Get to know us and follow our latest adventures both in the office and further afield
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.