How to Invest in Hotels: 6 Ways to Invest in Hospitality

  • April 25, 2022

Making investments in hospitality is an advantageous decision for business owners and individuals alike. There are numerous options to diversify your portfolio and make a sustainable profit. Hotel investments in real estate range from building a new hotel concept to renovating hotel properties. 

Nonetheless, there is still a wealth of information that a prospective investor should know before undertaking this nuanced task. In this article, we’re looking critically at whether hotels are good investments and how to invest in hotels.

Are Hotels Good Investments?

The simple answer? Yes. Hotels are an excellent source of income for investors. Due to their adaptability, investors have ample opportunities to grow their revenue in facets such as renovation and operations. In this revenue structure, there’s always an opportunity for negotiations in one facet without losing revenue from another. 

Choosing to invest in a highly-recognizable hotel brand also offers a higher return on investment (ROI). Though these hotels can have a high risk, they also see heavy traffic that is worth said risk. As the world re-opens, hotels across the globe are seeing a massive increase in bookings, meaning investors are likely to see a high ROI. 

Hotels also offer investors endless possibilities. When income is high, investors can use that to include value-adds to their property. Through upgraded amenities, renovated hotel rooms, or new wow-factors, investors can increase the value of their hotel and watch the benefits unfold.

These are just a few of the primary reasons why hotels are good investments. Now, it’s time to discuss how to invest in hotels. Read on to learn the best hotel investment methods. 

How To Invest in Hotels

There are multiple routes one can take when choosing how to invest in a hotel. We’ve outlined a few of the best options below. For further information on investment options, the team at AVANA Capital can assist in answering questions and providing you with quality financing advice. 

New Hotel Projects

Building a new hotel concept is a courageous endeavor and it can be difficult without the appropriate financing. After all, constructing a new hotel concept has sizable expenses. 

Expenses include:

  • Construction down payments
  • Expenses for the first operating months (1-4 months)
  • Loan payments (6-9 months)
  • Project overruns & miscellaneous expenses

For this reason, you may seek the assistance of a hotel financing company that can guide your project and provide funding. Before you consult a hotel financing company, keep in mind that it may consider the history of the hotel management company.

Hotel Renovation

Enhancing an existing real estate asset can be safer than a new hotel project — it requires less capital, and therefore, less financing. That’s why hotel renovations are an attractive option for both commercial real estate lending companies and hotel investors. If you’re renovating hotel real estate, there are a few financing options for you. 

Speaking with your existing bank about a conventional bank loan can be the cheapest financing option. A commercial bridge loan is a short-term loan that is ideal when purchasing a distressed hotel property. Conversely, although SBA 504 loans are less common in a large hotel renovation, they still can be used if you can prove how renovations will improve your hotel business.

Hotel Franchise

Buying into a successful hotel franchise like Holiday Inn, Hyatt, or Hilton is another attractive option for real estate investors. However, acquiring a hotel asset from a successful hotel brand isn’t cheap. According to FranchiseHelp.com, the cost to open and operate a Courtyard by Marriott hotel is between $7 million and $14 million. That’s after the initial $60,000 franchise fee. 

Alternatively, you may pay as much as $500 per guest room. There’s no denying the cash flow that comes with managing a brand-recognized hotel. That’s why commercial lenders are more willing to provide financing for a hotel franchise.

Hotel Refinancing

Why look to outside real estate investments when you can refinance a current loan? Hotel refinancing is an asset management vehicle that can produce lower rates, cheaper monthly payments, and additional capital that can be applied toward hotel operations. The aforementioned conventional bank loans and the 504 SBA loans are good candidates for refinancing. 

In addition, the SBA 7(a) loan for commercial real estate is another loan to consider.  This loan type is especially well-suited for hotel projects with a long-term loan between $1 million to $5 million.

Hotel REITs

Hotel REITs are an ideal option for investors wanting to be involved in the entire hotel process. A hotel REIT allows you to invest in the development, acquisition, and management of a hotel. This investment option focuses on meeting the demands of everyone from vacationers wanting a relaxing stay to business professionals who need conference space. 

Hotel REITs provide guests with accommodations that may not be available at an average hotel, such as meals, conference deals, exclusive parking, and more. As such an accommodating choice, hotel REITs often provide investors with high ROIs, making them an ideal investment option. 

Other Hotel Investments

If you’re really looking to make investments in hospitality, there are a few other investment options to consider. Asset classes like individual stocks of publicly traded hotel companies are common investments. Additionally, newer tactics like crowdfunding are other hotel investments that may be appealing.

There are also internal investments a hotel can make to improve operations. RevPar (revenue per available room), room rate analysis, and other assets that give more operational visibility to a management team are worth considering. Regardless of the method, building your portfolio with valuable hotel real estate can be a lucrative venture.

Start Investing in Your Hospitality Business

Investing in hotel projects can be a rewarding undertaking. And, with the appropriate financing, can be a successful business move. If you are in need of hospitality financing, consider AVANA Capital. AVANA Capital offers flexible financing options for commercial real estate projects. In fact, AVANA Capital has lent nearly $10 billion in total for hospitality projects!

Interested in getting started today? We make hotel financing a fast and seamless process. For more information on hospitality financing, feel free to contact the team at AVANA Capital! One of our expert team members will be ready to assist you.