Hotel Acquisition: the possible scenarios.
When it comes to property investment, there are few opportunities more attractive—and dare we say idealised—than owning your own hotel.
In a nutshell, hotels for sale fall into two different categories, each with distinct set of advantages (and disadvantages) the investor should be aware of.
Hotels sold with a management contract:
The advantage of buying a hotel with a management contract is that you are not only buying an established busisness but also bricks and mortar – a property that promises a certain yearly increase in value.
On top of this, you will receive a return on the rental, which is often based on a fixed amount plus bonuses based on increased turnover. Whilst this type of investment may seem like a no-brainer, you should also remember that it eradicates any opportunity for running the hotel with your own team and vision, which could ultimately prove to be more profitable.
Therefore, we believe that any hotel on the market sold with a management contract needs to be fully investigated from all angles: legal, financial and even social. Accurate information is vital for this type of acquisition to be successful. Yer’s expansive network of consultants and advisors can supply you with the food for thought you need, so that the decision will almost be made for you.
Hotels sold without a management contract:
Perhaps the biggest draw for buying a hotel without a management contract is control: by being the owner, you decide on the hotel’s policies, strategies and direction, and then shape them to your own vision.
Furthermore many hotel owners are willing to sell at very attractive prices in the current market climate, giving you an even greater return per occupancy and a bit of leeway to make any renovations or other changes. As the market improves, so will the return on your original investment.
Win-win? Well not quite. Though it maybe stating the obvious, by managing your own business, its success (or not) rests on you and you alone. Your realty investment may remain solid, but that doesn’t necessarily translate into a successful business.
In the case of hotels sold without a management contract, we believe our role at Yer is to identify the worse case scenario and help the investor understand the risks involved.