Key Takeaways

• Individuals can invest in hotels in different ways such as including direct ownership, joint ventures, hotel funds, REITs, hotel stocks, convertible bonds, and crowdfunding platforms.

• Depending on your investment objectives, you can choose to finance your hotel investment through self-financing, private lending, mezzanine financing, wealth management firms, and government funding.

• It's in your best interest to partner with financial advisors and hotel investment experts like Bay Street Capital Holdings. Leveraging their expertise and systems enables you to optimize your investments and they give you access to promising opportunities.

Disclaimer

The contents of this article are for educational purposes only. They are not intended to be a source of professional financial advice. You will find experts on investing here.

New boutique hotel projects to invest in

Bay Street Capital Holdings, a renowned asset management firm with successful ventures in the hospitality business, including hotel properties in Tahoe and Los Angeles, is expanding its portfolio by launching boutique hotels in four cities across Portugal.

Benefiting from Portugal's flourishing tourism sector and a thriving hospitality industry, these boutique hotel projects by Bay Street are projected to achieve an impressive Internal Rate of Return of 18.87%. Additionally, the firm has secured substantial cash-back subsidies ranging from 45% to 55% from the Portuguese Government for these ventures.

Investing in hotels through Bay Street's Alt Path Hotel Fund, gives you unique access to these potential returns and investment subsidies. Additionally, interested investors get access to expert investment and immigration guidance for Portugal's Golden Visa.

Explore Bay Street's Alt Path Hotel Fund and Portugal Golden Visa.

Four main ways to invest in hotels

The hotel industry has recorded massive growth in the last 2 decades and the industry has grown to be more complex in many ways. The following are the four primary ways to become hotel owners or investors:

Direct ownership

Direct ownership involves purchasing a hotel property, either individually or as part of a group of investors. This approach provides full control over hotel operations, allowing investors to implement their strategies and benefit from potential appreciation in property value. However, direct ownership requires substantial capital investment and entails responsibilities such as hotel management and maintenance.

Discover hotel management options you can explore as a sole owner.

Joint ventures

Joint ventures involve partnering with other investors or hospitality companies to acquire or develop hotel properties. This approach allows investors to leverage their resources and expertise while sharing risks and rewards with partners. Joint ventures can provide access to larger and more lucrative projects, but investors must carefully negotiate partnership agreements and consider factors such as decision-making authority and profit distribution.

Hotel funds

Hotel funds pool capital from multiple investors to invest in a portfolio of hotel properties. These funds are typically managed by professional fund managers who identify investment opportunities, acquire properties, and oversee operations. Investing in hotel funds offers diversification across various properties and markets, as well as access to institutional-quality assets that may be otherwise inaccessible to individual investors. However, investors should conduct thorough due diligence on fund managers and investment strategies before committing capital.

Bay Street's Alt Path Hotel Fund is an excellent fund to invest in.

Real Estate Investment Trusts (REITs)

Hotel REITs are companies that own and manage income-generating real estate properties, particularly hotels. Investing in a hotel REIT offers diversification, liquidity, and professional management, making it accessible to individual investors with lower capital requirements. REITs distribute a significant portion of their income as dividends to shareholders, providing a steady income stream with the potential for capital appreciation.

Besides these traditional paths to hotel investments, other hotel investing options include:

Hotel stocks

Investing in hotel stocks grants ownership shares in publicly traded hotel companies, offering potential capital gains and dividends. However, hotel stocks are influenced by economic conditions and travel trends, which leads to market volatility and fluctuating prices. Investors should be aware of these risks and market dynamics when considering hotel stock investments.

Convertible bonds

Convertible bonds are issued by some hotel companies which offer investors the opportunity to invest in hotel projects while providing the option to convert the bonds into equity at a later date. This hybrid investment instrument combines debt and equity features, allowing investors to participate in potential upside while providing downside protection through fixed-income returns.

Crowdfunding

Crowdfunding allows smaller investors to participate in hotel projects with low minimum investments, spread risk and support unique ventures. Success in these ventures require thorough market analysis, regulatory compliance, transparent communication, risk mitigation, and choosing a reputable crowdfunding platform.

