A hotel for sale is an operating business that has a real estate component. A hotel derives more of its value from the ability to generate income and the potential to increase income over time. The operational nature of hotels is one of the main reasons you should consider investing in hotels. Investing in hotels is different from other real estate investments in a few ways. A hotel has an operational component that adds uncertainty and risk, but it also provides a wealth of more benefits that make investing in a hotel an attractive business. Here are some top reasons why you should consider investing in a hotel.
Nightly leases
A hotel will sell rooms by the night. Every night represents an opportunity to increase your revenue. The main challenge comes in optimizing your net income from an extra room night sold. Marketing and sales make a hotel a successful investment from a technical perspective. It is straightforward to sell to the right customer or place ads in all the right places. However, some intangibles such as the property culture and loyalty are most important when it comes to building up a revenue stream. The property’s spirit spreads by word of mouth and this is where you can get the biggest value from night leases.
When experiencing a downturn, the asset class will recover quickly. It is also the first to suffer when the economy goes in the opposite direction. However, unlike other commercial properties for sale, a hotel is capable of bouncing back from hardship and come out swinging like nothing ever happened.
Sticky expenses
There are three main categories of expenses – undistributed, departmental, and fixed. Each of these is followed by profit lines that represent varying levels of control over the expenses. The cost of operating a hotel is what is referred to as undistributed expenses. Maintenance, management and expenses related to sales fall under this category. The expenses relate to outside services and goods more than labor.
The hotel incurs fixed expenses regardless of revenue and occupancy. These expenses become fixed as you move down your financial statement. Some expenses are sticky and set by outside forces like utilities, wages and so on. This is one of the greatest reasons you should invest in hotels.
Deals can be negotiated with suppliers to keep your expenses at one price level as revenue increases on a different track. The cost to service the hotel does not increase dramatically as revenue improves. This provides a healthy way to increase profit.
Tax benefits
Direct ownership of a property is among the most tax-efficient ways to invest. Equity growth, depreciation, and tax-free exchange are the main benefits that come from investing in real estate. This applies to direct real estate investment. However, hotels take each of these to the next level.
While real estate loses value over time, a hotel for sale has a variety of personal, real and intangible properties. They, therefore, benefit from more tax laws that can accelerate depreciation.
