Room at the ho­tel for in­vestors ready to take a gam­ble

Buy­ing a room to let is a pas­sive prop­erty in­vest­ment, but is it easy money? Sharon Dale re­ports.

Yorkshire Post - Property - - NEWS -

IN the heady days of the prop­erty boom a new style of hands-off in­vest­ment emerged and with pound signs in their eyes, buy­ers rushed in.

Buy­ing ho­tel rooms sounded like the per­fect in­vest­ment with 50 per cent of the profit from book­ings, free stays in your room and none of the prob­lems as­so­ci­ated with con­ven­tional buy-to let prop­erty.

“Earn money while oth­ers sleep” was the per­sua­sive phrase coined by the con­cept’s best­known pur­veyor GuestIn­vest, which went into ad­min­is­tra­tion when the credit crunch bit.

Now the dust and prop­erty prices have set­tled and the model has been re­vived and ex­panded with the help of two for­mer pro­ba­tion of­fi­cers from York­shire.

David Burgess and Jean­nie Lumb gave up their ca­reers to con­cen­trate on their side­line: sell­ing homes in France, Spain and Morocco, but when over­seas sales slipped in 2008, the cou­ple launched The Ho­tel In­vest­ment Group.

“The Skel­with Group asked if we would be in­ter­ested in sell­ing rooms at the Flaxby Ho­tel, near York, that they were build­ing and that’s when we started, says David, whose com­pany is a mem­ber of AIPP (As­so­ci­a­tion of In­ter­na­tional prop­erty Pro­fes­sion­als)

“Sell­ing ho­tel rooms as in­vest­ment has its roots in the States. It’s a very sim­ple idea. You own the room and the ho­tel op­er­a­tor gets half the in­come from it and you get the other. Plus you are en­ti­tled to use it your­self.

“It’s also tax ef­fi­cient as you can put into a Self In­vested Per­sonal Pen­sion.”

A dou­ble room at the Flaxby with a 999 year lease cost £200,000 and the man­age­ment fee is £1,500 a year. In­vestors get a guar­an­teed six per cent re­turn for the first 10 years.

David and Jean­nie have also sold rooms at Raith­waite Hall Ho­tel in Sand­send, for Skel­with. These are sold out, though apart­ments at the Ba­co­let Bay Re­sort, in Gre­nada, are avail­able from £260,700.

They have also ex­panded into stu­dent ac­com­mo­da­tion in Sh­effield and Liver­pool.

A one-bed flat in Sh­effield costs £78,000 with man­age­ment fees 20 per cent of gross rental in­come.

“The stu­dent rooms are still hands-off and fully man­aged for you,” says David, who is about to launch rooms for sale in a planned city cen­tre ho­tel in Brad­ford.

The ben­e­fits of buy­ing a room, says David, are many. The de­vel­oper gets in­vestor de­posits that al­low him or her to build and se­cure bank fi­nance and the in­vestor gets a has­sle free, full­man­aged prop­erty.

But there are ques­tions sur­round­ing an in­vest­ment ve­hi­cle that is still its in­fancy.

The main one is the exit strat­egy. How do you sell your as­set and who to when there is no sec­ond-hand mar­ket?

“It is early days but we are go­ing to be do­ing re-sales as well. In the first in­stance you would give the de­vel­oper first op­tion to buy the room back,” says David.

What hap­pens if the ho­tel com­pany man­aged the busi­ness badly or the de­vel­oper goes into liq­ui­da­tion? What about the le­gal com­plex­i­ties of mul­ti­ple own­ers?

“We’ve done big fea­si­bil­ity stud­ies and we have done our home­work. We have the best, five-star ho­tel op­er­a­tors on board. At Raith­waite Hall, it’s So­lif,” says David.

“If the op­er­a­tor was per­form­ing badly then the de­vel­oper would step in. The de­vel­oper is still the land­lord and there are penalty and ter­mi­na­tion clauses in the op­er­a­tor’s con­tract.”

Adrian Archer, a di­rec­tor at Sav­ills is un­con­vinced.

He says: “It’s still very new and I find it very hard to be pos­i­tive about it be­cause it is un­proven.

“First, an in­vestor has to be cash rich be­cause banks are not happy to lend on the rooms and there doesn’t ap­pear to be re­sale mar­ket, so the exit strat­egy is un­clear.

“Also, what hap­pens when in five years time the ho­tel is tired and needs re­fur­bish­ing? Does the man­age­ment com­pany ask the in­vestors for an­other £5,000 each?

“The other is­sue is that there are lots of own­ers and that could be a man­age­ment headache.”

If you do in­vest, says Adrian, then abide by that old prop­erty adage: lo­ca­tion, lo­ca­tion, lo­ca­tion.

“We’ve done our home­work. We have the best lo­ca­tions and the best ho­tel op­er­a­tors,” says David.

“It’s a niche mar­ket and it is rel­a­tively new, but it is bricks and mor­tar and the in­vestor owns the as­set.

“We’ve had no short­age of in­vestors ei­ther. They’ve seen that the prod­ucts and the lo­ca­tions are right.”

www.the­hotelin­vest­ment com­

AC­TION PLAN: Bar­co­let Bay, top, and Raith­waite Hall, two in­vest­ments.

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