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Haysha’s basic rules for investing in hotels

Hotel investment is basically profitable. This is a statement coming from the long-term real estate expert Haysha Deitsch, leader of Beechwood Acquisitions. According to him, the investors, with professional management, can have a relative stable income and predictable return of investment. Hotel investment is measured according to price per built room, because a hotel room is the basic generator of income.

When forming the price of construction of a hotel, the investor is usually adheres to the percentage participation for each budget category. The table below shows the percent participation:

Hotel Category

Price of properties

Construction of hotels

Furniture and equipping

Expenses before opening

Total

3 - 4 stars

12%

72%

12%

4%

100%

5 stars

14%

68%

14%

4%

100%

*Note: The percentages represent average values and depend on the markets where the hotels are being built.

In general, Haysha calculated that the hotel must have a $1 USD return from rented room for thousand dollars spent in the construction. In others words, if the hotel costs a total of $5M USD, the average cost of room per day should be $50 dollars for the investment to be cost-effective.

However, the concept and the category of the hotel are determined by the requirements of the market. Nowadays, the most profitable hotels are those in the category of 3 stars (so-called economic-budget hotels). Typically, these hotels provide limited service (bed and breakfast).

Operative costs, according to Deitsch, are incomparably lower compared to hotels with full service. For example, a hotel with 100 rooms and limited service has an average of 12 employees. At the same time, a hotel with full service has about 70-80 permanent employees. The price of complete construction of hotels with limited service is between $32.000-$36.000 dollars per room, excluding the land property and excluding the market where the hotel will be built.

With average rate of occupancy of 55%, the investor can expect about 30% of annual profit from the invested capital, plus the market value of the hotel from operating the business-and this depends from the results of the business. Hotels, as investments, are not dependable from the market price of real estates in the residential or commercial area, but from the economic movement in the country. This is what makes them so special, says Mr. Deitsch.

For example, the developing countries in south-east Europe, whose population exceeds 50 million, have the smallest percentage of international hotel chains. Analyses show that Belgrade, as future economical center of the Balkans, should have another 6-8 three-or-four star hotels built, exclusively aimed at business individuals!

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