Investors are always interested in finding effective objects for investment. As the tourism industry grows, the hotel business is becoming increasingly attractive for investment. Evgenia Timofeenko, founder and CEO of Mayak Real Estate, shares her vision of what it means to be an investor in the hotel business.
Tactics for investing in the hotel business
According to Evgenia Timofeenko, investor involvement in hotel purchases can be both minimal and extensive, as there are different tactics for investing in hotel real estate. Which one an investor chooses depends on his or her goals, expectations and investment strategy.
“If an investor opts for such an investment tactic as resale, the purchase of a hotel most often takes place at the stage of its construction, as this will result in higher returns. In other words, a person buys an object before it is put into operation at a lower price, and after the construction is completed, resells it at a higher price. In this case, the investor’s involvement is low” Yevheniia explains.
There is also the option of generating income from hotel management. In this case, the investor can invest his or her funds both at the construction stage of the facility and buy a ready-made hotel business. It is important to understand that this investment tactic is not passive income, but full involvement in business processes. This is a live business that requires time, attention, decision-making etc.
Risks of investing in the hotel business
“Investing in the hotel business is a profitable but also risky way to generate investment income. This should be understood at the start of the investment,” says Evgenia Timofeenko.
The hotel business is highly competitive, especially with the rapid emergence of new hotels and alternative ways to accommodate tourists and business travelers, such as Airbnb. However, competition is not the only risk when investing in hotels.
What risks should an investor considering the hotel business take into account?
- geopolitical risks;
- changes in global interest rates;
- brand or management issues;
- economic cycles – a downturn could lead to lower occupancy and lower rates;
- High operating costs – hotels require significant ongoing investments in maintenance, staff and services;
- Regulatory risks – profitability may be affected by changes in local or national legislation.
To reduce investment risks, it is important to choose the right property and thoroughly analyze the market. It is best to entrust this work to an experienced expert who understands hotel investments and knows the nuances unknown to a novice investor.
Investing in a hotel: selection and analysis of objects
Finding the right property is one of the most important steps in investing. Before choosing a specific hotel to buy, you need to analyze the market and financial performance, check legal documentation, technical audit of the building etc.
Since analyzing and selecting objects is a complex job, it is better to entrust it to specialists if you have no experience in hotel investments. Here’s what Evgenia Timofeenko has to say about it “Selling hotels in the UAE and other countries is one of the areas of activity of our agency Mayak Real Estate. We have many years of experience in buying, selling and managing hotels. Before offering a particular hotel to our client, our experts carefully calculate, evaluate and analyze the property. We take into account the investor’s goals, expectations and investment tactics. This allows us to choose a hotel business that will bring good returns.”
Entry threshold and potential return for an investor in the hotel business
As mentioned above, a hotel can be purchased from a developer or on the secondary market. The entry threshold can vary greatly, as the value of the hotel business is influenced by many factors, including the location, size and category of the property.
“The price of a typical boutique hotel in Europe can range from $2.7 million to $10 million. Luxury and large hotels cost from $30 million. At the same time, the cost of trophy real estate and well-known hotels in unique locations reaches 150-200 million euros. That’s why it’s important to draw up a detailed business plan before buying,” says Evgenia Timofeenko, sharing her own experience.
If we talk about the entry threshold for investing in hotels in the UAE, the situation with prices is different. “The minimum budget for Dubai for a good leasehold location is from $40 million. In the top locations, such as Marina, Palm Jumeirah, Business Bay, Downtown, prices will, of course, be higher – from 100 million. At the same time, we advise investors to pay attention to new locations that are not yet very popular and where it is possible to buy at a bargain price. In the context of the Dubai 2040 master plan, the tourist flow will increase, and the return on hotel purchases will be higher,” says Yevheniia.
It is difficult to talk about exact profitability indicators in the context of the hotel business, as it is necessary to evaluate a specific object. This figure depends on the country of location, brand and other factors. The estimated yield when investing in a ready-to-operate hotel can be 3-15%, with a payback period of 7-30 years. “It is quite possible to make the profitability indicators higher if you use the services of our company’s experts. We analyze the property and, by setting up business processes and other actions, increase the profitability by up to 25%,” adds Evgenia Timofeenko.
To become a successful investor in the hotel business, you need to understand the market, be able to analyze properties and have an investment plan. However, you can successfully invest in a hotel without any experience or special knowledge if you enlist the help of experts in this field.
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