# investing in hotel rooms



## galway_blow_in (7 Aug 2015)

its a relatively new form of property investment , you buy as many rooms as you wish , then rent them to the company who manage the hotel , you receive a fixed rent per anum

anyone any views on the subject


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## Bronte (7 Aug 2015)

Any chance you might tell us what on earth it is you are talking about so that we might formulate an opinion?

Is this another get rich quick scheme.


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## galway_blow_in (7 Aug 2015)

Bronte said:


> Any chance you might tell us what on earth it is you are talking about so that we might formulate an opinion?
> 
> Is this another get rich quick scheme.



I outlined exactly what im referring to , its not my job to educate you about the basics of  a particular form of investment , do your own research , this thread is aimed at those who are familiar with this type of investment


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## Bronte (7 Aug 2015)

Thanks for the education galway.  I'm sure there are loads of posters familiar with this type of investment.  Sounds remarkable like that Spanish wheeze of time shares, or it's latest incarnation about 10 years ago, Bulgarian apartments with guaranteed rent...

Why don't you just buy the hotel.  Is it in Ireland or Honolulu.

I once had the misfortune of having a poster screaming at me on here because I told him he was mad to invest in the moving sands of Dubai.


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## Joe_90 (7 Aug 2015)

galway_blow_in said:


> I outlined exactly what im referring to , its not my job to educate you about the basics of  a particular form of investment , do your own research , this thread is aimed at those who are familiar with this type of investment



For someone looking for other people help that's not a very good way of going about it.

Perhaps you could elaborate of the structure. I'm familiar with a structure where a group of people buy an entire hotel and share the rent in proportion. I'm familiar with a structure where people buy individual rooms which are let to a management company who pay them a rent.


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## Brendan Burgess (7 Aug 2015)

Hi GBI

There have been many cases of people getting badly burnt by these investments. Wasn't there a big row between the receiver of some hotel and those who owned the rooms. The owners could not access the rooms or the rent.

Update: here it is:

*Ritz-Carlton granted trespass order in feud over luxury suite*


As the owner of a room, you have very little control.

I would imagine that it would be very difficult to sell the room when you want to cash in your investment.

A few people have told me that they have invested in hotel rooms. None seemed to be too happy with their investment.

Brendan


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## galway_blow_in (7 Aug 2015)

Bronte said:


> Thanks for the education galway.  I'm sure there are loads of posters familiar with this type of investment.  Sounds remarkable like that Spanish wheeze of time shares, or it's latest incarnation about 10 years ago, Bulgarian apartments with guaranteed rent...
> 
> Why don't you just buy the hotel.  Is it in Ireland or Honolulu.
> 
> I once had the misfortune of having a poster screaming at me on here because I told him he was mad to invest in the moving sands of Dubai.



when someone trots out the banal " is this another get rich quick " line , I tend to have little time for there input , your high handed tone further added to the undesirable nature of the post


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## galway_blow_in (7 Aug 2015)

Joe_90 said:


> For someone looking for other people help that's not a very good way of going about it.
> 
> Perhaps you could elaborate of the structure. I'm familiar with a structure where a group of people buy an entire hotel and share the rent in proportion. I'm familiar with a structure where people buy individual rooms which are let to a management company who pay them a rent.



posters tone was arrogant , sarcastic and obnoxious

yet he knows nothing about this kind of investment , im not hoping or planning to buy a hotel room , ive just read about them on and off and wondered how folks viewed them


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## galway_blow_in (7 Aug 2015)

Brendan Burgess said:


> Hi GBI
> 
> There have been many cases of people getting badly burnt by these investments. Wasn't there a big row between the receiver of some hotel and those who owned the rooms. The owners could not access the rooms or the rent.
> 
> ...




thanks Brendan , while the idea seems interesting and easy in terms of management due to the fact that a company manages the property , I can see how an investor might find themselves at the mercy of more powerful interests should major changes come about like a new company taking over etc

they would need to be attractively priced considering the risks your point out


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## Bronte (7 Aug 2015)

galway_blow_in said:


> posters tone was arrogant , sarcastic and obnoxious
> 
> yet he knows nothing about this kind of investment , im not hoping or planning to buy a hotel room , ive just read about them on and off and wondered how folks viewed them


I agree I was slightly sarcastic, because you told us diddle squat about the investment/ scheme/ investment.

