Are hotel rooms the future of UK property investment?
Hotel rooms are a growing investment sector in the UK, providing what is essentially an alternative form of buy-to-let property with a continuous stream of short-term tenants.
The model currently on offer from Select Portfolio is structured so individual investors are able to purchase single, or multiple rooms within a hotel at an affordable price. The rooms are then leased back to the hotel operator, who manage and let the rooms to generate the rental returns.
In recent years, traditional buy-to-let investments have been made to appear less attractive; with increases in stamp duty and decreases in tax relief; increasing numbers of investors have begun to diversify their portfolio into alternative sectors like hotel room investments. According to Knight Frank, £5.9bn was invested in UK hotels in 2015 – the highest annual volume recorded in the last decade. Furthermore, 8.3% of all UK commercial property investment in 2015 was in the hotel sector.
Many believe that the alternative property sector is the future of UK property investment, as it has a number of advantages over traditional buy-to-let.
Advantages of hotel room investments over traditional buy-to-let properties.
- Hotel investments are typically cheaper than traditional buy-to-let properties. Obviously this depends on the grandeur of the hotel in question, but as a general rule purchasing a hotel room will require a lower capital outlay than a flat or a house. This makes these investments more accessible for investors with smaller budgets, and more suitable for those who are less keen on sinking larger amounts into a single investment.
- Hotel rooms often generate higher returns than buy-to-let properties. The structure of leases within hotel investments serves to hedge against inflation and provide regular and attractive rental uplifts that support overall performance. It is common for rents on hotels to be linked to inflation or a similar index, allowing the operator to fix some costs in advance and ensuring the investor is protected with higher than average rental returns.
- Frequently fully managed by an experienced hotel operator, the investors are not responsible for any ongoing management, or the associated costs of running the hotel. This ensures once the investment has been made, the returns offered provide a completely passive income.
- Finally, because hotel investments are classed as commercial investments, they are also stamp duty exempt on purchases up to £150,000.
As an added bonus, many hotel investments offer periods of personal use each year. This gives investors a perfect opportunity to experience the hotel, its service and experience for themselves.
With a simple purchase structure in place on all our hotel room investments, investors generally own a 125 year leasehold of their chosen room that is fully registered with the Land Registry.
So could hotel room investments provide a cheaper and easier alternative to a traditional buy-to-let? We think so.