It’s a Suite Life! 11 Reasons Why Hotel Rooms Should Be Your Next Investment

Asian girl receptionist and Caucasian woman traveler checking or checkout in a Bali hotel

When it comes to investing in real estate, one of the more niche opportunities is to buy units, or rooms, within hotels and resorts. This is a particularly attractive option for small-scale investors who are looking to get into the market and diversify their portfolios.

When you own a room within a hotel or resort, you earn returns as it’s booked or rented out by guests. You can enjoy a passive income without the hassle of dealing with tenants and maintenance. Everything is handled by the hotel operator.

How does it work?

Large hotel or resort developers will often seek investors to purchase units within the property, to finance, or to build capital. Investing in the units is similar to investing in shares within a company. The units for sale will have an assigned value, with expected returns, schedule of payments, and other included perks. Once purchased, the investor leases the room back to the hotel operator. When the hotel earns profits based on occupancy and revenue, returns are paid to investors like dividends.

Why are hotel room investments so worthwhile?

“Compared to other investments, including those in real estate, buying hotel rooms has a whole host of benefits, including lower risk factors, higher returns, and solid ROI through passive income and capital appreciation,” says Mark Tanner, of Azure Rich Group, a major development company that specialises in large-scale resort projects in tourist markets.

If you are looking for your next property investment, here are 11 reasons why hotel or resort units would make for a very “suite” investment opportunity.

1. Lower point of entry. Rather than purchasing a luxury unit or home, hotel rooms have a much lower price point, typically below $100,000. It’s an ideal investment for small-scale investors who want to diversify their portfolio, or those wanting to invest in property but don’t have enough capital to purchase a home.

2. Higher yields. On average, hotel units’ yield is 3-4x higher than that of apartments, condos or houses. With residences, there are ongoing fees that eat away at returns. Also, in markets where residential yield hovers around 4%, after costs or if a long-term tenant moves out, the returns can fall to 2-3% per annum. Hotel room investors, generally, can expect returns above 10%, without ongoing fees and reliance on tenants.

3. Low-risk, especially when investing in trusted brands. While all property investments carry less risk than stocks, hotel rooms are an even safer bet, especially when investing with a known brand.

“You want to invest with a hotel brand that has a history and trusted brand reputation,” says Tanner. “These major brands know their business, and have built a track record and success based on years, sometimes decades, of meticulous revenue planning and forecasting. They know exactly what their operating costs and projected revenues will be, even though shoulder seasons or recessions. So we as a developer can have confidence to structure pricing with returns of around 8-12%, and know it’s not guesswork.”

4. No hassle. When the room is leased to the hotel operator, you are then hands-off and worry-free of the typical responsibilities of property ownership and investment. Furniture, furnishings, maintenance, cleaning, occupancy, and dealing with tenants or guests are all handled by the operator or management company who is responsible for maintaining the property and filling the hotel with guests.

5. Guaranteed passive income. Unlike other investment properties, with hotel rooms, you earn returns regardless if your unit is occupied or not. As long as the operator performs its responsibility to reach goals and deliver profits, investors enjoy passive income, paid on a regular basis. These returns can be forecasted and planned, based on projections for operating costs, occupancy, and seasonality.

6. No additional and ongoing costs. If you’ve purchased a home or apartment before, you know the price point is just the start of a heavy sum of costs and fees, such as transfer or stamp duty, legal or conveyancing fees, mortgage registration fees, land tax, and registration of title. After that, for ongoing costs, there are council fees, insurance, and utility payments. When buying hotel rooms, purchasing costs are minimal, if not zero.

7. Capital appreciation for high resale. Major hotel brands go through years of scouting locations and feasibility studies before embarking on a new development. They will choose regions where there is demand, potential, and infrastructure.

“Location is everything,’ says Tanner. “New hotels are built In growing tourist or economic development spots, where property values steadily increase. This will bring you a hefty resale value when you go to sell.”

8. Less affected by swings in the property market. While the property market is a sound investment, values can shift and swing, based on economic factors. Recently, Australia experienced rapid growth, with housing prices soaring on the average up to 23.7% in 2021, then sharply falling by double digits over the last year. Additionally, investors are weathering interest rate hikes on mortgages, along with regions having rental or housing crises, where the lack of adequate or affordable housing drives rent prices too high for tenants. Hotels, on the other hand, rely on tourism, and operators forecast for swings and shifts in the season or economic trends.

9. Flexibility of investment options. As larger hotels and resorts have varying room types, investors also have a choice of options, depending on their amount of capital and investment goals. The varying parameters could include minimum deposits, room size, payout schedules, or return structures.

10. Free or discounted holiday stays. One of the best benefits is that investors are invited to stay at the hotel or resort for free, or for an extremely reduced rate. Investors are given an allotment of days each year, where they can plan a holiday. Additional perks could be credits for F&B spend, spas, or other services, and some hotel companies allow for transferring days to friends and family as well.

11. International investors welcome. In some countries, foreigners are not allowed to own property, or if they do, they must follow complicated rules and guidelines. In Indonesia, for example, foreigners can purchase a long lease on a villa, but they cannot own the land where the villa sits, and must acquire additional permits to rent out the property to tenants. With hotels, however, overseas investors can buy the units, and they are recognised as the owners with ownership rights, including the right to lease and earn income from the unit.

Additional bonuses can be available. On top of all of the items above, some developers have additional gems to entice investors. The first is guaranteed returns during the build phase. Investors can earn returns even before the hotel is open and operational. Also, some developers mitigate almost all risks by offering a buyback guarantee. After a certain period of ownership, the investor has the option to sell the unit back to the developer, and at an appreciated sale price. These options are not always available. Depending on investment needs or goals, you can enquire about expectations for early returns or your exit strategy.

GPFG branded hotel investments

Hotel room investments are great for investors who want a hands-free investment, with passive income and minimal risk. The process is easier than purchasing most properties, with fewer fees and lower costs. Talk to our team about our hotel unit investment options, and all the benefits that come along with them.

1. The Luc Luxury Hotel & Villas, managed by Tui Blue. This luxury project is nestled in the bustling heart of Berawa, Canggu – Just a stone’s throw away from Berawa Beach and Finns Beach Club. Scheduled to be open in November 2024, this avant-garde complex spans 8,210 sqm. With 108 hotel rooms, 14 luxurious villas, and 14 premium commercial spaces, The Luc is surrounded by trendy eateries and boutiques, offering the perfect blend of luxury and convenience.

Investor benefits: Prices starting from AUD 92,000, a guaranteed 8% return during construction, an expected ROI of 15%, second income of up to $210,000 P.A., paid quarterly, over $3,600 in free stays annually

2. Nebu Luxury Resort and Residences by Ramada Encore. This magnificent resort in Thailand offers an opportunity for investors to purchase a residence in a hotel complex, managed by the world-class management team from Ramada and Ramada Encore By Wyndham.

Investor benefits: Prices starting from US $88,582, 8% cashback during construction, 75% off accommodation stays and discounts on F&B, 7-year 100% buyback option, forecasted returns of 12-16%.

For more information on our offers with The Luc and Ramada, book a call with one of our team today.

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