Investing in hotels can be a lucrative and engaging pursuit, but there are some essential things to remember when creating a balanced real estate investment portfolio in the hospitality industry. Hotels are unlike other real estate types, as they can respond quickly to changes in the market and fluctuate their prices based on market conditions, even down to individual days. This variability does make investing in hotels potentially more risky than other properties. However, if you create a balanced portfolio when investing, you can help mitigate any revenue loss due to unforeseen circumstances.
Do Your Research
The most important step you can take before making any real estate investment is to research the property carefully. Hotels have specific metrics you can calculate to determine their average profit, the Average Daily Rate, and Revenue Per Available Room. You should also consider the location and the kind of people who may patronize the hotel, including any local attractions or seasonal events that can drive profits. The type of hotel is also important; there are five major categories: full-service, select-service, limited-service, extended stay, and budget. Each kind has advantages and disadvantages: to create a stable income, it’s essential to consider the merits of each one and invest broadly.
Choose Different Types of Properties
While it may be tempting to only invest in hotels that you would like to stay at, it’s essential to consider the benefits of each variety of hotel. Luxury hotels may attract an elite clientele willing to pay extra and have a high level of prestige, but they also have high overhead costs. During the COVID-19 pandemic, limited-service and budget hotels have turned a more consistent profit than expensive resort properties because the people traveling were looking for a different kind of experience. Investing in modest but stable properties will allow you to create a more flexible portfolio that won’t lose all its value in an unexpected crisis.
It always pays to be cautious when making a significant investment, especially in a market as volatile as the hospitality industry. Keeping the likelihood of unexpected disasters in mind will ensure that you can create a balanced, stable portfolio.