Investing in a hotel room is becoming increasingly popular, but remains something of a niche outlier in the world of property investment. When people do invest in hotel rooms, they usually pick luxury resorts in exotic, popular tourist hotspots rather than UK hotel rooms. But are there some good hotel investment opportunities right here in the UK, and are they good enough to deserve a place in your portfolio?
One factor that often attracts investors to hotel rooms is their affordability. This is not unique to UK opportunities, but the domestic market is no exception either. A 999 year lease could potentially be purchased for a sum as low as £50,000, making it one of the most affordable ways to gain exposure to the UK property market. Of course, prices can also be far higher. The most luxurious hotels might easily charge a quarter of a million for a room purchase.
Hotel rooms often offer an affordable way to access urban centres with high demand for property from both investors and tenants. When the market for flats and houses in these places has become saturated, hotel rooms often remain a more viable way to take advantage of demand.
Like any asset, investment in a hotel room comes with its own set of drawbacks. The disadvantages and risks of investing in a hotel room are rather unique, different from those in the rest of the UK property market, so it is important to understand them properly.
Although hotel rooms tend to be more affordable than other types of property investment, this does not always make them more accessible. You may well need the money for the full purchase up front, because it will be harder to gain access to a buy-to-let mortgage. However, some companies offering investments provide their own finance deals.
Hotel rooms are more of an unknown quantity than other types of property in their long-term behaviour. There is no established resale market, so it is much harder to judge their potential for capital growth. Some US studies have suggested they generally mirror residential properties in this regard, but there is still a dearth of long-term or UK-specific data.
Finally, the market for hotel rooms will be very sensitive to factors that will not be so much of a consideration with other types of property. For example, if anything were to cause tourism to decline (as it did after 9/11 for example) the hotel market would be hit. After your initial period of guaranteed returns, you would see income from letting the room drop accordingly.