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The most straightforward argument in favour of investing in a hotel is a perceived supply gap for a certain type of hotel category in a market. The second reason is ROI - So the total financial return a real estate asset can achieve (holding period return) is a function of the cash flows generated by its operations and the value appreciation of the underlying real estate asset. For budget hotel the value of operations drives 85% of the holding period return whilst for luxury hotels it is 70/30 between real estate appreciation and operations. This is understandable as a budget hotel is mostly about running a tight ship whilst a luxury hotel tends to be situated in prime locations with very high barriers to entry and by definition tend to derive more value from property appreciation.

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