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Hotel vs. Residential – Same price, same town but some key differences

January 17, 2018Article by Kirsty Rose

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.

 

Residential – Martins Mill

  • Price from: £64,950
  • Invest from: £12,990
  • Yield: Up to 8%
  • Financing: Up to 75% LTV*
  • Return on Cash: Over 30% p.a.

Find out more

Hotel – Coach House

  • Price: £65,000
  • Invest from: £65,000
  • Yield: 10%
  • Financing: Not available
  • Return on Cash: 12.5% p.a.^

Find out more

 

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