Are hotels always more profitable than apartment complexes?

Question

Common sense, along with my own research, would tell you that a hotel is a more profitable investment than an apartment complex. They are basically the same building, except that hotels charge a higher rate and the guests turn over faster. Much more rent is collected from a hotel.

To give specific examples, there is a $4,500,000 hotel for sale in Orlando, FL that profits $1,100,000/year.... there is also an apartment complex for sale for $5,300,000 that profits just $540,000/year.

How do these two types of properties act in a recession? Obviously, people will always need a place to stay, but they might not necessarily need luxury vacations when times are hard.

Still, all things considered and all other factors remaining the same.... I think hotels would make the better investment.

Bill Gulley · Answer

About the only thing similar with an apartment building and a hotel is they both have lots of toilets. One is in the hospitality industry, the other is in the real estate industry, which do you want to be in?

What about a mall compared to a hotel or multi-family, maybe a for profit hospital or private airport or a race track, they all involve real estate and they all have toilets. :)

Al Williamson · Answer

I think this is an apples to oranges comparison. The hotel's traffic count and location have everything to do with its profitability. The hotel's bar, restaurant, parking fees, and affiliate arrangements are counted in its bottom line. Hotels spike their prices when conventions come to town.

I don't know if that residential apartment complex is operating like a commercial business. All apartment have the potential to be more savvy, but the status quo apartment has lots of room for innovative asset management.

Brandon Hicks · Answer

So it costs $600k to run the hotel? Seems low...

At $8/hr 20 employees would cost over $300k a year not counting any benefits and SSI payments and so on. I don't know much about hotels aside from staying in them but those numbers make no sense to me.

Joel Owens · Answer

Hotels get hit really hard during a downturn. Businesses cut back and travel spending for their workers and the population at large has less spendable income so either doesn't take a vacation at all or stays close to home.

REVPAR and occupancy levels are key to a hotels profitability. Running the business is much more management intensive.

With the economy coming back and new business starts up more people are traveling again.

Bill Gulley · Answer

That is plain crazy! And you have no clue what you're talking about, it's always commercial. Explain the cafe, the bar, the meeting rooms, the convention hall, the shops, laundry facility for the hotel, these aren't residential amenities.

Sounds to me, from some other posts you've made, you're likely to be a 16 year old wise guy more than an investor or RE operator.

Here's another locked thread!

Joe Fairless · Answer

Account Closedtalking about them on a post before...I think...

Account Closed · Answer

I currently have an RV park that was considered "commercial" because it has more than 4 units. Guess what, it rents living space, so it's residential.

A hotel can exist without those amenities and not all hotels even have them.

Account Closed · Answer

Hotel is residential real estate. You are renting living space. Come to think of it, so are hospitals... I would never do commercial real estate (retail, office space, warehouses) because of the recession risk.

Account Closed · Answer

Just going by their financial statements.

Account Closed · Answer

Revenue is $1.7 million. Profit is $1.1 million.

Are hotels always more profitable than apartment complexes?

Are hotels always more profitable than apartment complexes?

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