Hotel Investment: Fixed Yields of 10% & Hands-Off Investment
We spoke to Stuart Gibbons from Invest In Rooms about the increasing popularity of hotel investment. With attractive ROI and the security of owning a long lease on a property – just like with Buy-to-Let – is it time you considered looking at this new property trend?
Hotel investment is becoming increasingly popular, why do you think this is?
The standard Buy-to-Let market has become increasingly difficult for investors. Capital appreciation is extremely low; taxation is high and just dealing with tenants and refurbishment exhausts the potential profit and yield of a hands-on investment. But now investors can have hands-off investment through hotels.
What are the main reasons to invest in hotels?
A hotel is a business, run by professionals to make a profit. As an investor, you receive a fixed yield, regardless of occupancy rates.
You own a long lease on a property, just like on a Buy-to-Let property. A solicitor will process a conveyance in the same way they do for other properties. And your investment will be registered in your name with the Land Registry.
Investors will have a fixed annual yield of between 8% to 10%, with an exit written into the contract; normally five years at 110% of your purchase price and ten years at 125% of your purchase price.
Do you think this type of investment will replace more traditional Buy-to-Let investments?
The opportunity of a hands-off investment is extremely attractive, particularly at the moment when property investors are being taxed more on Buy-to-Let and finding it harder to make a profit. Security of the investment, guaranteed income and exit options also make it a viable option.
Do you think the tax changes in BTL are making people look for different ways to invest?
Absolutely. Investing in the commercial sector with a management company running your investment, with the knowledge of quarterly or half yearly income, with no deductions, must be infinitely more attractive to investors.
How much do people typically invest?
Average investments run from £65,000 up to £140,000, plus legal fees.
How does a hotel investment actually work?
The freeholder issues a 100+ year lease to the investor; that lease is designated for a specific room. The conveyance process is identical to buying any other type of property – you own the room. The hotel management companies provide a guaranteed annual yield and at the end of the investment period, you give it back.
Is it best to invest in the UK or abroad?
Personally, and having worked for eight years in Portugal, I would recommend investors only do so in the UK. If you are going to invest overseas, lifestyle choices should be part of your reasoning. So, for example, if you’re going to live and work in Portugal, then it could be worth looking at a hotel investment opportunity there.
What’s a typical ROI of £100,000?
Five years at 10% with 10% buyback would see 60% ROI.
What are the tax implications of investing in hotels?
There’s no deduction at source. But you will be taxed on its rental income or capital gains.
If you wanted to cash in your investment, is it easy to arrange?
As your investment strategy must be security and exit, the buyback must be part of your purchase option. So you’ll know that at a fixed time and on a fixed date you’ll receive your capital back, plus a bonus. But don’t expect early redemption; it’s likely to be five years at the earliest.
How is hotel investment regulated in the UK?
What are the risks involved?
Worse case scenario is the management company goes bust. It’s unlikely, but if this did happen, you still own the asset.
And the benefits?
You own the property. No one can take it away from you. And it only requires another hotel management company to come on board to run the hotel if the existing one goes under. But your capital will be secure.
Where do you see hotel investment in five years’ time?
Pretty stable and secure, with steady growth. Just make sure you do your homework and always check the contracts thoroughly – it’s worth getting an expert to help you with this. Look carefully at the room rate and work out how your income is being paid. Base occupancy on 40 weeks only.
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