Hotel ROI: Is It A Good Investment?

Any investment comes with a certain amount of risk. No matter what you do, there's always a chance that an investment can fail. That's why it's important to choose any investment wisely in order to maximize your return on investment.

The hospitality industry has long been a great target for hungry investors and savvy business people to invest in. And no sector of the hospitality industry is this more true than hotels.

If you get a hotel right, you can get massive returns on your investment. Get it wrong, and you'll burn a hole in your pocket faster than you can say, "No vacancy".

So, are hotels a good investment? Keep reading to find out.

What is ROI?

ROI stands for return on investment. It's a simple calculation that measures how much money you make from an investment minus how much you spent on the investment.

The goal of any investment is to make more money than you put in, and ROI is the easiest way to measure that

For example, let's say you spend $1,000 on an investment and it generates $1,500 in revenue. That means your hotel ROI would be 50%. You made 50% more than what you spent.

Easy, right?

Should I invest in hotel businesses?

The hotel industry is one of the most popular industries to invest in. And for good reason. The hotel industry is booming.

According to JLL, global hotel investment is on the rise, with nearly 80% of investors planning on investing in hotel businesses in 2022 [1]. With a surge in interest in orban markets, 20% ofinvestors indicate that they will deploy between $501 million to $1 billion worth of capital into the hospitality sector, with London, Tokyo, and Boston being the most attractive investment locations. Most of this investment will likely target traditional hospitality property types, such as full-service and select-service hotels.

So, what does this mean for investors? It means that now is a great time to invest in hotels.

With occupancy rates and tourism both on the rise, hotel owners are seeing increases in their revenue.

What kinds of hotels provide the best hotel ROI?

There are many different types of hotel businesses that you can invest in. The type of hotel you choose to invest in should be based on your goals and objectives as an investor. Be sure that the hotel you pick fits with your investment strategy. Knowing how to value a hotel can't hurt either.

Here are some of the most popular hotel concepts that investors typically choose to invest in, all of which have different kinds of hotel amenities:

- Full-service hotels: These are hotel businesses that offer a wide variety of services and amenities, such as restaurants, bars, gyms, spas, 24-hour room service, and concierge services

- Select-service hotels: These are hotel businesses that offer limited services and amenities when compared to full-service hotels. They typically don't have features like restaurants and bars, but they may have a fitness center or business center

- Limited-service hotels: These are hotel businesses that offer basic services and amenities, such as a 24-hour front desk and housekeeping. They typically don't have features like restaurants and bars

- Boutique hotels: These are hotel businesses that offer a unique experience with fewer than 100 rooms. They often have a focus on luxury and customer service

- Lifestyle hotels: These are hotel businesses that focus on providing guests with an immersive experience that reflects the hotel's brand. They often have unique features and amenities not found at other hotel businesses

What kind of hotel you choose to invest in will depend on your goals and your judgment about the investment opportunity in question. It is important to weigh all the pros and cons of an investment up to know whether you will get the expected returns.

You may also want to consider whether your experience or personality fits with the type of establishment you're choosing to invest in. For instance, if you're unfamiliar with economies of scale and how hotel chains work and make their money, you may not want to invest in shares of Holiday Inn.

What do I need to know about investing in hotels?

If you're thinking about investing in hotel businesses, there are a few things you should keep in mind:

1. Location is key

The location of your hotel is going to be one of the biggest determiners of success. Obviously, you want to be in a place where people are actually going to want to stay in your hotel. But you also want to be in a place where there isn't a ton of competition

2. Do your research

Before you invest a dime, make sure you do your homework and research the hotel industry inside and out. Know what you're getting yourself into. There's a lot to learn about the hotel business, from hotel operations and management to marketing and revenue.

3. Have a solid business plan

As with any business, you need to have a solid business plan in place before you start investing in hotel businesses. Your business plan should outline your goals, objectives, and strategies for success

4. Have a budget

Investing in hotel businesses can be expensive. Make sure you have a budget in place and know how much you're willing to spend on your investment

5. Work with a hotel expert

If you're serious about investing in hotel businesses, it's a good idea to partner with or hire someone who knows the hotel industry inside and out. They can help you navigate the ins and outs of the hotel business and make sure you're making sound investments

What are the benefits of investing in hotel businesses?

