Hotel rooms â a not so good investment
Here at Opes, we donât recommend that most Kiwi property investors put their money into hotel rooms.
Thatâs because they tend to require a higher deposit (generally 50%) and you donât reap the same investment rewards in capital growth because itâs not a residential investment. Itâs commercial.
So if you are the sort of investor who needs to grow their wealth for the long term, this would not be the right type of property to invest in.
Having said that, investing in a hotel room could be a good fit for investors who have the cash in the bank, and would like a higher return than investing in term deposits.
For example, the cheapest hotel room currently available is $255,000 and is expected to earn $15,000 a year in rent. Thatâs a 5.9% gross yield.
But, remember, that youâd need to put in a $127,500 deposit, which you could use to buy a $637,500 townhouse elsewhere in the country.
And you do need to ask yourself, âwhatâs going to be a better investment over the long term?â Is it a $255k hotel room, or a $637.5k townhouse?
One other point to discuss is that investors who buy hotel rooms often get 10 free nights a year in the room. So, if youâve bought in Queenstown and you live elsewhere, this can be a bonus.
However, in our minds, you donât buy a property to get free accommodation â you invest to grow your wealth over the long term.
That seemingly âfreeâ 10-day holiday can end up costing you in terms of the missed opportunity to invest in something better.
So, if you are a first time buyer, an emerging investor, or needed to get a large mortgage to secure one of these hotel units â youâd generally be better off purchasing a more residential property.