Basics on how to invest in a hotel

If you're a first-time investor in the hospitality sector, here are the basics you need to take care of:

Conducting thorough market analysis is the first step in your hotel investment journey. Research key metrics and factors such as market trends and local and wider competition.

After conducting a thorough market analysis, the next step is to select properties. When selecting a hotel property, choose a hotel based on your budget and your investment objectives.

Another key step is to develop a detailed financial plan that outlines key metrics like net operating income (NOI) and return on investment (ROI), to assess the feasibility and profitability of the investment.

Also, conduct thorough due diligence on the potential hotel investment to mitigate risks and ensure a sound investment decision. Be sure to engage the services of professionals such as property appraisers and inspectors to help you identify any potential issues.

Hotel investments, like other investments, are not risk-proof. As a hotel investor, ensure that you implement risk management strategies to help you mitigate risks associated with hotel investment.

Financing options for hotel investments

Hotel financing involves securing funds for hotel projects, such as development, expansion, renovation, or refinancing, aimed at generating or increasing revenue. As a hotel investor, the varying financing options available to you include:

Self-financing which requires you to use your personal assets and funds, or borrow from friends and family. This financing option provides autonomy in financing new projects. However, using professional assistance can help you optimize personal finances before seeking external loans.

Private lending means bringing in private investors who seek portfolio expansion. As a hotelier, you may find private lending beneficial, particularly when launching a new hotel venture.

Mezzanine financing blends debt and equity, providing flexible capital for hotel investments while preserving ownership control. Despite higher costs and complexity, it enables developers to access additional funding for growth in the hospitality sector.

Wealth management firms are large investors with diverse portfolios who often enlist wealth management teams to oversee their finances, including new investments. You can secure funds from such firms in exchange for the opportunity for them to diversify into hotel investing.

Government funding is not a common financing option for hotel investors as it can be challenging to secure. But as a hotel entrepreneur, you may explore opportunities for government grants or aid to support hotel projects.

Types of hotel properties

There are different types of properties within the hotel market, with each type of property serving different purposes and different demographics. Let's consider some common properties you can invest in.

Rating-based hotel types

The star system serves as a simple way for guests to gauge the level of service offered by a hotel.

A one-star hotel rating indicates basic accommodations with minimal or no extra features, often found in hotels like Motel 6, Super 8, and Econo Lodge.

Two-star hotels offer essential room amenities and may have a restaurant on-site, such as Holiday Inn Express or Hampton Inn & Suites.

Three-star hotels aim for a satisfactory stay and typically include facilities like a gym and restaurant. Examples include Courtyard by Marriott in Chicago and Hilton Garden Inn in New York.

Four-star hotels focus on high-quality amenities, with attention to decor and comfort, offering services like concierge and valet parking, as seen in The Mirage and MGM hotels in Las Vegas.

Five-star hotels provide luxurious personalized service, featuring upscale dining and entertainment experiences, like The Ritz-Carlton in New York and the Beverly Hills Hotel in Los Angeles.

Target-based hotel types

Target-based hotel categorization involves classifying hotels according to their intended audience or target market. From comfort-focused establishments like resorts, boutique hotels, and business hotels, to innovative hybrids such as apart-hotels, eco-hotels, and conference hotels, and even budget-friendly options like hostels and motels, the spectrum is vast.

All-suite hotels provide guests with larger accommodations, typically featuring separate living areas and kitchen facilities. These properties cater to guests seeking comfort, convenience, and extended stays, making them popular among business travelers and families.

Apartments or apart-hotels combine the features of both an apartment and a hotel. These accommodations cater to longer-stay guests, offering spacious rooms with multiple bedrooms, along with amenities like kitchens and laundry facilities, all while providing hotel services.

Originally small guest houses with only a few rooms, bed and breakfasts offer a cozy, personalized experience, often including homemade breakfasts. With the rise of Airbnb, the term "bed and breakfast" has become somewhat interchangeable with similar lodging options.

Boutique hotels are small, unique establishments that prioritize luxury and personalized service. They often feature distinctive designs, spas, fine dining options, and special room amenities, providing guests with a memorable and upscale experience.

