For an asset with all the bell boys and whistles, don't just book a hotel room – buy it

As investors cash in on the tourism market, draw an income from guests and look to sell at a big profit, Kate Hughes asks if you should check in too

So what's the room service like for investors? The UK is a tourism hot- spot with a thriving hotel industry, and London has the highest average room rates in Europe. And in the past few years, property investors have been offered the chance to get in on the action by buying a hotel room, often in a plush new development.

But is this really the penthouse suite of investment, especially for those with no knowledge of the hotel industry? And what is the chance of making a genuine, sustained profit in such volatile times for the domestic and global economy?

The theory is that those with a minimum of £50,000 can buy a room that is then managed entirely by the hotel itself. Investors don't need to worry about people stealing the bathrobes or rock stars throwing TVs through windows; the cost of repair or replacement will be borne by the hotel.

Owners typically earn 50 per cent of the income from occupancy, and get around 52 nights every year to stay in one of the company's chain of hotels. The room can even be added to a self-invested personal pension (Sipp), so income and any capital growth are tax free. The general rule is that the better the location of the hotel, and the more stars it attracts, the higher the starting point for investment.

GuestInvest, a hotel room investment firm, focuses on the very well-to-do investor, with rooms in its most upmarket hotel starting at £1m for Blakes in west London. Its latest project, The Jones near Hyde Park in central London, offers rooms from £317,000 and the investment comes with a 6 per cent guaranteed return for the first year.

If you can't quite stretch to that, others, such as the Owner Hotel chain (www. ownerhotel.com), offer rooms in budget hotels from around £50,000.

"This is a purchase that bucks the trend in investment," says Johnny Sandelson, chief executive of Guest- Invest. "Returns are based on occupancy rates, which continue to rise – as against stagnant house prices and a faltering stock market."

Any capital growth depends on the success of the hotel and the value of the land on which it's built. As for the level of annual income earnt, this relies on the hotel's occupancy rate, which in turn can often depend on tourism.

So with property prices – even in London – falling and the US possibly heading towards recession, with the potential fallout this has for the British tourism industry, are hospitality investors set to lose out?

The hotel investment firms say the good times continue to roll and that some eye-catching returns are still possible. According to GuestInvest, people who bought rooms in 2004 at its Guesthouse West, in Notting Hill, west London, are enjoying annual income of around 8 per cent. Those who have since sold their rooms, GuestInvest reports, have netted average capital growth of 15 per cent.

Meanwhile, Owner Hotel says that, based on 90 per cent occupancy of its £49.99-a-night rooms, the annual income for owners is around £7,547 before the annual service charge is deducted. That equates to 15 per cent of the £50,000 original investment. If the room is occupied for only half the time, the annual income drops to around £4,923, or 8.2 per cent. Nevertheless, that's a better return than can be gleaned from a savings deposit account or, in most years, shares.

But Peter McGahan, managing director of independent financial adviser Worldwide Financial Planning, is sceptical about hotel room schemes. "The exceptional returns are based on almost total occupancy," he points out. "And you have to ask yourself whether hotel rooms are only ever empty for a few nights of the year."

Hotels may be in for a rough ride, he adds, with the downturn in the global economy meaning that fewer people have spare money for holidays. Americans have been hit hard by their own credit crunch and the low value of the dollar against the pound. Considering that US tourists made up almost 12 per cent of the total number of overseas visitors to the UK in 2006, this alone could have serious repercussions for room occupancy.

If you are still keen to buy into one of these deals, but don't happen to have several hundred thousand pounds burning a hole in your pocket, there are only a few lenders that will be willing to give you a mortgage. GuestInvest works with four mortgage pro- viders, including Bank of Scotland. Its product offers a loan of up to 70 per cent of the room price, in a tracker deal set at Bank of England base rate (5.25 per cent currently) plus 1.5 per cent. That is one of the highest rates of interest around.

GuestInvest's rooms can be sold on the open market, or through the firm itself, says spokeswoman Sally Wiber. But Miles Shipside of property website Rightmove points out that the likely size of any profit between buying and selling is hard to assess. "This is a very new industry with no track record of capital appreciation to look at."

In the current property market, he adds, "how reliable is the valuation of the appreciation of a hotel, let alone one room in a hotel?"

GuestInvest claims that its rooms are typically on the market for just eight weeks before being sold. But experts question how easy it really is to sell rooms if there are so few lenders offering funding.

Mr McGahan urges investors to be cautious and asks: "Why – if they are confident of such huge returns in the long term – are these companies offering these deals to investors rather than keeping them for themselves?"

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

News
The two faces revealed by the ultraviolet light
newsScholars left shaken after shining ultraviolet light on 500-year-old Welsh manuscript
News
Rosamund Pike played Bond girld Miranda Frost, who died in Die Another Day (PA)
news
Arts and Entertainment
books
News
newsHow do you get your party leader to embrace a message and then stick to it? With people like this
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Marketing Manager - B2B, Corporate - City, London

    £45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Neil Pavier: Commercial Analyst

    £50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

    Loren Hughes: Financial Accountant

    £45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...

    Sheridan Maine: Finance Analyst

    Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...

    Day In a Page

    General Election 2015: The masterminds behind the scenes

    The masterminds behind the election

    How do you get your party leader to embrace a message and then stick to it? By employing these people
    Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

    Machine Gun America

    The amusement park where teenagers go to shoot a huge range of automatic weapons
    The ethics of pet food: Why are we are so selective in how we show animals our love?

    The ethics of pet food

    Why are we are so selective in how we show animals our love?
    How Tansy Davies turned 9/11 into her opera 'Between Worlds'

    How a composer turned 9/11 into her opera 'Between Worlds'

    Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece
    11 best bedside tables

    11 best bedside tables

    It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
    Italy vs England player ratings: Did Andros Townsend's goal see him beat Harry Kane and Wayne Rooney to top marks?

    Italy vs England player ratings

    Did Townsend's goal see him beat Kane and Rooney to top marks?
    Danny Higginbotham: An underdog's tale of making the most of it

    An underdog's tale of making the most of it

    Danny Higginbotham on being let go by Manchester United, annoying Gordon Strachan, utilising his talents to the full at Stoke and plunging into the world of analysis
    Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police

    Steve Bunce: Inside Boxing

    Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police
    No postcode? No vote

    Floating voters

    How living on a houseboat meant I didn't officially 'exist'
    Louis Theroux's affable Englishman routine begins to wear thin

    By Reason of Insanity

    Louis Theroux's affable Englishman routine begins to wear thin
    Power dressing is back – but no shoulderpads!

    Power dressing is back

    But banish all thoughts of Eighties shoulderpads
    Spanish stone-age cave paintings 'under threat' after being re-opened to the public

    Spanish stone-age cave paintings in Altamira 'under threat'

    Caves were re-opened to the public
    'I was the bookies’ favourite to be first to leave the Cabinet'

    Vince Cable interview

    'I was the bookies’ favourite to be first to leave the Cabinet'
    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat