We have been sitting here talking about how smaller hotels barely turn a profit. How, then, can large multi-billion dollar real estate investment firms make so much? Why is their ROI so much greater?
How are they able to find deal that have such a better return, especially to the point where some of them generate so much cash that they can buy buildings without loans.
I thought you were already out of the hotel business, and now in the hotel building business. Talk about whiplash.
I’ll take a stab at answering your question, why small operators don’t make a lot and why big ones do.
It’s similar with apartment ownership. Investors who don’t have at least thirty units close, or together, often have to donate their own time and money to the management and maintenance.
Why? Because there’s just not enough units to amortize all of the overhead.
I’m in the home building business, not hotel building.
It’s too hard to find affordable, properly zoned land to build hotels.
Large real estate companies have large information sources that lead them to better projection of their business to get bigger portion of the ROI.
That doesn’t make much sense. It’s all just numbers and loan terms.
A large firm would not get more out of a hotel than I would.
Correct me if I’m wrong and be specific.
Large real estate investment firms have more contacts and giving more advertisements to create awareness for the people.The main important people should get trust on them to buy the property.This may create the more ROI for their business…
Contacts to who?
Hi,
Nobody said anything about small hotels barely turning a profit! All we discussed so far was an obsolete class d motel!
Now the more hotels you own the more benefit from economies of scale as you can buy supplies in larger quantities, oversee multiple properties by one regional manager, market and advertise more than one property together, and provide training to multiple hotel properties for company policies and procedures involving your properties.
The larger the hotel the more the opportunity to take advantage when events occur as although your room nights may average 59% overall per year, you have the chance to catch travelers who are specifically in town for a special event.
I have no idea about your education or experience in real estate but it takes a team of qualified people to make ownership and management of multiple hotels work, you have to depend on that team otherwise your the one solving problems at 3:00 AM early Saturday morning or catching a plane on a Sunday afternoon to observe fire or water damage from an accident the night before.
Events are big money for hotels so being able to market as a preferred accommodations provider for the home and garden show can mean big money!
GR
59% seems awfully low. All the hotels I’ve ever looked at were 95% at least.
Hi,
A 95% occupancy rate is like having 95 out of 100 rooms full every night seven days a week 365 days a year. That's not likely as your community either revolves around servicing weekday events or weekend events which include local corporate business, etc.
If you are 95% full every day your room rates are too low as hotel industry does not revolve completely around occupancy but around revenue.
If I rent my rooms for $59 dollars and I am 95% full out of 100 rooms then my nightly revenue is $5,605 per night, now if I rent 59% of 100 rooms at a nightly rate of $89 dollars my revenue is $5,251 but I saved the money for 3 house keepers (12 rooms max per house keeper by law) and washing / cleaning 36 rooms. So I actually made more money from 59 rooms per night because my housekeepers would have cost me $312 per day with burden for the additional 36 rooms and the savings on water, power, cleaning supplies, detergent, wear and tear, breakfast, etc. saved me much more than the difference.
GR
There are countless reasons why large investment firms generate a lot of ROI. One essential reason is they also invest more money. For large firms that are already financially stable, they can make the risk of spending a lot of money in their businesses. They can build five star hotels and in return they can charge people for larger fees. They can hire the best advertisers to promote their services.
Don’t worry some Large investment firms also started with nothing. All we need to be there in the top is proper hard-work, perseverance, and motivation. We shouldn’t be envious with large firm instead focus on how we can earn more money and progress are own investments.
Do you mean they generate more cash because they pay more of the property with cash, therefore having less loan payments?