How to Invest in Hotels: Steps to Enter the Hospitality Market

Hotel investors are paying attention to the hospitality industry, which has made a tremendous comeback since the epidemic years. The industry has proved that it can endure and earn money, with global room demand hitting 4.8 billion nights in 2025 and RevPAR expanding at 4% worldwide.

But here's the thing: not all investments in hotels are the same. If you are looking at a $5,000 interest in a hotel REIT or a $10 million boutique resort development, the chances and dangers are significantly different.

This guide will teach you everything you need to know about investing in hotels in 2026 and beyond. It will show you how to look at opportunities, grasp essential indicators, and pick between direct ownership, franchises, and passive vehicles. We will talk about genuine figures, useful steps, and the blunders that new investors often make.

Quick Answer: Is It Smart to Invest in Hotels in 2026?

Yes, hotels can be a good investment in 2026, but there are some key things to keep in mind. The hotel sector has mostly bounced back from its 2020 collapse, and by the end of 2024, occupancy rates in most major markets were back above 65%. In Germany alone, the amount of hotel transactions hit €1.3 billion in the first nine months of 2025. This is the biggest amount since spring 2022. This shows that both institutional and private investors are regaining trust.

For investors looking for passive income or a way to diversify their portfolios, hotels can be a good investment. Most well-run properties aim for annual returns of 6% to 12%, while value-add projects can often obtain IRRs in the mid-teens. But the level of risk is really different for each sort of property. A high-end city hotel in London acts considerably differently from a cheap roadside motel in rural Texas. Since the epidemic, the upper-upscale and luxury categories have done better than others because wealthy passengers are willing to pay high prices.

For people who are just starting out, hotel REITs or shares in publicly traded hotel firms are the easiest way to get into the market. They are liquid, diversified, and professionally managed. Experienced real estate investors with more money may want to buy directly, open a franchise, or run a boutique hotel where they can be more hands-on and get better profits. Hotels are more operationally intensive than multifamily or office buildings because they are open 24 hours a day, seven days a week and depend on tourism cycles, business activity, and changing prices. But that complexity also opens up new possibilities.

The final message is that investing in hotels from 2026 to 2030 might be a good idea if you know how to organize finance, how economic cycles work, and how important expert management is. People who acquire at affordable prices with experienced partners and low levels of debt are setting themselves up for long-term success.

Step-by-Step Guide: How to Invest in Hotels

There’s no single path into hotel ownership. Your investment goals, capital, and risk tolerance determine which route makes sense. Here are the main options available:

• Direct ownership: Purchase an entire hotel property, either operating it yourself or hiring a management company
• Franchise acquisition: Buy or build a hotel under a major brand (Hilton, Marriott, IHG) with their systems and support
• Hotel REITs: Buy shares in publicly traded real estate investment trusts that own hotel portfolios
• Crowdfunding platforms: Invest $5,000–$50,000 into specific hotel developments or renovations through online platforms
• Public hotel company stocks: Purchase shares in operators like Marriott International or Hyatt Hotels

The investment process follows a logical sequence regardless of which vehicle you choose:

1. Define your objectives and role (passive dividend income vs. active ownership)
2. Determine your capital range and match it to appropriate vehicles
3. Learn essential hotel metrics (RevPAR, ADR, occupancy, GOP)
4. Research target markets using industry data sources
5. Screen and evaluate specific opportunities
6. Model projected returns under multiple scenarios
7. Execute due diligence and close the transaction

For example, buying a limited-service hotel in Texas with SBA backing directly might cost $2 million in equity and take 60 to 120 days to close. It takes 24 to 36 months from breaking ground to opening a new hotel. At the same time, an investment in a crowdfunding platform can have a $5,000 minimum and a 3–5 year hold period.

Build your team early. A hotel consultant, hospitality-experienced lender, commercial real estate attorney, and industry broker should be engaged before you commit capital to any significant deal.

Which path fits you?

