With 20 years of experience sourcing property finance for businesses in the leisure sector, Head of Commercial, Andy Elley, knows a thing or two about investing in B&Bs and hotels. In this blog, he explains what you need to know about investing in B&Bs and hotels and what to expect…
Why Invest in Hotels and B&Bs?
Tourism is a huge industry in the UK, worth £127billion to the economy annually (Visit Britain). British tourism has benefited from visitors from outside of the UK making the most of the weaker sterling, courtesy of the political and economic turmoil that Brexit has caused! However, according to industry research, it’s the hotter British summers that have been making the most difference. Reports from Travel Weekly suggest that the more favourable weather has contributed to a 55% increase in domestic tourism since 2017, with many of us now opting for “staycations” rather than travelling abroad for our sunshine.
This level of industry growth has naturally increased the demand on holiday properties, whether hotels or B&Bs and everything in between. London hotels alone are set to increase room numbers by over 10,500 in the two years to the end of 2019 (Knight Frank), and the latest Accommodation Occupancy report from Visit Britain, highlighted that “establishments with 1-25 rooms saw the greatest increase in room occupancy, up +2% at 81%”. So it seems that whatever the establishment size, now is as good a time as ever to invest in the holiday accommodation sector.
Find the Right Property
The first thing you need to consider is what type of property you are going to invest in. Generally, lenders consider anything with below 10 bedrooms as a B&B or guesthouse, and anything over 10 bedrooms as a hotel.
To maximise profits, choosing the right property in the right location is vital. Think about the type of audience you’ll be marketing to; families, couples, beach holidays, walkers, city breakers? Where are the UK’s most popular destinations already for these types of holidays? What amenities does the property have nearby? In my experience, it’s best to avoid places where a brand-new budget hotel chain has been built, but you’ll also need to think about other types of competition and the standards these properties offer holidaymakers. Knowing the area does help but isn’t vital.
If you’re purchasing an existing holiday business, review the business’ financial accounts for the last two years and, if it’s VAT registered, be sure to request the past years’ worth of VAT returns to check the business’ turnover has been consistent. Don’t be afraid to ask the sellers why they’re selling; if it’s because demand has dropped off in that area then perhaps this isn’t the right investment for you.
My best advice would be to look at as many properties/premises as possible and keep profitability in mind. Ultimately, even if it’s the most wonderful building, if it’s not in the right location it’s going to be difficult to turn a decent profit which is your main aim as a business owner.
Consider how much “hands-on” management you want your property to require. Hotels are always going to need more, as generally staff are required 24-7, however, the profit margins are usually higher with this type of investment.
B&Bs on the other hand, don’t need quite so much management. however, you will need to consider whether you will be living on-site and managing everything yourself.
Financing Your Holiday Accommodation Investment
For most hotels and B&Bs, mortgage terms are between 15 and 25 years, with options including interest only or capital and interest repayments.
Bed and Breakfast Mortgages
For a bed and breakfast mortgage, you will generally require a 50% deposit to secure a mortgage, although, if at least one applicant for the mortgage retains a strong outside income, we do have access to lenders that would consider up to 70% loan to value (LTV).
For a hotel mortgage, where you’re looking at potentially higher profit generation, maximum borrowing will be around 70% LTV.
Interest rates for either start from 2.50% over base rate* with lender arrangement fees usually from 1.5% to 2%. These rates are considerably better than before the 2008 crash, where you could expect rates from 7.50% for most commercial mortgages!
What Experience Do I Need?
In the B&B and hotel sectors, lenders tend to prefer applicants with experience in the industry, however, we do have access to lenders that will consider newcomers. In these instances, a clear business plan and financial projections are vital to make a case to the lender. If this is your first investment in the industry, it’s worth talking to an experienced broker as they will know which lenders are open to you and can help put your case across to them.
When should I invest?
If holiday accommodation is an investment you’re considering, now is the time to start looking. As the main “season” ended in September, businesses looking to sell will be coming onto the market now so that the new owners can be ready for guests again in the spring.
If you have any questions or have a property in mind that you need finance for, please do not hesitate to contact me, Andy Elley on 01732 471644 or email me firstname.lastname@example.org.
*Base Rate 0.75% as at 01/11/2019
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