Apartment Complex vs. Hotel Ownership

[Jeffrey Coleman]

Hello BP members,

This is my very first forum post since creating my profile so forgive me if I sound like a complete newbie (I am). I have been trying to decide what my next investment should be in. Does anyone have any advice or know some of the pros and cons of owning an apartment complex or hotel? I realize the apartments would be a more stable investment but I feel like the hotel industry, especially in certain areas/climates, has the potential to provide a serious income. What are your thoughts/opinions/recommendations?

[Michael Seeker]

Hotels require a lot more capital up front, a typical purchase requires 65% LTV whereas almost any apartment complex can be financed at 80%.  So for a similar price range you've got to come up with almost double the cash to close.  Hotels are higher margin and higher risk.  Here's a great site compiling hotel data: http://www.ahla.com/content.aspx?id=36332

As you can see, the average rate is $68 and average occupancy is 62%.  So you're looking at about $1200-1300 per room per month (obviously lower in some areas higher in others).  Also based on that website, there was 40B of revenue generated on 160B in sales, so you should expect about 75% of your income to go towards expenses, leaving maybe around $300/room/month.  To find out what that really means in comparison to an apartment complex you need to figure out what the cost per unit is for both.  You may pay $25K/room for a hotel and $50K/unit for an apartment complex or vice versa.  The reality is hotels are a lot more work and risk, so you should be able to make a lot more money or lose a lot more money.  There's not a lot of info about hotel investing on this site, so you may want to turn to Google for info related to that.  It would also help to compare two real world opportunities that you'd be choosing between.

I would also suggest looking at taxes and depreciation, both are draws for apartment investing but I'm not sure you'd have the same advantages with hotels.