Why are hotels interested in rental guarantee concepts?
It seems a very fair question but on the face of it, it does seem quite hard to understand why large, multinational hotels would be interested in offering rental guarantee concepts to investors. Well there are several reasons why such a deal may be attractive. Like all businesses, they will have one eye on their costs, have concerns about spreading risk as well as an appreciate that the demand for different types of accommodation is forever changing and evolving.
Rental guarantee concepts are a great way for hotels to reduce their initial capital outlay on a new project. This potentially reduces the costs in terms of interest on any loan repayments or eases the company’s cashflow. Of course, the hotel’s future earnings will be reduced but as mentioned, managing costs is playing an increasingly important role for all businesses. However, when this is weighed up with a reduction in the initial outlay it is probably a worthwhile sacrifice.
Demand for different types of accommodation is becoming increasingly common therefore hotels need to build new properties that match consumer demand. In places such as Pattaya there are an increasing number of families visiting the resort whereas as previously singles had been the target audience. Family rooms, certainly on a large scale didn’t exist a few years ago, so therefore this needs to be addressed. This requires expenditure which ties in with the previous point of why rental guarantee concepts are attractive to large hotel chains.
Finally, and although maybe not so significant as the hotels have such a large global backing but there will be minor concerns about spreading risk. Any large outlay carries some potential risk so encouraging other investors reduces this burden. However, thanks to the due diligence that these hotels conduct luckily this risk is minimal.
So, we can see why the hotels would be interested in rental guarantee concepts and it is plainly obvious why tourists and the end user reap the benefits – they get their desired accommodation but what about the investor? Well, investors get a healthy return on a secure investment that is guaranteed for usually five years. They will then receive a projected return figures that are very attractive although not guaranteed. 5-star hotels are always built in prime locations so there is a very high likelihood that the investment will appreciate in value as well as earn an income.
There are a few examples of such rental guarantee concepts in Thailand. One such completed project is the Amari in extremely popular resort of Pattaya. Their particular concept offers investors a return of 5% p.a. for five years whilst prudently projecting returns of 8% p.a. in subsequent years. Obviously, this is a hotel owned by a well-known, reputable, 5-star hotelier so has huge potential for both capital growth and large returns in the form of income.
There are two further projects that are under construction on the popular island of Phuket. These are owned by the hotel chains Best Western and Ramada, again very well-known brands. The offers available are guaranteed returns of 7% p.a. for five years with an impressive projected return of 10% p.a. and above in the following years. For all these rental guarantee concepts the only input that is required from investors is to purchase the units as all the management is taken care of by the hotels.
Rental guarantee concepts are great investment which benefit all parties. This is a stress-free investment giving a healthy passive income. Surely it would be worth adding to your investment portfolio?