Pros and Cons of Investing in Buy-to-Let Flats vs. Hotel Rooms

Landlords and property investors are now starting to look for ways to expand their portfolios as lockdowns and travel restrictions ease. Lower interest rates and higher lending ceilings also contribute to renewed interest in the property market. When it comes to buy-to-let (BTL) properties, which route makes sense? This article will discuss the pros and cons of investing in BTL apartments versus hotel rooms.

In the UK, there are approximately 2.6 million landlords, based on data from the HMRC. While BTL rental yields were flat during the first quarter of 2020, experts anticipate excellent investment opportunities for investors who have the funds. The London Resort is set to open in 2024 and presents a golden opportunity to get into hotel investments with guaranteed returns.

How Does Buy-to-Let Work?

Buy-to-let (BTL) mortgages are loans available to landlords to purchase rental property, such as an apartment or hotels. Unlike a regular mortgage, there are key differences to buy-to-let mortgages which Money Advice Service identifies as follows:

●     You are investing in houses or flats which you intend to rent out.

●     You have the funds and a working knowledge about the risks associated with property investment.

●     You are already a homeowner with the property paid outright or with an existing mortgage.

●     You currently have a good credit standing.

●     Your annual salary is approximately ï¿¡25,000.

●     You fall under a lender’s upper age limit, usually between 70 or 75. This means you have to fall within that range at the end of your mortgage.

If you tick all the boxes, then you are ready to take the next step. In an interview with FT Adviser, Howsy CEO Callum Brannan said, "When investing in a buy-to-let there’s a whole host of criteria to consider above and beyond the yield available.”

“Demand plays a huge part in the success or failure of your investment and so other criteria such as void periods should be carefully considered. It’s all well and good securing a higher yield, but if your property remains empty for a larger proportion of the year this will dent your profitability."

Location is important and you should have a good grasp of the property’s occupancy rates. Hotels versus flats will have different strengths and weaknesses that you need to consider.

Buy-to-Let Flats vs Hotels

Hotel room investment is not new. This asset class has become more popular over the years though not as popular as the standard buy-to-let model. In BTL hotel rooms, you typically buy the room on a 999-year leasehold with prices between ï¿¡50,000 to over ï¿¡450,000 for luxury hotels.

As an investor, you would usually get a fixed number of nights free annual accommodation and the hotel books the room as usual for the rest of the year. The great thing about buy-to-let hotels is that they offer strong commercial property returns to individual investors at an affordable rate. Aside from low entry points, hotels also boast high yields and a relatively hands-off model.

Location is an important aspect of choosing where to invest your money.

Hotel rooms are cheaper since they are essentially studio type flats with practical, inexpensive furnishings. In terms of duties and taxes as commercial properties, they are tax-efficient and exempt from stamp duty for properties below ï¿¡150,000. International investors also do not have to pay any withholding tax. In some cases, investors can buy hotel rooms using the self-invested personal pension (SIPP) with additional tax advantages you can enjoy.

Compared to residential rental properties, hotel rooms have higher yields since they have higher nightly costs. Cleaning and upkeep costs can be expensive for flats, but in hotel rooms they are lower since they are divided with other hotel rooms. In general, analysts say that yields between 8-10% are ideal for property investments.

Finally, with hotel room investments you get to enjoy the perks of being a landlord without doing too much work. This is a hands-off BTL model because hotels are already well-oiled machines, so most buy-to-let hotels have reliable management in place and offer fixed returns for investors. Unlike flats, hotel room investment is a more stress-free and stable option.

Where to Invest in Buy-to-Let Hotel Rooms

Location is an important aspect of choosing where to invest your money. The hotel needs to be in close proximity to areas with high occupancy rates to get the most out of your investment. It also has to be operational year-round to provide a stable source of passive income.

As more health and safety protocols are put in place, analysts find that footfall in the UK has been improving which has a positive effect on investor confidence. The multi-billion pound project as ambitious as The London Resort is proof that economic recovery is underway. It also ticks all the boxes when it comes to hotel room investment with several 4 and 5-star hotels to be built within the 535-acre property and a combined 3,550 on-site bedrooms.

Developers have also announced that 70% of the theme park’s attractions will be indoors to address England’s unpredictable weather. This will also keep The London Resort operational year-round. As for occupancy, in addition to the area’s 22 million population, experts already predict about 8-15 million people worldwide to visit and enjoy this next-generation sustainable theme park once launched.

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