Things like

Who
Cost
Location
How much
Rent amounts
Percentage return 'promised'
Taxes

So apologies if you feel I was obnoxious and arrogant.  Come on, you have 50 posts, details are needed.

Anyway one would assume trivia such as actual details might alert other people to this, deal, hence your bare bones post.


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## Fella (7 Aug 2015)

I don't know the full details but i would expect a high return as to me it's high risk. 

I would favour a REIT for a part ownership of property with rental returns, i have only recently been looking at REIT's , owning one room I could see lots of potential problems compared to having a small ownership in multiple rental properties that a REIT would offer. 

I never heard of this type of thing before though but it's interesting anyway.


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## galway_blow_in (8 Aug 2015)

Fella said:


> I don't know the full details but i would expect a high return as to me it's high risk.
> 
> I would favour a REIT for a part ownership of property with rental returns, i have only recently been looking at REIT's , owning one room I could see lots of potential problems compared to having a small ownership in multiple rental properties that a REIT would offer.
> 
> I never heard of this type of thing before though but it's interesting anyway.




REIT,s are a conservative way to invest in property and for those who want a low risk investment , they are a great idea , yields are rarely above 5% however and usually less , the two main irish ones , Hibernia and green , pay a good bit less than 5%

I would not invest in them as im looking for higher income


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## facetious (8 Aug 2015)

I think Redbarn near Youghal was that type of investment you are probably talking about.


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## PMU (8 Aug 2015)

You would be investing in an illiquid unregulated product. Who will buy your hotel room when you want to sell, what is the average waiting time for sales? Who will set the price, as there is no open market for hotel rooms? How much do you have to pay for maintenance charges on the hotel? How much do you have to pay for cleaning and  maintenance / redecoration charges on your room? What is the situation regarding insurance and what does it cover, i.e. damage to your hotel room only or a share of damage to the hotel? Does the hotel let rooms on a strict rotation basis so all stand a good chance of being let, or do you have to bribe the reservation staff to let your room? Can you use the room yourself for free in slack periods?

Why invest in a physical hotel room why you can buy liquid dividend-paying shares in any of the major hotel chains?


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## galway_blow_in (8 Aug 2015)

facetious said:


> I think Redbarn near Youghal was that type of investment you are probably talking about.



few maldron hotel suites for sale online right now in limerick and Dublin , there the kind im referring to


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## galway_blow_in (8 Aug 2015)

PMU said:


> You would be investing in an illiquid unregulated product. Who will buy your hotel room when you want to sell, what is the average waiting time for sales? Who will set the price, as there is no open market for hotel rooms? How much do you have to pay for maintenance charges on the hotel? How much do you have to pay for cleaning and  maintenance / redecoration charges on your room? What is the situation regarding insurance and what does it cover, i.e. damage to your hotel room only or a share of damage to the hotel? Does the hotel let rooms on a strict rotation basis so all stand a good chance of being let, or do you have to bribe the reservation staff to let your room? Can you use the room yourself for free in slack periods?
> 
> Why invest in a physical hotel room why you can buy liquid dividend-paying shares in any of the major hotel chains?



I agree but the yields on hotel stocks like marrion etc are far lower than when you buy the hotel room outright


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## galway_blow_in (8 Aug 2015)

galway_blow_in said:


> I agree but the yields on hotel stocks like marrion etc are far lower than when you buy the hotel room outright



sorry , I meant marriott international


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## Brendan Burgess (9 Aug 2015)

Diarmaid Condon has a  good article on the concept: 

http://www.diarmaidcondon.com/how-safe-are-hotel-room-investments/


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## sunnydonkey (9 Aug 2015)

They could be ok with a big international hotel chain. In theory its a win win for both the hotel and the investor.  

