The viability of hotel room investment November 12, 2010 Home Property News Jones Lang LaSalle recently released a report suggesting that investors are beginning to return to the global hotel market following the economic downturn. By the end of the year, transactions are expected to hit USD18 billion, up 85 per cent in terms of volume compared to 2009. Figures relating to travel and holidays would suggest that an increasing number of people are now returning to the holiday market. Traditionally hotel income and occupancy rates follow the ebb and flow of the economy, so as the economic climate improves, the hotel industry will follow. As such, currently an investment in a hotel room should be viewed as fairly safe, with economies around the world rebounding well. How does it work? Buyers are given the opportunity to purchase individual rooms, or units, within hotels and developments before letting them out to potential guests. The hotel itself is responsible for the daily maintenance of the units. Investors will be paid a cut of the proceeds from guests who stay in the room, while most schemes also offer buyers a number of free nights stay in your hotel room over the course of the year. The schemes can appear very attractive from a financial point of view as buyers are able to enter in to them for a small amount depending on the location and standard of the hotel. In addition, the returns promised can also be a good selling point. Most schemes tend pay out as much as 50 per cent of the rate the hotel charges the guest. What are the benefits of the investment? Hotel room investment is an alternative to the traditional buy-to-let market. The projects give the investor a hands off approach to investment as the scheme is completely managed by a professional hotel company. Indeed, investors can have the peace of mind that their money is being looked after by an expert in the hotel field who is incentivised to maximise room rate and occupancy levels. The yields on offer also seem very attractive. On average, the majority of the companies promoting these schemes say you can make anything from six per cent up to 15 per cent each year. Some of the hotel room investment schemes even offer buyers a guaranteed minimum return for the first few years: a chance to make 10 per cent or 15 per cent guaranteed return on your money. Meanwhile, with this type of investment there is no reliance on the state and success of the overall property market since revenue is determined by the number of bookings in a room over a period. Investing in a quality development that is attractive to travellers immediately increases the chances of attaining a better return. Choose wisely Location, location, location is one sentiment that needs to be at the forefront of any real estate investors mind before they part with money into a hotel room scheme. As well as attracting visitors, transport links and local amenities should be considered. In fact, the hotel's amenities can even be viewed as a good barometer for appreciation. Buildings which offer visitors something valuable and long-lasting - such as beach views or golf courses - are likely to be much easier to sell. However, it is worth considering that when the tourism industry slacks off rental revenue can decrease. With hotel rooms buyers are investing in tourism and occupancy rates as much as they are in a tangible asset. It is therefore vital to make sure that the location attracts substantial visitors who need hotel rooms, preferably all year round.