From buy-to-let to hotels: why now is the time to make the big switch (Part 3)

By May 30, 2017 No Comments

Growing demand

In addition, the success of portals such as LateRooms and have highlighted the intense and growing demand for hotel rooms and, by turns, the exciting prospects that await investors looking for a solid, reliable, and less fraught type of bricks and mortar investment than buy-to-let. Compounding this is of course Brexit, which, in driving down the value of sterling, has increased the popularity of Britain as a tourist destination. ONS recently revealed that there were more than 37million visits to the UK in 2016, the highest since records began in 1961. And that was before Brexit. So, is the time to invest in hotels now?

You bet!

Provided you follow a few simple rules. The first is to know what type of hotel is being invested in. Business, leisure, airport, suite, resort, and casino hotels are some examples. But, for the purposes of this newsletter, the types of hotels we’re talking range between 10 and 100 rooms—hotels with the scope for improvement, development and the expansion of existing underrepresented revenue streams.

Solid. Reliable. Immediate,

Solid, sensible hotel investments can deliver good, reliable income streams and equity gains for investors, especially those keen to diversify. We, at Shepherd Cox, along with more than 150 existing business partners buy hotels that make money from day one. There’s no sitting around waiting for the investment to make sense, it simply starts producing a return straight off the bat. In our experience of acquiring and managing hotels, returns on rooms range from 8-10%. This figure compares favourably with current yields on buy-to-let, ten-year gilts, cash deposits and FTSE 100 shares portfolios. And, as previously mentioned, sterling’s continuing weakness is, right now, a huge boost for tourism. Hotels are natural beneficiaries of this perfect storm of circumstances. In fact, with the poor returns from buy-to-let and other investment classes, combined with the promise of more visitors, there’s no better time than now to invest in hotels.

Yield is key

Weigh a hotel providing a reliable 8% plus return on a £60k investment against a mortgaged buy-to-let property in which the same £60k merely acts as a jemmy to leverage open the bank’s vault, and it becomes easier to see why many investors are dumping part of all of their buy-to-let portfolios, and moving their cash across into hotels. For starters, interest on buy-to-let can no longer be fully written down as a tax expense, and the residential property market as a business is so overplayed that the yield is at best half of what hotels can deliver. And then there are the rumblings of interest rate rises…

Still interested?

Hotel cash investors will be naturally undaunted by the prospect of upwardly shifting interest rates. In light of inflation talk, the US Federal Reserve’s recent quarter-point interest rate rise, and the decision by banks in Australia to increase the cost of borrowing for owner-occupiers by 0.7%—compounded by the fact that residential markets are universally believed by economists to be in a bubble—should further embolden investors on the cusp of making the switch from residential to commercial hotel investments.

Perhaps the biggest boost, though, is that hotels (at least the type of hotels we at Shepherd Cox invest in) deliver an immediate yield. As a portfolio diversification tool, hotels are therefore ideal in that they are not subject to the vicissitudes of the wider property market. Their success is dependent on the quality of rooms and the expertise of designated experience of hotel management teams.

And there are other big potential benefits, too, such as being able to put your hotel investments in a SIPP. Above all, as a hotel investor you’re putting your capital into both a bricks and mortar, and a business asset. And with the professionally managed hotels Shepherd Cox provides, with fully realised ancillary revenues, the investment is as safe a passive set and forget strategy as you can get.

For more information on moving your capital from buy-to-let property into hotels, with a guaranteed return on 8% or more, call us today.