Exiting The Investment
The buy-back is usually structured as an option agreement – both for the investor and the developer, giving both parties to exit and trigger the buy back with a period of notice (usually 1-2 years) at a pre-agreed uplift on the initial purchase price. Some developers offer buy backs at Year 5 or 10, with an uplift anywhere from 1.5-2.5% per year on the initial price. The way the developer is able to buy back the rooms is either through a direct purchase from funds they have generated from the rooms they have retained themselves within the hotel, or if they were to trigger all the buy-backs, they could look to refinance the hotel with a bank now that they have completed their renovation works, and added sufficient value to the hotel, or thirdly they could sell the hotel to another group, triggering all of the buy-backs.
Is It Better Than Student Or Residential Buy-to-Let?
It’s hard to say any one asset class is better than another as it depends on what the individual investors strategy is. Hotel room investment, similar to student accommodation is a cash only investment, with no financing options available, so it is suited to cash rich investors looking for high returns.It is very similar to student accommodation, however hotel investment has the contractual buy-back agreement in place, giving investors a cleaner, clearer exit rather than having to resell to another investor, which you can still of course do with hotel room investment should you wish. It’s also worth noting that there are no ongoing charges such as maintenance, or service charges with hotel investment. Some hotel rooms attract a very small ground rent which is deducted from the returns automatically before they are paid to the investors. For investors looking to leverage, buy-to-let would be a better investment.