Investing in a hotel is not a passive endeavor, it involves acquiring not just commercial real estate but also a business that needs to be managed. Therefore, whether an investor has previous experience in owning hotels or is purchasing a hotel for the first time plays a significant role. We discussed the importance of client experience in choosing hotel investments with Evgenia Timofeenko, founder and CEO of Mayak Real Estate.
First-Time Hotel Purchase: Key Considerations
The approach of an agent working with an investor varies based on the investor’s experience in hotel investments. If the investor lacks experience, the first step is to define their expectations from purchasing a hotel business.
Evgenia Timofeenko notes that inexperienced investors often have unrealistic expectations regarding the profitability of hotel investments. Many people believe that buying a hotel with an average profitability of 10-12% annually means they will continuously receive such returns in the future. However, this is not the case. A hotel, being a living business, is influenced by the overall market situation, the emergence of new properties, and the development of the city and country as a whole. These factors can either decrease or increase demand, directly affecting overall profitability.
The Importance of Investor Experience in Hotel Management
An investor with experience in hotel investments typically does not have unrealistic profitability expectations. Experienced investors also pay attention to properties with currently low profitability. They understand that if a hotel has certain advantages, then by purchasing it, changing management, and streamlining processes, profitability can be increased to 14-15% annually, even if it was only 2-3% at the time of purchase.
Evgenia Timofeenko also notes that working with experienced clients is significantly easier. Such investors usually know exactly what they want, what expectations they have, and what type of hotel they want to purchase. Additionally, experienced clients are aware of the best countries to invest in and the budget to allocate for buying a hotel. Mayak Real Estate specialists select properties precisely according to these requests, understanding the client's needs.
Should Novice Investors Consider Hotel Investments
Deciding against diversifying your portfolio with hotel investments due to a lack of experience is not entirely correct. The right approach is to seek support from professionals. Venturing into this sector alone, without experience, poses a significant risk of financial loss.
Evgenia Timofeenko shares that, although it is easier for them to work with experienced investors, they also actively work with investors who have experience in residential real estate, such as apartments or villas in Dubai, for example. These investors may have a general understanding of hotel investments but might lack knowledge of certain nuances or have unrealistic expectations. In such cases, the broker’s task is to explain the real situation, describe the advantages, potential profitability, risks, and so on.
If a client lacks experience in hotel business investments, Mayak Real Estate agents first determine the investment goal and expectations. They also find out the budget the investor plans to spend on buying a hotel, which countries or specific cities they would like to consider, and any specific preferences regarding the choice of properties or hotel features. All this allows them to find and present a selection of hotels that match the client's preferences and can bring the desired profitability in the future.
How to Invest Successfully in a Hotel Without Experience
In addition to the crucial advice of enlisting the support of an experienced professional, investors should also independently understand at least the basics of hotel investing. Here are some recommendations to increase the chances of successful hotel investments:
- Location: The success of hotel investments largely depends on its location, so special attention should be given to current and promising destinations.
- Entry Threshold: The entry threshold for hotel investments does not necessarily have to be very high. Beginner investors can consider purchasing boutique hotels in Spain, Italy, and other European countries at favorable prices.
- Management: The success and profitability of a hotel greatly depend on management. Therefore, when buying a low-profit property, attention should be given to selecting a professional team to help increase the hotel's demand.
- Market Trends: Investors should keep up with modern trends in the hospitality industry and market research to make informed decisions, as new trends can significantly impact the success of hotel investments.
When deciding to buy a hotel for investment without prior experience, it is important not only focusing on ROI indicators. It is also crucial to know whether there is an agreement with a renowned global brand or if it is a local brand managed by top managers. In the latter case, there is a higher likelihood for the investor to be involved in business processes. In both cases, there is potential for good investment returns, but careful analysis first.
