 6 months out of the year.
If you’re looking to invest in a hotel, guesthouse or lodge (or a share of an asset) you need to research the location, expected occupancy rates and realistic rental yields carefully. You should at least cover your ongoing costs with sufficient headroom to give you a profit and also leave you with liquidity if additional capital is required.
Cost base
As we touched on above, hotels generally have a higher cost base than the likes of guesthouses and lodges but they also tend to charge a higher daily rate. Many guesthouses and lodges are effectively owner managed in order to keep costs to a minimum and maintain a hands-on approach. Regular marketing is an ongoing cost with this type of property investment, which is essential in order to attract a high booking rate. However, it does take time to build a reputation which should be a consideration when forecasting future returns.
Additional income
One area which is often overlooked by those investing in hotels, guesthouses and lodges is the ability to enhance income by working with local businesses and service providers. Whether these arrangements are on a commission basis or an advertising revenue model there is potential to significantly increase returns. If we look at some of the types of self catering accommodation available it is not difficult to see the potential for additional income from local catering companies, tourist attractions and pamper day providers to name but a few.
The key to a good return on hotel, guesthouse and lodge investments is not only bringing in additional income but also maintaining relatively low maintenance costs while protecting the reputation of the business.
Resources
If you are considering hotel investments, you may also be aware of fractional ownership (which taps into the financial benefits of investing in the hotel market but without the ‘hands-on’ stresses of running a business and employing staff). You can read more about fractional ownership in our dedicated forum: http://www.propertyforum.com/forum/discussions/fractional-ownership-property.379/
The key to long-term success in the real estate market is diversification and not putting all of your eggs in one basket. One area of the market that has opened up in recent years is the hotel, guesthouse and lodge sector which is predominantly holiday based but can offer an interesting route to diversification. There are different ways to invest in this particular market such as fractional ownership, joint ventures or full ownership. However, there are many factors to take into consideration when looking at these types of asset.
Rental yields
While many would put hotels, guesthouses and lodges all in the same bracket, the potential rental yield can vary significantly between these assets. Hotels tend to have a relatively high cost base and therefore depend upon a high occupancy rate, while guesthouses and lodges may have less overheads but a more hands-on approach. Indeed, the Edinburgh authorities recently announced plans to introduce a tax on daily rates across Edinburgh’s hotels which would impact net returns going forward.
This is just one example of the need to remain vigilant, watch your local market and ultimately adjust your calculations where required.
Occupancy rates
It goes without saying that occupancy rates will vary across individual assets and obviously the higher the rate the better the return. While hotels and guesthouses may have all year round appeal (for business users, seasonal breaks, and special events) many lodges and private holiday lets may struggle to take bookings outside of the main spring / summer holiday season. These potential void periods need to be carefully considered when deciding on your rental pricing. Be aware that the holiday let market often boasts a higher headline rental yield, but perhaps this only relates to 5 or 6 months out of the year.
If you’re looking to invest in a hotel, guesthouse or lodge (or a share of an asset) you need to research the location, expected occupancy rates and realistic rental yields carefully. You should at least cover your ongoing costs with sufficient headroom to give you a profit and also leave you with liquidity if additional capital is required.
Cost base
As we touched on above, hotels generally have a higher cost base than the likes of guesthouses and lodges but they also tend to charge a higher daily rate. Many guesthouses and lodges are effectively owner managed in order to keep costs to a minimum and maintain a hands-on approach. Regular marketing is an ongoing cost with this type of property investment, which is essential in order to attract a high booking rate. However, it does take time to build a reputation which should be a consideration when forecasting future returns.
Additional income
One area which is often overlooked by those investing in hotels, guesthouses and lodges is the ability to enhance income by working with local businesses and service providers. Whether these arrangements are on a commission basis or an advertising revenue model there is potential to significantly increase returns. If we look at some of the types of self catering accommodation available it is not difficult to see the potential for additional income from local catering companies, tourist attractions and pamper day providers to name but a few.
The key to a good return on hotel, guesthouse and lodge investments is not only bringing in additional income but also maintaining relatively low maintenance costs while protecting the reputation of the business.
Resources
If you are considering hotel investments, you may also be aware of fractional ownership (which taps into the financial benefits of investing in the hotel market but without the ‘hands-on’ stresses of running a business and employing staff). You can read more about fractional ownership in our dedicated forum: http://www.propertyforum.com/forum/discussions/fractional-ownership-property.379/
