Who should not invest in mini-hotels
In Tranio, investors are often asked to find a hotel for 10–30 rooms abroad managed by a large hotel operator and with a long-term contract. However, they do not plan to move and participate in the management of the hotel, but want to receive a guaranteed income.
It is impossible to find such an object for two reasons:
Large hotel operators take in the management of hotels with a foundation of 100 rooms. To organize the full range of hotel services (transfers, 24-hour reception, housekeeping, breakfast, gym, restaurant, laundry), a team is required. Employee salaries will take a significant portion of the income. In the case of a mini-hotel, the income in absolute terms will be small (usually no more than 20 thousand euros per month), therefore it is unprofitable for large operators to manage this facility.
Hiring a manager is too expensive for a mini-hotel. At best, this person – a professional with a high salary, who will take most of the profits to himself, at worst – will turn out to be a fraud. It makes sense to think about attracting a manager only if the hotel has more than 50 rooms.
In 2013, a Russian entrepreneur purchased a 10-room mini-hotel with a restaurant in the Austrian ski resort. His main business was in Russia. The investor believed that the hotel would operate autonomously under the control of the manager and would become a source of passive income. However, he encountered a number of difficulties:
It turned out that saving the manager’s salary will not work: the hotel manager must have a work permit in Austria, and the availability of such a document significantly increases the cost of labor.
The couple from the Czech Republic hired to manage the company coped with the hotel management, but did not understand the restaurant business, which has its own nuances. A non-working restaurant at the hotel reduced its overall profitability.
The hotel is located in the winter ski resort, and in the summer to attract guests is difficult: you need to negotiate with tour operators and festival organizers, which means spending personal time.
With an investment of 1.5 million euros and a loading of 65–70%, the absolute income amounted to only 120 thousand euros per year without deducting expenses – less than the investor had expected.
The owner spent a lot of time, money and effort, changed three managers and as a result decided to sell the hotel. However, a year later, he still could not find a buyer: young Austrians are less interested in such a business, and foreign investors are beginning to understand that they will not be able to manage the hotel remotely.
We do not recommend investing in mini-hotels abroad to those who are not planning to move. Such an object can be a profitable business only if the owner manages it on the spot and devotes all his time to this: communicates with representatives of supervisory authorities and tour operators, is engaged in tax optimization. So, managing the hotel from the example above personally, without a manager, it would be possible to increase the absolute income by about two times.
What to invest abroad?
If the buyer wants to earn it in the segment of tourist housing, but cannot manage it personally, we recommend that you consider serviced apartments that are rented monthly or daily. The minimum budget for the purchase of one apartment is 100 thousand euros. They can be purchased individually or as a package.
The main advantage of serviced apartments is management features. Aparthotels have a limited range of services (usually only cleaning), so they require fewer people to manage. Even one apartment can be enough for a management company – business still remains low-risk and cost-effective.
As a result, the investor invests money in the same strategy and with the same target audience when buying a mini-hotel, but does not plunge into management and gets a good return: 5–7% per annum after deducting taxes and expenses.
Clients of Tranio, a couple from the Baltic States, considered tourist property in the Austrian Alps. Since employment did not allow them to manage overseas property on their own, they opted for a tourist apartment for renting out with a professional management company for a short-term lease.
The rental pool system works in their chosen project: the management company’s fee (20–30%) is deducted from the rental income of the entire residential complex, and the net profit (about 5% per annum) is shared between apartment owners in proportion to their participation. Owners can only receive money and once a quarter to read the reports of the management company on income and expenses.