Hotel vs. Residential – Same price, same town but some key differences
At Property Frontiers, a question we are constantly asked is “what’s the best option right now, hotel or residential property investment?”.
The answer inevitably depends on your own personal circumstances. Somethings to consider include:
- What yields do you want to achieve?
- Will you need financing?
- Are you looking for capital appreciation?
- Are you looking for long term tenants?
- What sort of exit strategy would you prefer?
For those who just aren’t quite sure, we’ve outlined some key differences between investing in the two asset classes.
| Residential Apartment | Hotel room | |
| Title | Residential title | Commercial title |
| Rental (yields) | Up to 7-8% yields in prime areas | Up to 10% yields in strategically located hotels |
| Rental (tenants) | Available to any individual | Short stay guests |
| Rental | Income typically 12 months
Voids can be avoided in good locations Research should be undertaken locally to check current rental demand and pricing |
Short stay guests often provide higher yields
Care must be taken to research pricing and demand after assured period ends |
| Financing | Readily available: Many providers offer loans of up to 75% LTV on residential apartments | Not many lenders currently finance individual hotel rooms and/or commercial funding on smaller rooms |
| Planning Permission | Residential planning enables multiple usage all year round | Hotel planning means rooms can only be let and used for short stay accommodation |
| Personal usage and additional perks | Most buy-to-let apartments are rented out on Assured Short-hold Tenancies making it hard to personally use units without significantly affecting yields.
The exception to this is when let out on short term rentals. |
Depending on location and hotel grade many hotels will come with leisure facilities, swimming pools and food and beverage outlets.
Many schemes also offer a certain amount of usage so investors can take advantage of these facilities. |
| Capital appreciation prospects | Can be high if bought in the right area; properties in an area of under supply tend to fare well. | Many schemes offer buybacks with fixed uplifts over a set time. This are typically smaller than can be achieved in the residential market. |
| Exit | Most local estate agents, portals and now online estate agents will freely list and sell your unit | Many schemes offer a buy back after a set number of years, typically 5, 10 or 15, |
Same town, different asset class – both from £65,000
To highlight the key differences, here are two of our latest projects in the current hotspot town of Halifax which has just undergone a £19m refurbishment of The Piece Hall and has a further £58m of regeneration over the next decade. A town certainly on the up and with the right, sound fundamentals.
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Residential – Martins Mill
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Hotel – Coach House
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