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Property investment has been a valid way of making money for many years but rising prices and the difficulty of getting a mortgage of late have made it unaffordable for many – if not most - people.

Fairly recently, however, a new type of property investment has become available: hotel room investment.

Is investing in hotel rooms a good way to make money?

Well, here’s how it usually works; let’s say a developer is building a new hotel. Rather than borrowing money from a bank they invite individual investors to buy a room (or even a share of a room) in it, often for just a few thousand pounds. In return, the developer pays you a share of the income the room generates for as long as you own it.

You don’t have to do anything; the hotel manages the room for you. (With some schemes you are even entitled to free nights in the hotel too).

So, let’s look at the pros:

The main pro is that you can invest relatively cheaply: sometimes from as little as £10,000 - £20,000 or even less abroad.

The promised returns look quite attractive too, often promising anything from 5% to 20% annual return on your cash (or yield), which is much more than you’d get in any bank account. They might even come with a guaranteed yield for a number of years.

There can also be pension tax advantages for some investors.

And, the cons:

The travel sector is struggling in the recession. People aren’t taking as many holidays and business trips, or taking shorter ones. You might have noticed – many of the big hotel chains have had cut price offers on recently.

Your investment may not be secured in any way. If the scheme promoter goes bust you could lose your money.

If you want to sell your share it might be difficult to find a buyer – as there’s no ready resale market for hotel rooms.

So what do I think about hotel room investment schemes?

These schemes are by and large bona fide, offer attractive returns, and are being successfully used by many small and large investors.

But you MUST check the fundamentals behind the scheme before you take them up. Is the company behind the scheme sound? Who will be managing the hotel? Will the hotel attract a good level of occupancy?

Generally speaking, only hotels managed by well-known international chains, in good business or tourist locations will offer the best returns.

Be wary of:

Hotel room investment schemes offered by little-known developers in new or unproven holiday resorts abroad. A number of these schemes have folded, the hotels have never been built, or they have simply never attracted the level of occupancy that is hoped for.

by Mark Hempshell Business Opportunities Expert Mark Hempshell is a regular contributor to What Really Makes Money. You can sign up for the free weekly eletter here: Recent Articles by Mark Name Email

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