However you have very little leverage over the chain if they start to act tough with their investors and the investment itself is very illiquid.  Check the contract carefully regarding the hotels possibility to add management fees, costs or to alter rates, and assume that these events will happen. Because of the illiquidity and risk I wouldnt consider it a suitable investment for anything other than a small part of your assets.

I would avoid smaller hotel chains and individual hotels and anything that smells of timeshare/fractional ownership etc.


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## Bronte (10 Aug 2015)

galway_blow_in said:


> REIT,s are a conservative way to invest in property and for those who want a low risk investment , they are a great idea , yields are rarely above 5% however and usually less , the two main irish ones , Hibernia and green , pay a good bit less than 5%
> 
> I would not invest in them as im looking for higher income


 
So you are looking at risky investments if you want more than 5% return.

One of the sectors that really lost out in Irealnd after the bust was hotels who had borrowed way too much and plenty of them ended up in Nama and many have now been sold off cheap.


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## Leo (10 Aug 2015)

Didn't the same problems arise at the Citywest Hotel, with unit owners eventually breaking in and holding a sit-in? Once the problems started those who had invested in the units stopped receiving their income, and their legal challenge failed as the planning granted for the development didn't allow for the units to be divided and sold as separate entities.

What's in it for the hotel management besides a cash injection? They get additional overheads and then have to pay a fixed rate regardless of whether the room is occupied or not.


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## galway_blow_in (10 Aug 2015)

Bronte said:


> So you are looking at risky investments if you want more than 5% return.
> 
> One of the sectors that really lost out in Irealnd after the bust was hotels who had borrowed way too much and plenty of them ended up in Nama and many have now been sold off cheap.



even today , 5% is quite a low yield when it comes to property investment , I could get 7% on an apartment on hundreds of apartments across Dublin were I to buy today , let alone outside the capital

were I just looking for 5% , id buy shares in an oil major , most of them are paying more than 5% in dividends right now , plenty of commercial investments with 9% and more yield available


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## Fella (10 Aug 2015)

galway_blow_in said:


> even today , 5% is quite a low yield when it comes to property investment , I could get 7% on an apartment on hundreds of apartments across Dublin were I to buy today , let alone outside the capital
> 
> were I just looking for 5% , id buy shares in an oil major , most of them are paying more than 5% in dividends right now , plenty of commercial investments with 9% and more yield available



I'm always keen to expand my investments not in property at thr moment just ETF's had a look at property but the numbers didn't add up to make it worthwhile ( granted I didn't spend too much time looking at it ) . 
What are you currently invested in ? Would this hotel thing be just a small part of your overall investment I'm keen to take extra risk for reward but the prices for a room would he too big for me that it would take such a large part of my overall wealth at that moment .


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## Brendan Burgess (10 Aug 2015)

Leo said:


> Didn't the same problems arise at the Citywest Hotel, with unit owners eventually breaking in and holding a sit-in?



Good memory Leo 

http://www.irishtimes.com/news/man-vows-to-continue-citywest-sit-in-protest-1.610302

_A MAN who is staging a sit-in at an apartment in Dublin has said he will continue his protest until his mother is guaranteed ownership and the future of the development is clarified.


Thomas Bradshaw broke a window in a ground-floor suite of the Citywest Golf Hotel, next to the Citywest Hotel, Saggart, and moved in after his mother, Angela Bradshaw, was refused access to it although she pays a mortgage for it of €2,400 a month.

...
Investor owners could buy the suites and then lease them back to Mr Mansfield. There was a guaranteed rent return of about €800 a month for seven years, with an option for a further 14 years. Investors also received a tax break.


Some 140 suites were sold at a total cost of €52 million. The golf hotel was run by HSS, which controls the Citywest complex and the rent payments were met for the first few years. Property management company, Capitacorp, run by Jack Kinnerk, managed and dispersed the rent to investors.


After five years, financial difficulties with HSS meant the rent ceased. _

I must say that I prefer a balanced portfolio of equities.


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## Fella (10 Aug 2015)

Think that's a fair assessment Brendan , your probably looking at equalling the return on equities for more risk and less diversification.


