What Really Counts.

  • 02/06/2019
  • Created by Thomas Wührer
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Yields and other Investment Criteria.

Some time ago, investments in securities have been valued after the annual return in the form of a dividend distribution. Today, where we can track price developments every second, it seems that the short-term price appreciation potential on the stock exchanges first and foremost counts. And this despite the fact that stock market gurus such as Warren Buffet attribute their success to longterm investments instead of quick profit-taking during price jumps.

THE SECRET OF HIDDEN RETURNS.

Now, real estate as an investment form is hardly comparable to company part ownership such as shares. Especially because there is no regulated market like a stock exchange where prices are fixed. However, they are similar in one respect: Both types of investment yield a regular return on investment in the form of dividends. And with both, one can also generate a profit on the sale. The selling price of the property corresponds to the selling price of the share. This aspect of a "hidden return" is often underestimated when investing in real estate, especially in the narrow niche market of hotel real estate, in particular as it noticeably supplements the "classic yield" from rent.

LESS INCOME THROUGH PRICE-INCREASE.

Ten years ago, hotel property yields were around 10% p.a. Meanwhile, they have settled in a corridor of 4 to 5.5 percent. The reason for this is the general switch to “real estate gold” and the background of the policy of cheap money. This has also driven up the prices for residential and office buildings in core locations, and later also for B locations, partly because of the limited supply. In the meantime, even hotels are no longer an insider tip as an investment opportunity, although they are generally reserved for a particularly wealthy clientele or institutional investors. 5 percent return does not sound particularly lush at first. But at the same time, the value of land in good locations increases if approx. 3 percent per year.

TOP LOCATIONS AS A VALUE ANCHOR.

Including this effect, total sales of a hotel property would add up to an average total return of around 8 percent. Sure, a simplistic calculation, but it's about the basic principle of return through value creation. Especially with hotels, this is especially noticeable. In contrast to other special real estate such as logistics centers, hotels are often located in long-term value-stable inner-city locations or attractive long-term holiday regions. This advantage for the investor in hotel real estate will be exacerbated by the increasing shortage of good locations in the future, since land cannot be increased.

LOW RETURNS AS VALUE INDICATOR?

A hotel real estate offer of HOTELINVEST with a seemingly low return does not suggest an unfavorable lease with the operator, but rather a high value of the property due to location and other factors. These include a well-established hotel brand, a solid and modern state of construction as well as a serious and professional operator. With these characteristics - as an investor – “you have at least 20 years a worry-free, inflation-protected income," said Thomas Wührer, CEO of HOTELINVEST.

Current offers from HOTELINVEST, which meet these high demands on return and value retention and potential for appreciation, can be found in places such as Salzburg, Stuttgart, Zurich and Geneva.

 

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