• Passive index investor: Hotel REITs or REIT ETFs with hotel exposure (VNQ, IYR)
• Aspiring owner-operator: Franchise acquisition of a 40–80 room select-service property
• High-net-worth investor: Limited partner stake in a boutique hotel development or direct acquisition with third-party management

Key Steps for Getting Started

Here’s a detailed checklist to guide your first hotel investment:

• Step 1 – Define your objectives. Specify whether you want passive dividends from a hotel REIT, to own and operate a 40-room roadside property, or to co-own a boutique resort as a limited partner. Your goals shape every subsequent decision.
• Step 2 – Set a realistic capital range. Under $10,000 points toward REITs or hotel stocks. $10,000–$250,000 opens crowdfunding and minority equity opportunities. Above $250,000 enables direct purchase consideration with appropriate financing.
• Step 3 – Learn key hotel metrics. ADR (Average Daily Rate) measures what guests pay per room. RevPAR (Revenue Per Available Room) combines occupancy and rate. GOP (Gross Operating Profit) shows operating efficiency. These metrics drive valuations and help prospective investors compare opportunities.
• Step 4 – Shortlist target markets. Use STR reports, CBRE hotel outlooks, and local tourism statistics for 2022–2025 data. Focus on markets with strong demand drivers: convention centers, airports, universities, or tourist attractions.
• Step 5 – Screen opportunities carefully. Evaluate a flagged (branded) hotel in a secondary US city with 70% historic occupancy against an unbranded independent at 55% occupancy. Consider why performance differs and what changes might be possible.
• Step 6 – Model returns realistically. Compare a 7% dividend yield from a hotel REIT with 10%–15% leveraged IRR from a direct franchise deal. Higher projected returns typically come with higher risk and illiquidity.
• Step 7 – Plan exit scenarios before investing. Consider sale of the property after 7–10 years, refinancing once stabilized to extract equity, or simply holding REIT units through multiple cycles. Never invest without knowing how you’ll eventually realize value.

Are Hotels a Good Investment?

During travel booms and big events, hotels usually do better. Cities that host the Olympics, World Cup, or big conventions make a lot more money. ADRs in many places went above 2019 levels because business travel came back, foreign tourism grew, and the "revenge travel" trend of 2022–2024. For the second year in a row, London is the best place in Europe to invest in hotels. More than 90% of polled investors aim to keep or increase their investments there.

When hotels have problems, they have big ones. The Great Recession caused occupancy rates and values to drop a lot. The epidemic in 2020 was worse. In several markets, global occupancy fell below 30%, and hotels' proportion of commercial real estate volume fell to below 3%. But properties that were in good shape recovered quickly. By 2023–2024, excellent management and ESG credentials were once again driving up the prices of resilient assets.

Once established, well-run hotel properties usually make between 6% and 12% a year. Value-add initiatives that focus on hotels that aren't doing well can make more money—mid-teens IRRs over 5–10 year holds—but they are also risky to conduct out. Hotels may have greater potential for growth than multifamily apartments or commercial buildings, but they also need more active management.

The level of intensity in operations is what makes the difference. Hotels are open 24 hours a day, seven days a week, and need staff, marketing, changing prices, and ongoing attention to the guest experience. Hotel revenue changes every day dependent on how many rooms are occupied, how much demand there is during certain seasons, and how well the hotel is positioned against its competitors. This is not the case with a long-term leased apartment complex, where income is consistent. This is both a risk and an opportunity. Skilled operators can make a lot of money by managing their revenue well.

Investors that are okay with cyclical sectors, have access to reputable operators, or are entering through diverse vehicles like hotel-focused REIT ETFs are good candidates for hotels. They aren't the best choice for investors who want to make money without having to do anything and with little risk.

There are a number of tax reasons why investing in hotels is a good idea. For tax reasons, buildings lose value over 39 years. In some places, improvements may also qualify for bonus depreciation. REIT dividends are taxed differently than direct property income. Talk to a tax professional about your circumstances.

The fair opinion is that hotels can be great long-term investments if you buy them at the correct time in the cycle, with skilled management and low debt. They give investors who know how the business works and pick partners carefully a reward.

New Hotel Development Projects

Ground-up hotel development sits at the high-risk, high-reward end of the spectrum. It’s generally recommended for experienced investors with deep pockets and strong operator relationships.

• New builds typically require large equity checks—$5–15 million or more for a 120-key branded select-service hotel in a US metro area
• Construction loans cover 60%–70% of project cost, with the developer providing the remainder as equity
• Entitlement and permitting timelines can add 12–24 months before construction even begins, including zoning approvals, environmental studies, and brand application processes
• Recognized brands (Marriott, Hilton, IHG) are often essential to secure favorable financing options and ramp occupancy quickly post-opening
• Key risk factors include construction cost overruns, interest rates increasing during the build period, delayed openings, and slower-than-expected stabilization in ADR and occupancy

Consider a hypothetical 2022–2025 project in a Sunbelt city: original budget of $18 million, actual cost of $21 million due to supply chain issues, opening delayed 6 months, and first-year RevPAR 15% below projections. Even with eventual stabilization, those early setbacks can dramatically affect investor returns and capital appreciation timelines.

