Real estate property can help grow your income portfolio, and even though hotel real estate is different from other real estate property types, it comes with certain advantages. Hotels depend on guests to decide their rentals per night, which makes them highly responsive to changes in the market by taking advantage of a busy period and diminishing the risks of slower periods.
Investing in hotel property management can be rewarding and a way to grow your income for the savvy investor. Picking popular areas in the world, like boutique hotels in Mexico, can result in maximized profit due to the number of guests per night.
Finding a hotel investment opportunity with good management and in the right area generates attractive yields, and due to tax benefits such as depreciation, becomes one of the top wealth-building tools available to investors
Approaching Hotel Real Estate
Different types of hotels are categorized into types of properties. There are options ranging from full-service hotels offering amenities like spas, restaurants, and convention space, tolimited-service hotels without a restaurant but that may still have swimming pools and fitness centers. Lifestyle and boutique hotels are trendy, unique, and elegant allowing them to offer a variety of amenities, many of which are innovative investments. Boutique hotels in Mexico currently have a 3.9% annual growth in travel, which makes them a powerful force in the market.
To understand what makes a hotel profitable, there are some key data points to keep in mind. ADR (Average Daily Rate) and Revenue Per Available Room (RevPar) are both invaluable for a new hotel real estate investor to understand.
ADR = Room Revenue/Rooms Sold
ADR only considers the average rate of rooms sold, but adding RevPar into the equation takes into mind the number of rooms that were occupied at that rate over a period of time. For example, if you sold 10 rooms out of your 20-room hotel and your total revenue was $3,500, then ADR would be $350. ADR is the metric that shows how much money each room brings you. It shows you the room-specific revenue, but keep in mind that it leaves out costs from your unsold rooms or revenue from other sources such as a restaurant or spa, which would be important for certain locations and types of hotels, such as boutique hotels in Mexico.
RevPAR = ADR x Occupancy Rate
Daily, weekly, monthly, and annual RevPAR reviews lend insight into factors that impact hotel performance and revenue. Comparing RevPAR yearly to the RevPAR of competitor hotels also establishes a powerful metric to analyze performance and competitiveness. It is a popular metric in the hospitality industry, as it takes unsold rooms into consideration to give a more accurate picture of pricing for rooms and how many are filled.
Valuing a Hotel Property
Appraising hotel investment property fundamentally comes down to a myriad of factors. Some things potential investors consider are building location, ambiance, quality, and hospitality. However, a otel’s value is based on how much financial risk it has. This is balanced out by how much revenue the hotel could generate for an owner over time. Since hotel revenue management is a combination of pricing strategies aimed at maximizing income, it becomes about profitability. Often times a nique experience attracts guests more than a traditional stay.
The three approaches to hotel valuations are the Income Capitalization Approach, Cost Approach, and Sales Comparison Approach.
Income Capitalization Approach
The value of the hotel is calculated by the worth of future benefits in the current market or a projected multiple of its net return. Using the Discounted Cash Flow method (DCF) places the value on the hotel as an operating business, but the land and building as real estate.
The cost approach is useful in determining whether it is better to buy a hotel or build one. It does not take into account economic factors such as the current state of building prices and is considered outdated.
Sales Comparison Approach
Investors use this approach to determine ranges and pricing based on prior sales of similar hotel properties.
Location is an important factor in determining the value of a hotel property as well. Popular warm-weather spots such as boutique hotels in Mexico draw guests from around the world with the ability to maximize profits even in off-seasons by being palpable in all types of weather. Whether traveling for business or pleasure, guests are drawn to unique experiences in lifestyle and boutique hotels. Namron Hospitality managed Encantada hotel takes full advantage of its location on Tulum Beach.
Hotel guests are moving away from traditional hotel experiences and looking for meaningful experiences. This is a key point for investors looking into hotel investment to remember, as the valuation of services the hotels offers can increase revenue yearly. Offering unique experiences maximizes the number of rooms a hotel sells per night to guests seeking a memorable experience. Boutique hotels in Mexico serve as spiritual, wellness, and adventure journeys for many guests.
How to invest
Using a comparative analysis with ADR and RevPAR Metrics among a group of similar hotels in the market can assess the operating efficiency of one property to another. Investors who have a property or are looking to invest can look into partnering with Namron Hospitality. Namron Hospitality designs and operates boutique hotels on behalf of investors. With 75+ years of experience in hospitality, Namron Hospitality makes hotels more profitable and easier to run while assuring you have streamlined operations.
Designing an experience that elevates your guest’s experience capitalizes on today’s social media-driven world for marketing. Intelligent hotel property management brings together the inspiration from the properties’ natural value and culture to create an experience for the guest that keeps them coming back for more. With Namron Hospitality’s experience in design and development based on location, investors find that their hotel capitalizes on unique market segmentation that are popular with travelers wishing to connect in a personal way with the culture in a way that draws them back.