The 5 Keys to Unlocking Returns in Hotel Real Estate Investing

Now, more than ever it is easier to enter the world of hotel real estate investment. To generalists, investors seems very attractive to own a hotel. They are increasingly drawn to the sector because of the investment yields that trading assets, like hotels, provide.

However, this market is unlike any other. For that reason, the generalist investor who is seduced by the idea of owning a hotel can have some troubles.

The real estate investor, Adam Hochfelder, shares the Top 5 “Must do’s” for the new generalist investor in hotels:

Know your Market

This is the first and crucial stage of hotels and in real estate investing in general. It is significantly important to know your competition, who they are and how they trade. Also, it is important to know what the future supply horizon looks like, and the major demand generators of a hotel. In Adam Hochfelder’s experience as a managing director of Merchant Hospitality, a detailed study on the dynamics of the competitive market at an early stage is time well spent.

Understand what the hotel brand actually delivers (rather than what the brand owner says it does!)

Hochefelder suggests taking time to challenge the brands on their system delivery stats. Studying how they are going to add value to your hotel is from crucial importance. It is advisable to monitor these results once the hotel is operating.

Hochfelder also indicates to not be afraid to circle back on promises made.

Invest in Your Asset

Investing in your asset is a crucial element, particularly, when it comes to acquiring an existing trading hotel that requires refurbishment. At the early stage of any acquisition, Hochfelder commissions detailed building surveys and property condition reports. The wrong belief that you can fundamentally change the fortunes of a hotel without investing in it, can set you up for a fail.

Hire an exceptional General Manager/Management Team

Hochfelder doesn’t underestimates the importance of hiring the right General Manager (or Management Team), who is capable of translating your investment strategy into the day-to-day operation of the hotel. This real estate investor, who has a wide experience in real estate investing, suggests motivating them to achieve your profit targets and including them within investment strategy meetings.

They are a crucial part of the team and the face of your hotel.

Get comfortable with Operating Risk

The concept of “Operating Risk” is increasing with the rise of the franchise and third-party management contracts.

Adequately, this equalizes the value of your hotel to the profit levels it achieves.

As mentioned by Hochfelder in his articles on Realty Times, this is a cyclical industry. Profits can go up and down. According to this real estate investor, the best practice is to prepare a Plan B, if the things do not play out as you had originally envisaged.

For Adam Hochfelder as a sector-specialist hospitality investor, these measures may seem so blindingly obvious so as to not warrant further consideration. However, generalist investors can too easily overlook exactly these areas of a hotel real estate investment.