When a real estate investor assesses whether it is profitable to buy a hotel, it is very likely that he will value it in relation to other properties such as tourist apartments, commercial premises or office blocks. In this regard, it is worth highlighting the following 8 pros and cons of the hotel purchase. Let’s start with the disadvantages.
- High minimum capital. The main disadvantage with respect to other types of properties is that in principle the minimum to be able to invest is much higher than the purchase of a home or a commercial establishment. As of 2016, the minimum capital to buy a hotel is half a million euros and it is for small businesses in rural areas.
- Unawareness of the sector. Many real estate investors do not have important knowledge about the tourism business and that is always a handicap when it comes to buying, because you can buy overvalued assets or pass up good opportunities.
- Double risk. A hotel is linked to the fact that two sectors are real estate and tourism. That means more risk because either of them can make the price of the hotel fall if financial bubbles are created and punctured.
- Reduced purchase-sale market. Transactions on commercial real estate and homes are very frequent and there is a large pool of potential buyers, but in a hotel the same thing does not happen. If the area of the hotel or your business are not very good it will be difficult to have several offers for it.
- Stability of the income. Because the leases are long term, at least 10 years. This allows fixed and stable incomes provided that the operator can continue their activity, so it is also important to seek a fair agreement for both. This is one of its biggest advantages since you can get a large amount of income in a simple way that simplifies the management of the property that involves being the owner of multiple apartments for rent.
- They have their own economic cycle. The investment cycles and price rises of the hotel sector do not coincide with that of housing. Tourism is not affected so intensely by local economic crises and can be a very profitable niche while the real estate sector falls, being able to become a good refuge for money. This allows it to be a niche in which it is possible to continue investing when the crisis affects the value of the home or commercial premises. A big advantage.
- It is an expandable business. Although it is not the most desirable, there is the possibility to stop being a pure investor, to go on to operate the business as a hotelier, being able to outsource the management of the personnel in a professional of the sector.
- Hotel revaluation by regulation of the sector. One of the trends for the future should be to bet on sustainable tourism and that means putting a limit on the licenses of this type of business. One effect of the greater regulation of the sector is that the price of hotels and accommodation is increased because they have a license to carry out economic activity. This effect must be added to the property trend of the moment in the center of a city is usually upward.