There are many benefits of investing in hotel businesses. Here are some of the most popular reasons why investors choose to invest in hotel businesses

- High ROI potential: Hotels have the potential to generate high returns for investors. hotel businesses are often able to generate more revenue than other types of businesses, which means higher profits and ROI for investors

- Increased revenue: With occupancy rates on the rise, hotel businesses are seeing increased revenue. This is good news for investors because it means that their investment is likely to generate more income

- Increased tourism: The hotel industry is directly linked to the tourism industry. As tourist numbers increase, so do hotel bookings. This is good news for hotel investors because it

- Passive income: hotel businesses can provide investors with a source of passive income. Once you've invested in a hotel business, you can sit back and collect profits without having to do much work

- Diversification: Investing in hotel businesses can help diversify your investment portfolio. This is important because it helps spread out your risk and gives you a better chance of achieving your financial goals

- Tax benefits: there are many different tax benefits that come with investing in hotel businesses. These tax benefits can help you save money and maximize your profits

What are the drawbacks of investing in hotels?

Investing in hotel businesses is not without its drawbacks. Here are some of the potential downsides of investing hotel investments:

- High costs: One of the biggest drawbacks of investing in hotel businesses is the high costs associated with it. Not only do you have to pay for the property, but you also have to pay for furniture, fixtures, and equipment. Hotel businesses can be very expensive to get off the ground

- Difficult to manage: Hotel businesses can be difficult to manage if you're not experienced in the hospitality industry. If you're not familiar with hotel operations and management, it can be difficult to make your investment successful

- High risk: hotel businesses are also high risk. The hotel industry is volatile and unpredictable. While it can provide huge returns, there is also a high likelihood of failure. Before investing in hotel businesses, make sure you're prepared for the risks involved

- Time-consuming: Hotel businesses can also be time-consuming. If you're not prepared to put in the time and effort required to make your investment successful, it's likely that you'll fail

-Requires a lot of work: Hotel businesses require a lot of work. From finding the right property to managing operations, there's a lot that goes into making a hotel business successful. If you're not prepared to put in the work, it's likely that you'll fail. Read our blog on how to become a hotel manager to find out how you can best manage this workload

How can a hotel be profitable?

There are a number of factors that contribute to a hotel's profitability. Some of the most important factors include

- Occupancy rates: The occupancy rate is one of the most important factors in determining a hotel's profitability. The higher the occupancy rate, the more profitable the hotel will be

- Average daily room rate: The average daily room rate (ADR) is another important factor in determining a hotel's profitability. The ADR is the average amount that guests pay per night for their rooms. The higher the ADR, the more profitable the hotel will be. Providing great value rooms at a great price will be one of the best ways to grow future profits

- RevPAR: RevPAR is a measure of a hotel's revenue per available room. This metric is used to determine how efficiently a hotel is selling its rooms. The higher the RevPAR, the more profitable the hotel will be

- Expenses: Finally, a hotel's expenses play a big role in its profitability. The more efficiently a hotel can control its costs, the more profits it will make

-Events: Many hotels have spaces that can serve multiple uses. Many hotels have space for events like conferences, concerts, festivals, and other types of gatherings. The right kind of event in the right kind of hotel can be a massive source of revenue and an amazing guest experience.

It's up to you what level of involvement you want to have in your hotel. But if you want to be very involved in the daily operation and management of your hotel, these are the kind of things that you'll need to pay attention to if you want your investment to succeed. You may want to check out our blog on how much do hotel owners make to find out the kind of income you can expect and our blog on upselling in hotels to find out how to squeeze every dollar out of your business

Final thoughts

Like we said above, any investment to the potential to succeed or fail. One of the key differences is the quality of the tools your have at your disposal. If you have great tools to run your hotel, your hotel ROI will soar.

That's why you need the Epos Now hotel POS system. With a state of the art point of sale system, you can make sure that initial investment goes the extra mile and make better decisions for your business. You'll be able to:

• Take advantage of automated accountancy with world-famous apps like Xero, QuickBooks, and Sage Business Cloud

• See data 24/7 in real-time to make strategic business decisions

• Use powerful hotel revenue management systems to get the most out of your business

• Offer room service and pickup, and seamlessly manage orders from your Epos Now system

• Accept bookings through the Caterbook website widget

• Identify your most popular rooms, meals, and drinks

To learn more, get in touch below!