Hotel as an investment. Types of hotel business management. - EN_BLOG

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Hotel as an investment. Types of hotel business management.

Hotel as an investment

The hotel industry stays the most attractive for most businessmen and investors on the global property market. More than 700,000 hotels and resorts are scattered around the globe and this amount continues to grow.

Why do investors continue to invest money in hotels?

At first sight, the hotel as an investment is a stable and passive income. But the hotel business is a rather complicated area of ​​commercial real estate. The difficulty is the many factors influence on the profitability of investments. For example, facility location, personnel management, competitive environment, and hotel management strategy.



Learn more about the trends in the hotel market in the article to be informed: 5 trends shaping the hotel construction market.

Depending on the experience of the owners and their personal qualities, a potential investor can manage a hotel in 3 ways:

  • Manage hotel yourself
  • Hire a large management company or brand operator (BO)
  • Hire a local management company or local operator (LO)

Each type of management has advantages and disadvantages. So the investors or business owners should choose the most appropriate way to make deals. Let’s discover each method of hotel management.

Personal hotel management

Personal hotel management is the controlling of the hotel processes without the help of a management company. In contrast to other hotel management types, the owner does a company business on its own risk.

The company profits depend on leadership skills and expertise in hotel management of the business owner. Manager control such processes like accounting for various consumables, hiring staff, training personnel, rooms cleaning, booking, communication with guests and partners, reputation management (SERP) and hotel promotion.

So, if you have not expertise in the hotel business, it could be complicated to understand all the intricacies of the hotel business and legislative part. Managing the hotel independently is not only expenses in monetary terms but also spending time resources on visiting and managing the hotel.

To avoid this, the business owner could hire a management company and require only reports on profits and expenses without going into all organizational moments. Turning for business consultation, Property Invest will prompt the necessary amount of investment, and the optimal number of rooms.

Summarizing all the above, personnel managing has such pros and cons:

Pros:

High returns;
Personal control over the processes;
Quick response to unforeseen situations.

Cons:

High risks;
All profits will be invested in further development;
Managing hotel takes time.

If you do not ready to get expertise in the hotel business processes and manage hotel yourself, you could consider the management of the hotel with the help of management companies.

Brand operator management

A brand operator is a company managing a hotel business under the brand name of a large hotel chain. In the case of positive negotiating with a BO, the investor gets management of the hotel with the brand name with many followers around the world. (For example, Hilton, Marriot, and Hyatt work on such a system). The property will be managed by people with expertise in the resort business.

For working with BO, the investor must meet strict selection criteria, namely, the hotel must have a good location and have a sufficient number of rooms (more than 71). Such requirements allow a brand operator to cover expenses on hotel maintenance, pay wages to employees and make a profit. BO exposes high criteria and difficult conditions for termination of the contract. So you should be ready for this.

Management with the help of a brand operator have such advantages and disadvantages:

Pros:

Minimum time costs. An investor can rarely appear in a hotel, receiving a guaranteed profit of 1-4% per annum;
High recognition. Formed hotel name makes a profit from the first days of the hotel.

Cons:

Compliance with strict criteria. Not every object meets strict criteria;
High cost. The high cost of servicing hotels with a global brand name.

Local or independent operator

The main difference between a local operator and a branded operator is doing business, without being tied to a brand. Hotel management, staff training, pricing, promotion are the responsibility of both the brand operator and the local operator. Management services with the help of local operators are usually used by small and medium-sized hotels. Independent operators are more loyal in discussing conditions than brand operators.

Local companies adapt to the consumer choice of the end customer (hotel guest) and offer non-standard solutions. It allows the business owner providing and preserving hotel individuality thereby make the hotel becomes more competitive and get the maximum benefit. Often, operators manage multiple hotels, which reduces fixed costs. For example, minor repairs, accounting services, advertising, and equipment.

The disadvantage of such hotel management is not enough famous brand. Hotel promotion and reputation enhancement rest on the shoulders of an independent operator. Therefore, it is important to carefully study the company before starting cooperation in order to ascertain the reliability of the operator.

Results of hotel management through a local operator:

Pros:

High passive income of 15-20%;
Financial flows remain completely open to the hotel owner;
Independent operators are more loyal in discussing conditions;
Adaptation to customer requests and guests. Such companies are flexible to the requirements providing non-standard solutions and hotel design.

Cons:

Low brand awareness. Only experienced local brands know promotion methods to maximize profits;
Finding a decent company that will bear the costs and will bring passive income.

Short summary

In each type of management, there are both pros and cons, so the owner should consider the most appropriate hotel management system. Our company has provided a table with a comparison of hotel management way for our readers.

Personal management Brand operator Local operator
Cost of investmentdepends on the possibilities from $ 2,000,000 from 30 000$
Guaranteed incomeastatically 1-4% 10-15%
Contract termshigh entry barrierlow entry barrier
Degree of presencemaximumminimalminimal
Risks maximumminimalminimal
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