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## Jim2007 (10 Aug 2015)

Bronte said:


> So you are looking at risky investments if you want more than 5% return



Just to add, the benchmark return for Euro REITs over the past 5 years has been about 13%.  Given that these are much larger and well diversified, you need to be coming in well above 13% before considering such risks.


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## Fella (10 Aug 2015)

Jim2007 said:


> Just to add, the benchmark return for Euro REITs over the past 5 years has been about 13%.  Given that these are much larger and well diversified, you need to be coming in well above 13% before considering such risks.



Wow that's huge cheers will need to take a good look at these .


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## Bronte (10 Aug 2015)

Sounds wonderful doesn't it.


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## Fella (10 Aug 2015)

Bronte said:


> Sounds wonderful doesn't it.



Are you been sarcastic ? I'm not sure sorry ? What's the general feeling of these compared to purchasing a buy to let?

The REIT is far more diversified but the dividend in the above example is low at about 2-3% , I need to do more research into them my initial thinking is when interest rates are low Reits will do well as it's cheap to borrow , when interest rates rise they won't do as well but I could just take my money out or my other monies earning low % in bank will now be able to earn more so a REIT is a good thing for my portfolio as long as interest rates stay low they should do ok ( very basic thinking and I'm probably wrong ! , but welcome opinions )


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## Bronte (11 Aug 2015)

Only sarcastic in that it only points out they seemingly made a lot of money last year, but it does not actually tell us what kind of return it was.  One would have to know exactly what one was investing in, whether costs can go out of control depending on management decisions, and if returns are just as likely to go up as down.  I don't like the fact it seems one seems to have very little control.  One good year does not make a good investment.


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## sunnydonkey (11 Aug 2015)

galway_blow_in said:


> were I just looking for 5% , id buy shares in an oil major , most of them are paying more than 5% in dividends right now



Agree 100%.  Far too much fixation on property in this country.


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## galway_blow_in (13 Aug 2015)

Fella said:


> I'm always keen to expand my investments not in property at thr moment just ETF's had a look at property but the numbers didn't add up to make it worthwhile ( granted I didn't spend too much time looking at it ) .
> What are you currently invested in ? Would this hotel thing be just a small part of your overall investment I'm keen to take extra risk for reward but the prices for a room would he too big for me that it would take such a large part of my overall wealth at that moment .



ive no intention of investing in hotel rooms , I just wanted to discuss this relatively rare form of investment


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## galway_blow_in (13 Aug 2015)

Jim2007 said:


> Just to add, the benchmark return for Euro REITs over the past 5 years has been about 13%.  Given that these are much larger and well diversified, you need to be coming in well above 13% before considering such risks.



I presume you are combining capital appreciation and yield , when I speak of 7% being available on apartments in Dublin , im soley referring to income , asset appreciation is a bonus if it happens but you cant live off it


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## galway_blow_in (13 Aug 2015)

Fella said:


> Are you been sarcastic ? I'm not sure sorry ? What's the general feeling of these compared to purchasing a buy to let?
> 
> The REIT is far more diversified but the dividend in the above example is low at about 2-3% , I need to do more research into them my initial thinking is when interest rates are low Reits will do well as it's cheap to borrow , when interest rates rise they won't do as well but I could just take my money out or my other monies earning low % in bank will now be able to earn more so a REIT is a good thing for my portfolio as long as interest rates stay low they should do ok ( very basic thinking and I'm probably wrong ! , but welcome opinions )




you cant borrow to invest in a REIT , can you ?

there a financial asset  at the end of the day


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## Sarenco (13 Aug 2015)

galway_blow_in said:


> I presume you are combining capital appreciation and yield , when I speak of 7% being available on apartments in Dublin , im soley referring to income , asset appreciation is a bonus if it happens but you cant live off it



Is that 7% yield a gross or net figure?  It is certainly possible to achieve a gross yield of 7% (or more) on Dublin apartments at the moment but I would suggest that achieving a net yield of 7% (before financing costs and income tax) would be much more challenging, outside of relatively low income areas (which obviously carry additional risks).

