Hotel investing is an easy business. Execution is the most difficult part of hotel investing. You most likely already have the tools and knowledge you need to invest in hotels. The principles of real estate investing are the same across all asset classes. Understanding the differences between your current situation and your future goals is the key to making a significant shift. Because of their high operational intensity, hotels are very different from other commercial real estate. You should start by learning about hotel operations.
Focus on Education
After being an economist at Fannie Mae, and later an apartment broker, hotels found me in 2012. I was a guest at the time, which is probably what most real estate professionals have experienced. To get up to speed, a regional hotel investment firm hired me for a 6-month trial period. I would be damned if my performance was not high. The best part? There was no formal training. It was a sink-or-swim situation. Already, I switched from residential to business. The trade press and personal relationships were my best education resources. So I began to search for every industry newsletter, and to meet the men who know everything and are open to chatting.
If you have ever been successful in real estate, you know how important these resources are. Include hotels in your enrichment rituals. It takes very little to see big results in the beginning. Spend 15–30 minutes a day researching the industry, and make 2–3 half-hour phone calls every week. You’ll be like a rolling stone and pick up some deals while getting an education.
All of them must be underwritten
That’s right. You must underwrite any deal that comes across your desk. You can only get a solid understanding of finance and hotel operations if you get down to it. Compare and contrast the deals. Find commonalities and differences between investment strategies and management. Until you have the basics, there is no way to make a difference in your Investment Strategy. You may not be familiar with the complexity of hotel deals. Management and brand companies have different contributions that contribute to the overall success. Alignment with the right capital partners will also be crucial to long-term investment success. Utilize your underwriting process and workflow to discover questions you can ask your network.
Invest with a Experienced Operator
There are many ways to get into. However, I believe that hand-in-hand is the best way to get in if you have done it before. As an asset class, hotels are capital-intensive and operationally challenging. Most hotels will require renovations upon ownership change. The scope of work will vary depending on ongoing capital investment. Experienced operators will be able to guide you through the process of navigating all stakeholders.
Two options are available to you — private placement or third-party management.
Private placements are usually restricted to accredited investors. However, third-party management can increase the value of your deal for capital providers. At this point, avoid aligning yourself with the big boys. If you have a solid platform for hotel investment and are familiar with asset management, institutional operators can serve your purpose. As an entry-level hotelier, it is important to have someone who will guide you and hold your hand. These regional players are where you have direct contact with the principals.