How to buy Hotel apartments (rooms) for investments in Dubai
Dubai is among the ten world's most popular tourist destinations. That is why the investors focus to investments in hotel rooms. Anticipating customer expectations developers offer different schemes and options for investment in hotels.
Buying the hotel is a big investment for investors and developers propose to buy hotel rooms which is more suitable for regular investor especially in terms of liquidity and price.
WHICH HOTEL ROOMS ARE OFFERED ON THE MARKET
The following hotel rooms (apartments and studios) are available on the market:
✔️ directly from developers without additional commissions;
✔️ purchase on the secondary market at attractive prices.
In terms of guaranteed income there are rooms as follows:
✔️ Hotel room without the guaranteed income. Most hotel rooms are represented by hotels from First Group. We recommend to purchase the hotel rooms on the secondary market (resale) at a price of 30 to 75% of the developer's price from investors who previously bought rooms in the same hotel and are currently selling them, thereby focusing on a attractive yield about 7% per year. The history of distribution from existing hotels shows that all hotels rooms becoming cheaper in some years from completion.
✔️ Hotels with a guaranteed income in the first years. The guaranteed income is usually 5-10% annually of the invested amount and is paid in the first 3-10 years. In exceptional cases during promotions developers can offer better conditions. The main question is what happened after guaranteed period, which ROI the hotel will generate later, and may be investors received cashback as a result of overpaid room price. Without transparency (financial statements) its impossible to evaluate, and our advice is to request the financial statements of the management company (previous experience).
Hotels are managed by well-known international groups (for example, Wyndham), central reservation system provides a steady flow of customers from all over the world. Naturally all these factors have a positive impact on the profitability of the hotel.
INCOME POOL WITH DISTRIBUTION ON PRO RATE BASE
Our company recommends to clients firstly to understand the way to receive the income by investors.
Some hotels share net income depending on gross income of the investor's room.
In another way mostly hotels use income pool scheme. That case we recommend not to pay attention to view from the windows and floor plans, floor existence of balcony which don’t affect the profitability of investments in their room according Title Deed. That income of each investor is the sum of hotel gross incomes for less the cost of management and maintenance of the hotel for a certain period in proportion to the square of the total area of the hotel room (pro rate base). Even if the hotel room will be empty during year the income will be calculated from all hotel.
Therefore, ask the management company if there are any coefficients for income distribution, i.e. is there a difference in calculating the income per square meter of rooms of different quality. In most hotels, the income per square meter of a Penthouse and a room "without windows in basement" is the same. So why an investor should overpay?
The main difference between hotel rooms and residences is that the Owner is obliged to transfer his room to the management of the Hotel Management Company and cannot independently manage it or live in it. These investments are for investors who do not want to be involved in business
REASONABLE PRICE FOR A HOTEL ROOM
The market offers rooms in the same hotel at different prices, sometimes differing by 3 times. Which of the offers have the reasonable and fair price?
If the Investor is looking for a yield not less 8% an annual income (for example, $10,000), the purchase price should be no more than $125,000 with all associated costs (transaction costs).
Price = Income per year * 100% / Base yield
Or
10,000 * 100% / 8% = 125,000
This is the upper price ceiling, and given the risks, the purchase price should be less.
Therefore, request income reports for the last years for the room being sold or averages for the hotel.
It should also be taken into account that periodically any hotel needs to undergo repairs, which are usually carried out at the expense of clients.
Usually hotels offer a two-week free accomodation during the year (but just next five years after purchase).
Therefore if you are seriously thinking about investing in the hotel rooms pay attention to the management company, the location of the hotel and to the rooms with the lowest price per square foot
Heart-of-city Realty has experience in hotel investments and we will be able to offer a wide range of projects in Dubai to invest in hotel rooms directly from developers (no additional fees), as well as from investors at market price.
