Are you thinking about investing into a hotel? If you are, you may be concerned about how profitable this type of an investment is going to be. There are some hotel chains that are extremely prolific, generating billions of dollars, whereas others are smaller, and they lose some money initially. Overall, people can benefit from this type of investment. The appreciation of commercial properties is always on the rise. Let’s discuss the profitability associated with owning a hotel of your very own that could help you generate a sizable amount of profit annually.
Are Most Hotels Currently Profitable?
There have been many studies done over the years on the profitability of hotels. They will look at factors including gross operating profit, and total revenue, to determine if a hotel is profitable or not. Back in 2016, total industry revenues for hotels in general almost exceeded $200 billion in total. The profitability of the hotel that you purchase will be based upon several factors. That will include if it is a recognizable chain, where it is located, and how much you are able to charge for your hotel rooms based upon location. Therefore, after looking at these factors, and the information provided by those that are trying to sell this to you, you can factor all of this into decide and projection for future profits.
Profitability Versus Initial Price
Although the information that you are provided on a hotel may show you that it is profitable, you also must consider the initial purchase price. For example, if you are paying more for the hotel than any others in the area, despite the higher revenues, you may not see an actual profit for several years as you are paying off investment that you have made. Additionally, you need to consider the state of the economy. If the economy is doing well, this means that more people will be traveling, perhaps to your area. If there is a prediction of an impending downturn in the economy, people will be spending less money, which means you are projections for profitability could be skewed in the wrong direction.
Once you have evaluated this information, and you can obtain proper financing, you can decide as to whether a hotel will be profitable for you or not. By evaluating current projections for profitability, and the projected state of the economy over the next five or ten years, you can make a rational decision as to whether to make this type of investment.