Conference or convention center hotels provide both guest rooms and meeting spaces, catering to large events with diverse needs. These properties offer ample event space, along with amenities like catering, A/V equipment, and transportation services.

Hostels cater to budget-conscious travelers, typically offering dorm-style accommodations and targeting specific traveler demographics. Many hostels organize social events and activities, providing opportunities for guests to connect and explore together.

Motels originated as affordable accommodations for travelers on long journeys, often located along highways. They offer basic amenities and exterior room access, catering to travelers seeking convenience during road trips.

Resorts aim to provide all-in-one vacation experiences, offering accommodations, dining, entertainment, and more in a single location. From budget-friendly options to luxurious escapes, resorts cater to a wide range of travelers seeking convenience and relaxation.

What drives hotel success?

Several factors drive success in the hotel industry. Here are some key considerations worth noting.

Growth in travel and tourism industry

The continuous growth of the travel and tourism industry drives hotel success by increasing demand for accommodation services. As more people travel for business and leisure purposes, hotels experience consistent occupancy rates and revenue growth.

High demand for hospitality services

The inherent demand for hospitality services, including lodging, dining, and amenities, contributes to hotel success. Hotels provide essential services that cater to travelers' needs, ensuring a steady stream of guests and revenue.

Property appreciation potential

Hotels offer the potential for property appreciation over time, making them attractive long-term investments. As the value of hotel properties increases, investors can realize capital gains and higher returns on their investment.

Tax Benefits and other incentives

Hotel investments offer tax advantages, including deductions for depreciation and mortgage interest, which can help investors minimize tax liabilities and maximize returns. Additionally, governments may offer incentives or subsidies to encourage hotel development and tourism growth, further enhancing the investment potential of hotels.

Learn about other benefits for investing in hotels in Portugal.

Industry trends that impact hotel investments

Post-pandemic travel boom: Despite economic uncertainty, the demand for travel remains strong, with international travel reaching nearly pre-pandemic levels. Travel has become a priority rather than a luxury, particularly evident in increased tourism to southern Europe from cooler climates and among American tourists flying overseas.

Technology-powered contactless services: Hotels are embracing contactless technologies to enhance the guest experience and streamline operations. Mobile check-in, digital keys, and communication via platforms like WhatsApp reduce wait times and physical contact points, improving service delivery and guest satisfaction.

Hotel social media: Social media plays a vital role in hotel marketing, with short video content and influencer partnerships gaining traction. Marketers are focusing on innovative storytelling techniques and accurately measuring the impact of social media efforts to enhance engagement and brand visibility.

Green hospitality: Sustainability practices in hospitality are evolving beyond basic initiatives to more innovative and meaningful strategies. Hotels are prioritizing sustainable building techniques, local sourcing in F&B, and educating guests on sustainable practices through activities like cooking classes.

Rising interest rates: Rising interest rates impact hotel property values and financing. While hotels have maintained high occupancy rates, pressure on prices is expected due to thin project pipelines and less favorable refinancing terms. Sustainability is becoming increasingly important in property valuation, with hotels that haven't adapted to environmental standards facing some challenges.

Workforce empowerment: Attracting and retaining staff has become a significant challenge in the hospitality industry. To address this, hotels are offering improved working conditions, higher wages, training programs, and career advancement opportunities to empower their workforce and enhance guest experiences.

You have an advantage

In hotel investing, combining property types and financing options to achieve optimal returns requires expert-level understanding. So working with a financial advisor and a hotel investment expert cannot be overstated. To become a successful hotel investor, it is in your best interest to partner with experts.

Bay Street Capital's hotel investment and asset management experts provide comprehensive investment advisory services to ensure a smooth investing journey for all our clients. We prioritize minimizing risk in all investments.

Schedule a conversation with a Bay Street expert today!

Sources

https://www.biscred.com/guides/hospitality

https://fhahoreca.com/blog/hotel-investment/

https://www.mews.com/en/blog/hotel-classification-type

https://www.cvent.com/en/blog/hospitality/types-of-hotels

https://hospitalityinsights.ehl.edu/hospitality-industry-trends