Monday, 10 February 2014

Hotel Room Investments and Student Housing Investment

Hotel rooms and student housing investment belongs to a special class of real estate assets. They are strata titled property with a "business" elements to it. They are normally leased back to the operators to rent to prospective rentees with proper management put in place.

Would I buy this?

Needless to say, for me yield is the ultimate determinant of the investment. Such investment yields typically are from 7-10% nett yield.

Hotels are generally running at 60% yields and above. In SG, Hotels are running at newr full occupancy most of the time. You can imagine the cash flow coming in from hotel rooms business. They often have no competition over other accomodation modes and they are priced a premium over residential developments. In SG, perhaps a room at a luxury condominium at prime district can be rented for $1800 a month. A hotel room might set you back at $300 / day. In essence, there simply is no comparison for such short stay arrangements for tourists. The risk is due to economic downturn, and any pandemic, war issue, tourist arrival rates might fall and the business might go bust.

Student accomodations or dorms can be had in any place. Dorms are high yielding properties however due to the long tenancy period, students can often rent at residences outside of the Dorm for about the same price. Hence, premiums for student accommodations are priced at a lower end of the spectrum to attract students. Students can always rent a room at a normal residence at about the same rate. Students are also price sensitive to rate changes and hence, the prospect of increasing yields are not high.

Hence, looking at both investment, hotel rooms offer a higher rate of returns, higher risks, so choose wisely. For student accommodations, choose something that is 100% occupied and rents that justify their existence. Both of which you can't really stay in when things go bad.

No comments:

Post a Comment