Renovation and Value-Add Hotel Investments

Repositioning older hotels is a safer option than building new ones, yet it still has a lot of potential for growth.

Investors buy buildings that aren't doing well or are out of date, including wayside motels from the 1980s, aging midscale city hotels, or independent hotels that need repairs, and then they fix up the rooms, lobbies, and technology. This value-add technique changes assets that present hotel operators may not have the money or knowledge to upgrade.

Some common ways to pay for renovation projects are:

• Standard commercial mortgages for properties that are already stable and have renovation budgets

• Bridge loans for assets that are in transition and need a lot of capital improvements

• SBA 504 or 7(a) loans in the US for projects that cost between $1 million and $5 million and will be run by the investor.

Value-add levers do more than just make things seem better. Successful renovations could include adding food and beverage outlets or co-working spaces, installing energy-efficient HVAC systems, upgrading to contemporary property management technologies, or changing the name of the property to a stronger brand with better distribution.

A well-planned remodeling can change the economy in a big way. Think about a property that was bought with 55% occupancy and a $80 ADR, which may give you 4% cash-on-cash. The identical property could get 72% occupancy and $120 ADR after $2 million in renovations and a brand enhancement. This would give an 8%+ return on investment and a far higher resale value after 3–7 years.

Buying a Hotel Franchise

Franchised hotels represent the most common entry point for first-time hotel owners with meaningful capital. Major brands—Hilton, Marriott, IHG, Hyatt, Choice, and Wyndham—offer established systems, global distribution, and operational support.

Initial and ongoing costs to understand:

• Franchise application fees ($50,000–$100,000+ depending on brand tier)
• PIP (Property Improvement Plan) requirements that specify room renovations, lobby standards, and amenities
• Ongoing royalties typically totaling 8%–12% of room revenue, including base franchise fees, marketing contributions, and loyalty program assessments

Benefits that attract hotel investors:

• Access to global distribution systems and OTA relationships
• Loyalty programs (Hilton Honors, Marriott Bonvoy) that drive repeat business
• Standardized operating procedures and training programs
• Brand recognition that supports marketing efforts

Lenders often prefer financing branded hotels because of historical performance data and stronger demand visibility. A Holiday Inn Express with 10 years of STR data presents less risk than an independent with limited track record.

Important cautions:

• Franchise agreements run 10–20 years with significant termination penalties
• Brand standards restrict design choices, service levels, and technology providers
• PIPs at renewal can require substantial capital expenditure

Consider a scenario: converting an independent 80-room property in 2026 into a Holiday Inn Express might cost $4 million in renovations plus franchise fees, but could lift RevPAR by 25% and improve financing terms from 65% to 75% loan-to-value.

Hotel Refinancing and Recapitalization

For existing hotel owners, refinancing provides a powerful tool to reduce interest rates, access accumulated equity, or restructure ownership arrangements.

Common triggers for refinancing:

• Interest rates dropping below the current loan rate
• Property value increasing after stabilization or renovation
• Upcoming loan maturity requiring replacement financing
• Desire to buy out existing partners or bring in new capital

Available options include:

• Conventional bank refinancing with competitive rates for stabilized assets
• CMBS loans for larger properties seeking non-recourse financing
• SBA 504/7(a) refinancing in the US for owner-operated hotels under $5 million
• Private credit funds for situations where traditional banks decline

A successful refinance can release cash for further renovations, fund acquisitions of additional hotel properties, or pay down expensive mezzanine debt. For example, an owner who purchased a hotel at 65% LTV, improved operations, and saw values rise might refinance at 70% LTV on the new value—extracting substantial equity while maintaining conservative leverage.

Lenders scrutinize recent performance carefully. Trailing 12-month RevPAR, debt-service coverage ratio (typically requiring 1.25x–1.40x minimum), and brand strength all affect available terms.

Hotel REITs and Listed Hospitality Companies

Hotel REITs offer one of the easiest ways for individual investors to gain hotel exposure without owning a physical property.

These real estate investment trusts own portfolios of hotel properties across various segments—economy, midscale, upscale, and luxury—and distribute the majority of operating income as dividends. By law, REITs must pay out at least 90% of taxable income, creating attractive yields for investors seeking passive income.