If you are financing the acquisition with a BTL mortgage at 5%, and 25% of interest payments are non-deductible for income tax purposes, then even a 7% net yield (before financing costs and income tax) is not really viable.


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## galway_blow_in (13 Aug 2015)

Sarenco said:


> Is that 7% yield a gross or net figure?  It is certainly possible to achieve a gross yield of 7% (or more) on Dublin apartments at the moment but I would suggest that achieving a net yield of 7% (before financing costs and income tax) would be much more challenging, outside of relatively low income areas (which obviously carry additional risks).
> 
> If you are financing the acquisition with a BTL mortgage at 5%, and 25% of interest payments are non-deductible for income tax purposes, then even a 7% net yield (before financing costs and income tax) is not really viable.



you don't deduct for income tax when quantifying yield no more than you quote your income after tax dedcutions

you don't deduct for cost of financing either but I would not borrow for an investment which only returned 7% , I would borrow on commercial property which yields 9% however


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## galway_blow_in (13 Aug 2015)

when I say 7% yield , I am deduction the cost of management fees , property tax and house insurance however , management fee in the case of apartments , these would be in average areas of Dublin , you wont get 6% or close to it in D6


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## Sarenco (13 Aug 2015)

I think you may have misread my post - I tried to make it clear that you don't deduct financing costs or income tax in calculating the net yield on a rental property.

The gross yield on a rental property generally refers to the realistically achievable annual rent expressed as a percentage of the acquisition cost of the property, assuming no voids or defaults on the part of the tenant.  Bear in mind that the acquisition costs includes stamp duty, land registry fees, legal fees (plus VAT), in addition to the purchase price itself.

To arrive at the net yield figure you deduct a percentage amount to provide for all void periods as well as all costs and expenses, actual and imputed.  Costs would include letting and management agent commissions, annual OMC charge and levies, LPT, PRTB registration fees, maintenance and repairs, advertising, insurance, legal and accountancy costs.  Even if you self-manage a property, you should still account for your time in this calculation in order to arrive at a useful figure to compare with the yield on purely passive investments such as deposits and equities.

Having reviewed rental accounts over a prolonged period of time, I would suggest that a gross yield figure should be reduced by 30% to arrive at a useful net figure.  Some years expenses will be well below this amount but, as anybody who has ever had to evict a defaulting tenant will tell you, some years they can be well above this amount.  In my experience, 30% represents the average amount of expenses, actual and imputed, that a residential rental property will consume from the (anticipated) gross yield over a long-term holding period.

On this basis, a net yield of 7% actually implies a gross yield of 10%.  I would suggest that only properties in areas of Dublin with below average incomes would achieve a gross yield anywhere close to 10%.  There is a higher risk of renting properties in low income areas as there is a greater likelihood that a tenant will default on the terms of their tenancy and therefore your projected net yield of 7% may not come to pass.

As always, higher return comes with higher risk.  There is no such thing as a free lunch in investing.

Would you finance a purchase at 5% to achieve a net yield of 7% on a risky investment?  When you allow for the fact that 25% of interest payments (and LPT) are non-deductible for income tax purposes, you start to see that leveraged rental residential properties rarely (if ever) make sense for ordinary investors in the current environment.


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## galway_blow_in (13 Aug 2015)

Sarenco said:


> I think you may have misread my post - I tried to make it clear that you don't deduct financing costs or income tax in calculating the net yield on a rental property.
> 
> The gross yield on a rental property generally refers to the realistically achievable annual rent expressed as a percentage of the acquisition cost of the property, assuming no voids or defaults on the part of the tenant.  Bear in mind that the acquisition costs includes stamp duty, land registry fees, legal fees (plus VAT), in addition to the purchase price itself.
> 
> ...




even at the lows of the market in early 2012 , 10% gross yields were not achievable in the better parts of Dublin 7 or 9 , historically speaking , yields are somewhere in the middle right now


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## Sarenco (13 Aug 2015)

Huh?  What do historic yields have to do with a discussion about current investment options?


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