Investment in hotels and Inns of Britain: benefits and risks

Dec. 7, 2016

Investment in hotels and Inns of Britain: benefits and risks

Investment in the hotel business in the UK is becoming a more popular strategy among investors. For comparison, the maximum income from housing in rent in the UK – 7.98% per annum (Manchester). At the same time, some hotels in North Wales, cost from €83 000 to €200 000 can produce a net income of 10%. Let's look at why hotels give their owners such high yields.

Savills consultants report that in 2015 the total volume of transactions in the hotel market in the UK increased by 31.6% yoy and reached €9 billion. This despite the fact that the rental market is now undergoing fundamental changes.

The main advantages of the hotel property

One of the main advantages of hotels is that the initial cost of purchase can be quite modest. No need to buy the whole building – you can invest in individual rooms. Income comes from the work of the hotel.

Second, investors do not need to search for hotel tenants and maintain the facility – all of this assumes the hotel company. The management company of the hotel is also interested in maximum profit of the business. So they will aim for a high occupancy of rooms.

You must understand that hotels bring good profit every month. The cost of the object may grow for several years, but only slightly. Understanding of this fact is your key to success.

Risks

On the other hand, there are certain risks associated with the hotel business. "It is necessary to consider the location of the hotel, says Michael Reilly from Select Portfolio. – Before buying, try to evaluate the potential of specific locations – perhaps now it is not at the peak of popularity, but the authorities already have a plan for the modernization and improvement".

- If the hotel is in a remote area or there are too many strong competitors, the yield will be lower. Pay attention to the environment, accessibility and infrastructure.

 - Compare the prices of similar objects – if the value of yours is overpriced, the transaction will not be profitable.

- Income will decrease if the building needs repair.

- Greater role has the developer and the hotel operator. A reputable developer should have a number of successful hotels as evidence of his qualifications. Otherwise you risk remaining with an unprofitable business.

Text – Alena Eliseeva, ee24

Photocredit Depositphotos.com