Given that the average vacancy rate of hotel rooms on any given night of the week is only about 30%, most of the world’s hotel rooms stay rented. If you’re considering hotel financing as a way to make some money this year, you’re in for a treat. The hotel industry is booming and there are lots of great opportunities to get a piece of the pie.
Here are five things to consider before you put your money down.
1. Is It Ready To Open?
When you’re considering what hotel to finance, you need to consider whether or not it’s ready to open. While investing in a project still under construction isn’t a bad idea, you don’t have any way to test how well it’s set to do. When you invest in a hotel that’s on track and set to open soon, you know that you won’t be sitting around waiting for your investment to turn around.
A construction investment is a tricky business. Investing in a project under construction provides necessary capital for making sure everyone gets the return they’re looking for. When you invest in a project under construction, you typically get a strong share and a high rate of return for taking a risk.
However, you need to remember that you’re taking a risk. It’s hard to invest in something with only theoretical proof of a return.
If you’re worried about making your money back, consider another type of investment. Otherwise, remember that it takes time to see a return on a hotel financing investment.
2. How Involved Do You Want To Be?
There are all types of investors out there. There are investors who like to have control over their investments, get a seat at the table, and who enjoy the process of managing things. There are other types of investors who want to put down a stack of money and return when it’s time to collect their earnings.
If you’re looking to take a hands-off approach, you get this when you invest in an established hotel franchise. When you invest in a new hotel that’s completely unvetted as a business, you don’t know how much you’ll be earning. Hotel franchises have proven business plans based on past experience and the years they’ve spent building their reputation.
If you want to be involved, invest in a hotel early so that you can be in on the ground floor. You’ll get the chance to talk to other investors and get consulted when changes are made to the plan. You’ll have the opportunity to invest more as the project demands and to take a bigger share of the profits later on.
3. Who are the Other Investors?
If you don’t know who you’re getting into bed with, you may be in for a surprise. Investing alongside veteran investors of projects like this allows you some sense of comfort and security. You’ll know how committed investors are from day one and get a chance to talk to them directly.
If you’re left in the dark about who has invested, watch out for this investment. It could be a scam put together by people seeking out suckers to invest in their project that never comes together.
You deserve the right to know who you’re doing business with and who you’re sharing this project with. It gives you a chance to learn about how likely the project will succeed and what kind of investment you’re making. If the people who are also invested have a long history of making smart investments, you’ll be in for a great future of making money together.
4. How Much is Your Buy-In?
Different projects require different buy-ins. If a project is sure to succeed, the hotel builders and management company are likely to demand a high buy-in to weed out small investors who are skittish about it. They don’t have time to deal with people who are going to back out when they’re aiming to get a project up and running in a hurry.
If you’re dealing with a new project built by an up and coming hotel company, you might be able to get a piece of the action for a small buy-in. If this is the case, you can spread your investments out and build a relationship without risking too much of your time and money.
When you get to set your own buy-in, you get the chance to invest at a comfort level that you’re happy with. Having some control over your investment and buy-in price give you the opportunity to manage your own anxiety about investing. When you get control, you’ll feel more comfortable as the project progresses.
5. How Long Until You Profit?
If you’re hovering over your investment waiting for it to turn a profit, you’re going to be frustrated. A watched pot never boils and a watched investment never grows. You need to be able to put your money down and walk away for a while.
If you don’t have the kind of money to handle this kind of investment, turn somewhere else to make money.
Wondering how long it’ll take until you get a profit means that you’re too invested in how this investment leads to your next investment. Hotel construction financing is a great way to return a profit but it doesn’t happen without patience. If you want to ensure that your investment returns a profit, do your research up front.
Hovering over your investment only makes everyone anxious.
Hotel Financing Is Usually a Sure Thing
If you’ve researched the market and know what you’re doing, hotel financing is a smart way to make money. So long as the project is completed on time and has a market waiting for it, you’re sure to get your money back and then some in no time.
If you’re considering more ways to invest your money, check out our guide for finding the best app out there.