How to Make Hotel Investments
Augmented global travel particularly from emerging market segments of India and China is the reason behind the undying upswing in the hotel industry. Unsurprisingly, hotel investment experts around the globe are ecstatic about this emerging trend. Hotel owners, operators and investors alike are quick to jump on to new acquisitions. But at the same time, it also holds true that investment in the hotel industry is plagued with complications and risk. A huge amount of capital is at stake, and this calls for a meticulously planned move and enormous expertise on the part of the investor. Investors should and do rely upon expert opinion before deciding upon an investment. Some vital points that need to be given a second thought before putting down the cash for investment in a hotel are discussed below.
The hotel property, despite putting up a pretty face, may be rendered unusable after finishing the deal, due to reasons such as underground environment pollution, interior mold infestation, and structural damage from termites and rodents. Finalize the deal only after thoroughly investigating the property yourself. Authentication from an engineer to check for all the above conditions and to make sure that the property complies with building codes is necessary.
Know your hotel management company
If you are thinking of employing a hotel management firm to mind your business, be sure of its capabilities through different sources. Take a look at its operating performance and cross check with other hotels that it manages. Analyze its record in maximizing revenues and keeping expenses in control.
Analyze visitor segments
It is necessary that the hotel gets visitors from all segments like commercial, group, business and leisure travelers. Hotels that depend on a single segment for their business seldom do well throughout the year. On the other hand, hotels that derive visitors from diverse segments of travelers bank on the other segments when a particular segment registers a slack.
Avoid depending upon single businesses
If your hotel runs because of visitors that come from a single business, it would largely depend upon the performance of that business. Hotels dependent upon visitors from an airport, a business or an amusement park, can go berserk when these income generating businesses shut shop. For example, if the airport gets relocated, or the business changes headquarters or the amusement park gets tough competition from a better one, it is nonetheless important that the hotel fire keeps burning.
Check the period of the hotel’s in-season
A hotel which has an in-season of a minimum eight months is an option worth considering. A season shorter than this period means that the hotel can cope up with costs only if it enjoys a sufficient average rate premium during season. It is also imperative that the in-season months are consecutive
Barriers to entry
There are certain markets wherein it is easy to acquire hotel zoned land and construct a lodging facility. When the financing norms are eased, these markets see an overcrowding of hotels. In a market where there are barriers to enter into the hospitality trade for any reason whatsoever, there is less possibility of overbuilding or overcrowding. Hence, it is always preferable to make an investment in a market where they are high.
Keep the terms easy
Do not overlook the possibility of your selling the hotel eventually. Plan your acquisition keeping this fact in mind. Design the management contract and franchise agreement so it can be easily terminated. Keep flexibility intact by assigning or prepaying the mortgage, buying out partners and minimizing tax exposure.
Choose the brand of your hotel with care
Before branding your hotel, understand the implication of a brand and what segment of visitors will it attract. Established brands like business hotel or leisure lodging are safer than newer brands that are still fumbling for identity.
These guidelines are no key to making your hotel investment successful. But paying heed to these nuances before allowing money to change hands will definitely reap rich dividends.
About the Author
Venugopal Naidu is the business development head at Ista Hotel in Bangalore, India. Associated with Ista for the past five years, he has been active in projecting the hotel as a luxury five star hotel in Bangalore. Catalyzing the growing popularity of Ista, Naidu foresees a major fillip in the customer base of luxury business accommodation worldwide
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