Bay Street Capital Holdings

If you're an investor interested in venturing into commercial real estate through hotel investing, then keep reading for more insights.

Key Takeaways

Hotel room investments are great for investors who are just starting out in the hotel industry. That is because the venture is more cost effective, as compared to other types of investments.
Investing in a hotel room entails buying a room in a hotel for the purpose of renting it out to guests for short term stays. In such an arrangement, the hotel management company is responsible for general maintenance and marketing of the room.
Some key things to consider before you invest in a hotel room include your budget, the performance and management of the hotel as well as your exit strategy.
For individuals looking to venture into the hotel industry in Portugal, consider investing through our Alt Path hotel fund. The main objective of the fund is to build and operate boutique hotel properties in Portugal. For more information on the fund, schedule a meeting with us today.

Disclaimer

The contents of this article are for educational purposes only. They are not intended to be a source of professional advice. You will find experts on investing and Golden Visas here.

Diversify Your Investment Portfolio With Bay Street

With two properties in Lake Tahoe and Los Angeles that have recorded significant profits over the last few years, Bay Street Capital Holdings is currently venturing into Portugal and the Bahamas real estate markets through its Alt Path hotel fund. The firm is working to build and operate boutique hotel properties in these strong tourist markets, and has so far secured 45-55% cash incentives from the Portuguese government.

For investors who are keen to diversify their portfolios and spread risk across different markets, our Alt Path hotel fund offers a great opportunity to do just that. For all approved projects, hotel operations will be handled by a qualified team of top operators.

If you're also interested in acquiring a Portugal golden visa, our team can provide support by guiding you with qualifying investments and application process. With a Portugal golden visa, individuals can enjoy benefits such as visa free travel to 185+ countries globally and a high quality life. For more information on the Alt Path hotel fund, schedule a meeting with us today. To read more on the Portugal golden visa, access the latest insights here.

What is Hotel Room Investment?

Investing in a hotel room basically means buying a room in a hotel for the purpose of renting it out to guests for short term stays. This type of investment is most suitable for small scale investors due to its low capital requirements.

Unlike other types of real estate investments, when you buy a hotel room, the hotel management company is the one responsible for booking, cleaning, marketing and maintenance of the room. In addition, you receive regular dividends from the hotel company that are generated from room fees. As such, hotel room investments enable investors to earn steady passive income.

How Much can You Earn as a Hotel Room Investor?

Depending on factors such as location, market conditions and management efficiency, investors should expect to receive a return of 8-12% annually. This income is usually paid in the form of monthly dividends.

The other way in which investors can make money is by the sale of the hotel room back to the hotel owner or management company after a specific time period, usually 5-25 years. Investors can expect to make up to 15% in returns due to increase in the value of the asset over time. In the event that you sell your hotel room before the minimum required investment period, it is likely that you will lose your initial investment.

Pros of Hotel Room Investment

Some pros of investing in hotel rooms include:

Lower barrier of entry: Compared to other hotel investment opportunities, buying a hotel room has a lower minimum investment. With $100,000 or less, you can comfortably purchase a room in a luxury hotel. This makes it ideal for investors who are just starting out in the hotel business and want to diversify their investment portfolio.

Potential for high returns: Hotel rooms in prime locations with high demand and occupancy rates can provide hotel investors with high returns ranging between 8-12% net profit. This is roughly 4x higher than the average returns of apartments or condos.

Hassle free investment: As a room owner, your unit will be professionally managed by the hotel operator and management company, thus relieving you of any daily management responsibilities. That means that the management company will be the one handling bookings, cleaning and overall maintenance of the property.

Source of passive income: As a hotel room investor, you are guaranteed regular returns regardless of whether your room is occupied or not. With an excellent management company, hotel investors get to enjoy regular dividends that are generated from the hotel's overall profits, which can be projected based on occupancy rates, operating costs and seasonality and demand trends.

Minimal risk due to brand affiliation: All types of investments, including hotel investments, carry some level of risk. However, investing in a successful hotel brand that is trusted and has a good reputation is key, as such brands are highly experienced when it comes to cost and revenue projections. This can help individuals have more confidence as they take advantage of hotel investment opportunities.

Potential for appreciation: When bought in high demand locations with proper infrastructure developments, the value of a hotel room is bound to appreciate over time. At the end of the ownership contract with the hotel owner or operator, the resale value of the room is likely to be much higher and therefore the investor is likely to earn significant profits.

Discounted stays during holiday seasons: One of the major perks of owning a hotel room is that investors can be allocated a few days each year when they can stay at the hotel for free or at extremely subsidized rates. During these stays, they can also enjoy credits for food and beverages as well as spa services for them and their family or friends.

