For Those Who Are Ready to Build a Hotel

There’s a saying that you shouldn’t expect to get rich by building a hotel; instead, you should already be wealthy before considering such an investment. While this is not entirely accurate, it does hold some truth. Building a hotel requires a significant amount of capital, and the return on investment (ROI) is typically long-term. In the initial phase, when the hotel first opens, substantial working capital is needed to sustain operations until revenue from the hotel can cover its own expenses. This is why only those with considerable financial resources are usually in a position to build a hotel.

This leads to a question: Why do so many owners and investors still find hotel construction appealing? What makes it so attractive? The main motivation for investors is not merely to chase after cash flow or profit. Instead, the goal is to transform accumulated cash into a tangible asset. Holding onto large sums of cash over time is inefficient due to inflation diminishing its value. Building a hotel creates a solid, productive asset that also offers prestige. Furthermore, a well-managed hotel will generate recurring income, unlike investments in precious metals like gold, which do not produce ongoing income. This makes hotel construction potentially more profitable than investing in precious metals.

A well-designed and well-located hotel will appreciate in value beyond the initial construction costs and continue to increase over time. To maintain this value, it’s crucial to perform regular, high-quality maintenance. Prioritizing short-term income over maintenance can be detrimental, as the costs of depreciating asset value can far exceed the benefits of operational revenue. The primary advantage for investors is the appreciation in the hotel’s asset value. A well-operated hotel can serve as valuable collateral, worth more than the original construction cost, and the funds from this collateral can be used to finance other hotel projects in different locations. However, it’s advisable not to finance more than 50% of the hotel’s cost with loans, as this could impose a heavy burden on the hotel’s operational income.

Are you interested in building a hotel?