INVESTING IN HOTELS

So you’ve been thinking about investing in hotels, but don’t have a few million laying around, or any previous experience in the hotel industry. Where do you start? Well, it may start with a visit to your local grocery store.

A few weeks ago, I went to the grocery store with my wife. I ran into an acquaintance and we visited for awhile. Through the local media, I was aware that his company (development/management) was working on securing some land for a new hotel they planned to develop. I asked him how the project was coming along and if there was a way to invest in the project. He said his company would be offering units in the coming months and he’d contact me once the opportunity was available. He also said the minimum investment was going to be $100,000 (although a friend later told me he had been pitched a similar hotel investment and you could partner with another person on units bringing your minimum initial investment down to $50,ooo).

The idea of being an investor in a hotel intrigued me, so I started asking around. I learned a number of other things as I researched the company offering the units in the hotel and ultimately decided it wasn’t an investment for me based on my investment screening method.

Only a few weeks after my grocery store conversation, I had the opportunity to visit with a successful business man. I flat out asked him what he invests in (which is a great tip by the way and may be worthy of a post) and one of the things he mentioned was that he is part of a small group (four or so) of investors that purchases existing hotels. He said the advantage was that they could purchase them for much less than the cost to build a new hotel and since their group was small, each partner had more say than if they invested via a development company. The disadvantage is that with fewer investors, each investor has to come up with more money.

If I get really serious about hotel investing, my preference would be to join a small group that invests in existing hotels, or possibly invest in a “package” of hotels as some companies develop multiple hotels and sell units in that package thereby spreading the risk out over several hotel properties.

I would visit with a number of people that have already invested in hotels and ask about potential pitfalls. It would also be wise to consult with a real estate attorney located in the same city as the hotel development company as they may have had experience with clients that had positive or negative experiences with the same development company. I would want to make sure the investors own the land, as well as the real estate and make sure the management fees are reasonable.

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One Response to “INVESTING IN HOTELS”

  1. The idea of getting a small group of investors together and purchasing an existing hotel is intriguing. My husband and I have considered investing in property, but I hadn’t yet thought of purchasing a hotel. Would you then turn around and sell that property for a profit, or would you open it up for business? It could be fun either way. I have to look around and see what investment opportunities are available in the near future.

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