Cons Hotel Room Investment

Some cons of hotel room investing include:

Sensitivity to market cycles: The hotel industry is highly sensitive to economic cycles. Therefore, changes in consumer behavior and global events such as pandemics can affect hotel occupancy. This can in turn affect overall revenue. Economic and political instability can also lead to reduced travel demand, thus resulting in lower revenues.

Dependence on management: The performance of most hotels in the hospitality industry is highly dependent on the efficiency of the management team. The management team is usually the one that handles marketing of the hotel property, revenue management strategies and guest satisfaction. Therefore, poor management decisions can have a very negative impact on a hotel's profitability.

Competition: The hotel industry is a highly competitive one, and new hotel developments and the rise of alternative lodging options such as vacation rentals continue to put pressure on hotels. Intense competition can lead to hotels charging less for their rooms and this can affect profit margins negatively.

Fewer mortgage options: In the mortgage industry, very few lenders offer mortgages for hotel room investments. That means that, if you want to purchase a hotel room, you need to find ways to generate the initial investment capital, an aspect that can deter some investors from buying a hotel room.

Revenue fluctuation: Since revenues in the hotel industry are highly influenced by factors such as occupancy rates and average daily rates, revenue can fluctuate depending on the current demand. This uncertainty in revenue projections can make it challenging to accurately forecast profits and manage cash flow effectively.

Key Things to Consider Before Investing in a Hotel Room*

Hotel room investment can be a profitable venture if done the right way. Here are key things to consider before investing in hotel real estate.

Be clear on the type of asset that you want to invest in

Depending on your end goal, you can choose to invest in a budget, mid-range or luxury hotel. Investing in a mid-range or budget hotel can be more economical in the short term but not in the long run. That is because they can perform poorly in case of an economic downturn. Luxury and full service hotels are known to remain stable even when the broader economy is not performing so well.

Conduct market analysis

Ensure that you conduct thorough market research to understand the demand of hotels in the area that you want to invest in. Another key thing that you need to do is to study the competition and also look at the growth potential of the hotel that you want to invest in. Do consider if the area has a high demand for tourists as this can lead to profitability in the long term.

Determine how much you can afford

A good room in a luxury hotel will cost you $100,000 or less. It is important that you check your finances and see how much you can afford as this type of investment is mostly cash based. Generally, there are very few mortgage options that are available for this type of investment opportunity.

Conduct financial due diligence

As you consider venturing into hotel real estate, it is important that you perform a detailed financial analysis of the potential property so as to get an idea of cash flow projections and potential returns. Key factors to consider when performing a financial analysis include occupancy rates, average daily rates (ADR) and revenue per available room (RevPAR).

Hotel performance and management

Looking at a hotel's historical performance will give you an idea of what to expect in the future in terms of operational efficiency and overall profitability. As a hotel investor, you need to assess the hotel's management team, brand affiliation and reputation within the industry. A well-managed hotel with a strong track record of profitability and guest satisfaction is more likely to generate consistent returns for investors over time.

Find out if there are any tax incentives for hotel room owners

Depending on where you're investing, hotel investing may attract tax incentives for both local and international investors. As you look into investing in a specific hotel market, be sure to find out if there are any opportunities that are tax efficient, to enable you make the maximum return on your investment.

Have a clear exit plan

Lastly, as you enter into this type of investment, it is important that you carefully go over the available exit options to ensure that they align with your goals. Make sure that the exit strategy clearly outlines the minimum investment period and possible resale value as many hotels have a buy-back policy for their rooms after a certain number of years.

In Conclusion

Investing in hotel rooms can be a profitable business venture for investors looking to venture into the real estate sector and growing tourism industry. It is important to work with a qualified financial advisor and a real estate professional to ensure that your investments are profitable in the long run, so you can end up with successful hotel investments.

Whether you opt for direct ownership or investing in hotel REITs, be sure to conduct thorough research and do your due diligence before investing in any hotel projects. If you're looking to invest in hotel projects in Portugal and the Bahamas with the added benefits of acquiring a golden visa, consider investing through our Alt Path hotel fund.

For more information on the fund, schedule a meeting with our team today.

Bay Street Capital Holdings

Bay Street Capital Holdings, is a renowned wealth management firm that is situated in Palo Alto. Led by William Huston who is a three-time honoree on Investopedia's Top 100 Financial Advisors list, the company focuses on maximizing profits while managing overall risk.

With a commitment to diversity and making a positive social impact, Bay Street was founded to advocate for diverse founders.