Hotel and apartment building investments are becoming more and more prevalent as the years go on. Companies that offer lodging facilities such as hotels, apartments, and motelries are starting to gain popularity as investments.
This is most notable in the United States, where there is currently a severe housing crisis. As people look to find a place to live, properties that offer amenities such as restaurants, shops, and convenient transportation are popular features.
The amount of money that can be made on this property is heavily dependent on how well the development executes. As always, hard work and commitment will lead to success or failure respectively.
This article will discuss some KEY metrics that every investor should know about a hotel or apartment building investment.
Rent per square foot
While being the primary factor in determining a building’s value, a well-kept building lobby is believed to have around 5–10% decrease in rent per square feet. This is due to banks and developers seeking out tenants that are highly recommended by current residents.
Because of this, it is important for investors to know the maximum monthly rent that their buildings have and what the average monthly rate is. A large reason why buildings go for high prices is because they get more money out of them than someone who maintains and uses the place less often.
Also known as maintenance fees or upkeep charges, this category includes heating, cooling, electrical, plumbing, and security charges. While some of these charges may be small or minimal compared to the total mortgage principal paid, it does not affect the overall property value as these maintenance fees are charged every year.
Revenue per room
As the bullets point out, a hotel or an apartment building has a reputation for being pricey. And because it is an investment, it should be considered carefully.
Many high-end properties have room rates that are hard to pass up. This is due to the quality of the room and how nice it feels to stay in such a luxurious space.
Some people feel this way because they know they will get a great quality of sleep and satisfaction from this, and not just from the location and design of the apartment or hotel. This is what makes investing in property so interesting! You get to control your piece of land, but also whom you allow to live on it.
Expense per room
As the owner or investor, you can see how much you spend on rent or guest expenses for each room in your building. Here are some important metrics to take into account when investing in an apartment or hotel building:
Number of residents: How many other people will be living in the building? Are there gatherings regularly? These are all factors that may affect how much you spend on rent.
How many other people will be living in the building? Are there gatherings regularly? These are all factors that may affect how much you spend on rent. Number of bathrooms: How many places will people need to wash, shave, and put their hair up after bathing and hosting events? Having enough bathrooms is a cost factor that should be considered.
How many places will people need to wash, shave, and put their hair up after bathing and hosting events? Having enough bathrooms is a cost factor that should be considered.
Average length of stay
The average length of stay for an apartment or hotel is about a month, which is pretty standard. This can make sense when looking at longer term investments, like multi-family buildings.
When you look at the building as a whole, it can take you awhile to determine if it’s a good investment. You have to consider the cost of maintenance and possible future growth, as well as the usual social factors that exist in an apartment building.
However, this does give aspiring investors a good amount of time to look at places before they buy, which is always helpful. Having the ability to look at multiple properties on a frequent basis helps maintain momentum for investors too, since they do not get too emotional when buying their first property.
Demographics of the area
As mentioned earlier, apartment buildings are becoming more and more popular nowadays. This is a great way to get into the market and invest in the area, as the apartments are very expensively organized and regulated.
To be able to buy a really good quality unit for around $1,000 per week is pretty strict. Luckily, this area has some good quality neighborhoods with not too many visitors, so you can maintain your privacy.
There are two main demographics found in this area: wealthy people who live in high-end units and people who live in less-expensive but better quality units. Most people in this area are on a tight budget so it is either buying or renting at the lower end of the scale.
Number of rooms
Having a variety of rooms in your building can be a fun feature. Each room can have its own lights and decorations, making it more personal and discrete.
Many investors choose to build a couple of larger rooms at the front of their building to advertise their luxury services. These can also be converted into a family room or another important space.
The number of floors you have helps determine how much rent you charge per person, as well as how much space you have for expansion. Large enough buildings can cost more than small enough buildings, due to more expenses involved in expanding.
If you are looking to expand your business, consider taking over a nearby apartment or building to add more space and revenue.
How much debt you take on vs. using all cash
The size of your mortgage and number of properties you own are both factors in how much debt you have to purchase property loans and how much money you have left to buy other things.
When it comes to owning property, the cost of capital can be higher for owner-occupants than for investors. Since it takes more money to purchase a property than just renting, there’s a higher risk of needing to sell the property at a later date.
However, with enough investment, says Rob Kampia fromqueryiq.com, you can get into a very high net-worth (low debt) home ownership situation.
These days, nearly every investor has cell phone data plans that are free due to new wireless legislation.
Capitalization rate
As mentioned earlier, hotel and apartment buildings typically feature a higher capitalization rate than other investments. This rate is the amount of money that the developer earns in profits after all expenses are paid off.
This rate can vary from developer to developer, so it is important for investors to find a reliable one. Some developers offer their properties at a lower rate, but still request a down payment from the buyer.
To find out if a building you are interested in has this policy, look up whether or not it requires a down payment or what kind of property it must be.
