Buying to rent out to tourists

Are you considering buying a hotel or property to rent out to tourists? Buying to rent out can be an interesting investment. Betterstays has experience in buying hotels & properties to rent out to tourists: we assist individuals and real estate investors in the purchase, financing as well as rental process. We have been closely involved in investments in the cities of Amsterdam, The Hague and Rotterdam. In this article we elaborate on the factors to consider when considering buying a hotel or property to rent out to tourists.

Why buy to rent to tourists?

"Everyone should be able to live somewhere and tourists should sleep somewhere" With this wisdom in mind, it is soon clear why people partly "invest their money in bricks" or buy an investment property: renting out a house or hotel room provides the owner with rental income (= return). The tourist market is good in the Netherlands: private individuals are increasingly renting out properties to tourists.

Buying to rent pays off: a quick calculation

This is why many people invest in real estate.

As a potential buyer of an investment property, you should consider a number of things, including the following:

• Those who invest in real estate generally invest with a long-term horizon: due to all kinds of purchase costs such as buyer's fees and commissions for the broker, mortgage lender and notary, your investment is "underwater" immediately after purchase. It can take years to recoup these costs. Anyone who wants to make (or lose) money quickly is better off not becoming a real estate investor.
• The return on an investment property is in the rental income, not in the value development. Rental income is usually predictable and produces cash flow; value development is by definition unpredictable and can be either positive or negative. Think of potential value development as a bonus, not as the way to make money (because hardly anyone buys at the lowest point and sells at the highest point...). Betterstays specializes in optimizing rental income and can positively impact returns. And in the long run, it is plausible to say that value development is also positive (crises reserved...).
• Like all forms of investment, you need to do a lot of research and seek reliable advice before making an investment: for example, are you familiar with issues such as ground rent and annual canon, the influence of the Owners' Association or foundation classes? We know the local market and can assist you with this.
• Real estate can provide a fairly stable return that historically ranges between 3 and 6%. Because of our method of operation(short stay), that can go up to a gross return of 10 to 15% (net about 7 - 20%, depending on how the investment is financed). Real estate is seen as a relatively safe investment and generally delivers safe returns; do not expect double-digit growth rates year after year.
• Real estate requires maintenance: both the exterior and the interior require regular maintenance or replacement. These costs, along with owner taxes, depress the return somewhat. So know in advance what you are buying, what condition it is in and make a maintenance estimate if necessary, we recommend saving 10% of the rental return for maintenance.

Rental options

The number of rental opportunities is the most important criterion for determining whether an investment is worthwhile, after all: rental income determines return. Again, a number of factors come into play, including:

• Location: the better the location, the better the rentability. A room or house in a big city rents better than a cottage in a village because the demand for housing and tourism is higher in the city. At the city level, demand can vary by neighborhood or area: downtown locations and hip neighborhoods tend to do better than less central neighborhoods.
• Quality: a quality and luxurious room or apartment sells itself. So make sure you buy well-maintained.
• Legislation: get informed about local laws. Every city has different rules regarding short rentals and long rentals. Short rentals are much more interesting from a return perspective but can be restricted by the local municipality; with long rentals, a resident builds up tenant rights and you lose flexibility. Betterstays is aware of the rules of the game.

Funding

Banks have become more critical of financing investment properties: it is not uncommon these days to have to bring 40% of your own funds. On the other hand, a mortgage can provide additional returns through leverage: the return on the capital invested improves with a mortgage. Betterstays has expertise in financing investment properties and knows the banks' assessment criteria and conditions.

Management

If you want to buy a hotel property or a home to rent out you may not always be around. Betterstays manages several hotels and rental properties and ensures optimal rental income and acts as the first point of contact in case of questions/problems. We relieve owners of all worries and earn back our commission.

Betterstays is happy to meet with you at no obligation to discuss your needs and our views! Contact us or read one of our other articles for more information.