Are Hotels A Good Investment?

Money is at the centre of every society; it truly does keep the world running. How much money we have can change everything from what we eat, to what drink, to where we sleep. With money having such a big impact on everything that we do in life it is only natural to want to protect yours. 

One of the most effective ways of protecting your money is investing it, because if you  leave it in the bank for years, over time it will become worth less and less. One of the main reasons for this  is that the vast majority of  banks don’t have very good interest rates and therefore they do not usually correspond to the rate of inflation. 

When put simply, this means that if you put $10000 in your bank account now and leave it there for 20 years with the intention of it funding your first year or so of retirement, this probably won’t work out in your favour.  This is because in 20 years the $10000 that you have saved will be worth much less and you will more than likely no longer be able to afford to live off it for a year.

This is one of the reasons (amongst many others) why it is generally speaking a good idea to invest your money. Usually as inflation increases so does the worth of what you have invested in so you should come out with more money than you started with.

However, one of the main problems is that when it comes to investments the possibilities are endless so it can be really difficult to know where to begin. Investing can be a risky decision so it is important that you are well equipped with knowledge in your field before you make your first steps. 

When talking about investments people are quick to jump to the conclusion that stocks and shares can be the way forward. While there is no disputing that they can certainly be a good option this does not mean that they are the only option. One of the greatest investments that you can make is into yourself and your dreams. A great way of achieving this can be by setting up a business.

The good thing about businesses is that the earning potential is infinite and you can grow it as much as you wish to. Businesses can cover anything from fine dining, to pet supplies to house buying and selling. However, one of the best industries to enter into is travel and tourism. This is because people never get tired of going away for a well deserved break and seeing new places.

Of course when you go away for the weekend, the first thing that you need to find is a place to stay and this is where hotels can come in. When looking to invest your money hotels can make a fantastic investment and business venture. 

What Is a Hotel?

According to Stimmel Law “Hotels can be defined as commercial establishments that provide lodging and, often, meals and other services to the public. The word “hotel” is usually synonymous with “inn,” especially an inn of high quality. … Any places where transient guests are received and lodged are classified as hotels.” So according to this definition, a hotel is anywhere that offers short term guests a place to stay. Hotels also frequently provide additional service such as food, drinks, leisure facilities and a shop. 

Now that you have a basic understanding of what a hotel is, hopefully you can make a more well informed decision as to whether or not this is a viable investment for you and whether or not you have the time to set one up. 

How Much Setting Up A Hotel Cost?

There are expenses involved in setting up and business, many of which are often hidden costs. With a hotel the cost can be pricey but at least there aren’t many hidden charges. The main costs to bare in mind are:

  • The Building- Whether you choose to buy or rent the building there is still going to be a cost involved. When looking to invest the best option is usually to buy as this pays off much more in the long term than renting, it also gives you a lot more freedom in terms of your business. Unfortunately the cost of the building is impossible to calculate as it depends upon multiple factors including the average price of the area you intend to set up in and the size of the building. For instance, a hotel to sleep 2 people in a run down area will be much cheaper than a hotel that aims to sleep 400 people in an inner city. 
  • Any Decorating- Depending on the condition of the building that you buy and the style that you are going for within your hotel you will probably need to have some decorating done. The cheapest way of doing this is simply to do it yourself, that way you are only paying for materials. However, if you need to pay someone the average painter and decorator will charge $750 per room so this could soon stack up. 
  • Insurance- Insurance can also be expensive. Depending on the specifics of your hotel you will probably need to pay multiple types of insurance and business insurance isn’t cheap.
  • Staff- Depending on the size of the hotel and its additional features you may need to employ staff to help you. If you are setting up a small hotel then you may not need these straight away but do not forget that staff are a big expense. 
  • Internet- Most hotels require internet, this is for easier check in and to provide your guests with. Many guests may be away on business so may need to work from their hotel room so therefore they will require good internet access. 
  • Heating- You need to ensure that your heating is set up and properly functioning before you even open the doors to your business otherwise you could be facing some big complaints. 
  • Water- Water is a basic human right so you need to be able to provide it, especially within the bathrooms which again is another expense. 
  • Furniture- Furniture can also quickly add up, when setting up a larger hotel one of the most cost effective ways of doing this is by buying furniture in bulk. 
  • The Costs Of Any Extras- If you have decided to have any extras added within your hotel such as a pool, a gym or a restaurant these extra costs could be massive. 

So, clearly investing in a hotel is a very costly business but if you have the money it just might be worth it. The average hotel room for a couple in America costs $204 a night, so if you have 40 hotel rooms that means that you could make more than $8000 a night. This is before any extras have been paid for such as internet access, room service or access to the gym. So clearly this heft investment has the potential to pay off, and quite quickly too. 

Pros To Investing In A Hotel

  • You can get quick and constant money back- Investing in hotels allows you to earn money back quickly as opposed to investing in something that you see no reward from for years. Similarly, with a lot of investments you get one pay out but a hotel is the gift that can keep on giving. 
  • Potential to earn a lot- Hotels also come with the potential to earn an uncapped amount so if you’re willing to work hard then this could be the perfect investment for you. 
  • Enjoyable Investment- Depending on your personal views and circumstances setting up a hotel could be a really good way of making an enjoyable investment. You can be as involved or as uninvolved as you fancy. 

Cons To Investing In A Hotel

  • Upfront Cost- There is no getting away from the fact that the upfront costs of setting up a hotel are massive. This firstly makes this quite a risky investment and also means that you may need to save for longer before you can invest in this way. 
  • Ongoing Cost- Another negative of this form of investment is that there is not only an upfront cost but rather there will be monthly costs for the ongoing future. 
  • Time- Setting up a hotel is massively time consuming. Obviously it is up to you how much of this work you delegate to someone else but either way it will take up a lot of your time. 

Final Thoughts

Setting up a hotel can be a great investment with uncapped potential however you need to have a lot of money already in the bank to be able to do this. It is definitely not an investment that is suitable for beginners and you need to carefully think through all of the risks before deciding to do this to ensure that the negatives do not outweigh the positives.

Matt Roberts
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