Three golden rules for investing in hotel rooms
MAKE MONEY IN YOUR SLEEP?
Investing in hotel rooms is becoming increasingly popular, and rightly so: a relatively modest investment can yield an attractive return, without having to worry about rental or maintenance. That is, if you take account of a number of crucial conditions. What are the dos and don’ts of investing in hotel rooms?
1 Go for a fixed, indexed rental income
Some constructions work with a variable return based on the occupancy rate of the hotel, or of a specific room. That’s why it’s better to opt for a formula where you are always entitled to a rental income, regardless of the occupancy rate. More even: be sure to inquire if the rental income is indexed. This way inflation will not affect your return, which would be the case, for instance, if you parked your money in a savings account with a negligible interest rate. Moreover, taxes, design and maintenance costs are at the expense of the operator so nothing can erode your return.
2 Purchase in full ownership
Beware of contracts where you only purchase the construction (the hotel room) in full ownership but the share of the land is acquired as a leasehold or emphyteusis. Apart from a substantial impact on the value in the event of resale, this also has tax implications: if the emphyteusis is resold (inside five years) both the profit and the full sale price received is taxable at rates of up to 50%. So be sure to only purchase a hotel room in full ownership, where you are also 100% owner of your share of the land. Incidentally, the VAT on your purchase can subsequently be recovered in full.
3 Opt for a long-term contract with a solvent hotel partner
The best guarantee of a safe and profitable investment in hotel rooms is a collaboration with a reliable hotel partner. A sizable concern that runs several hotels or chains is to be preferred. Always go for a project that partners up with a reputable hotel chain that achieves excellent financial results. This way you can count on your branch fulfilling expectations in terms of service and occupancy rate. Also be sure to inquire after the term of the lease agreement with the hotel partner and always opt for a long-term agreement. Some formulas provide a guarantee of more than twenty years of rental income.