2026-relevant examples include:

• Apple Hospitality REIT: Focused on select-service brands like Hilton Garden Inn and Marriott Courtyard, primarily in suburban and secondary markets
• Summit Hotel Properties: Sunbelt-heavy portfolio with exposure to growth markets
• Park Hotels & Resorts: Large brand-name assets in major gateway cities

Investors can purchase REIT shares through standard brokers (Schwab, Fidelity, Interactive Brokers) or gain diversified exposure through broad REIT ETFs like VNQ and IYR that include hotel holdings alongside other property types.

Advantages of hotel REITs:

• Daily liquidity—buy or sell shares anytime markets are open
• Diversification across dozens of properties and markets
• Professional management with hospitality expertise
• Lower entry barriers—invest with as little as a single share

Disadvantages to consider:

• Share price volatility during market downturns
• Sensitivity to interest rates (REIT prices often fall when rates rise)
• No control over property selection or operational decisions
• Different tax treatment than direct property investment

Historical dividend yields for hotel REITs have ranged from 4%–8%, with total returns (including appreciation) varying significantly based on market timing. Compare this to the 10%–15%+ leveraged returns possible with direct property investment—but recognize the vastly different risk and liquidity profiles.

Other Hotel Investment Routes (Stocks, Crowdfunding, Room Ownership)

In addition to REITs and direct ownership, there are other ways for different types of investors to get exposure to hotels.

If you buy shares in global hotel chains like Marriott International, Hilton Worldwide, or Hyatt, you're banking on the management's skills and the brand's strength, not on specific buildings. These organizations make money from managing and franchising properties all over the world. Their stock performance shows both how well their business is run and how the market feels in general.

Real estate crowdfunding: Investors can put between $5,000 and $50,000 into certain hotel renovations or developments using online portals. These investments usually provide IRRs between 12% and 18% during a holding term of 3 to 7 years. One example is platforms that focus on hotel development projects and let various investors pool their money with a lead sponsor.

Fractional or single hotel room investments: Some developers let people buy individual rooms in hotels that are already maintained. Investors buy one or more rooms and get a part of the money the hotel makes from renting them out. This model can be seen in resorts all around the world.

Key risks for room investments require careful attention:

• Limited control over pricing, marketing, or operational decisions
• Opaque fee structures that can consume substantial revenue
• Difficulty reselling units, especially in overseas “condotel” schemes
• Potential misalignment between developer and investor interests

Seek independent legal and tax counsel before entering complex syndicated or international hotel investment structures. What looks attractive in marketing materials may carry hidden risks in the fine print.

Trends and ROI Drivers in Hotel Investment (2026–2030)

Since 2020, the hotel business has changed a lot. Changes in travel habits, faster acceptance of new technologies, and more realistic expectations from investors have all happened. Anyone who wants to buy a hotel property needs to know about these changes.

The recovery is still going strong thanks to travel returning to normal after COVID, but the mix has altered. First, there was a big rise in leisure travel, and then corporate travel slowly came back. Remote work has changed the way people travel. For example, "bleisure" travelers extend their business trips, digital nomads arrange longer stays, and families take advantage of being able to work from anywhere. International travel, especially from China and other Asian countries, is still below 2019 levels but is expected to expand quickly until 2030.

Sophisticated revenue management is a big part of modern hotel investment returns. Properties that use dynamic pricing software, channel managers, and CRM solutions always do better than those who use static rate tactics. The visitor experience is more important than ever because online reviews affect both bookings and pricing power.

The terms of the loan affect the returns that can be made using leverage. From 2022 to 2024, interest rates went up a lot, which made new purchases less profitable. Banks became more careful, which made room for private credit funds and other lenders. JLL predicts that transaction volume will rise by 15% to 25% in 2025 as rates normalize.

More and more, sustainable design affects how people invest. Energy-efficient upgrades lower operating expenses and draw in guests who care about the environment and some sources of financing. In 2025, ESG-compliant core assets in Germany had gross returns of about 4.70%, which shows that sustainability credentials help prices go higher.

Current Hotel Investment Trends

Trend 1 – Growth of boutique and lifestyle hotels: Demand for unique, locally inspired properties continues rising in destinations like Mexico City, Lisbon, and Tulum. These hotels offer higher ADR potential and attract travelers seeking authentic experiences over standardized accommodations.

Trend 2 – Bleisure travel expansion: More guests extend work trips for leisure, driving demand for hotels with co-working spaces, strong Wi-Fi, and amenities that support both productivity and relaxation.

Trend 3 – Technology integration: Self-check-in kiosks, mobile keys, cloud-based PMS systems, and AI-powered chatbots reduce labor costs while improving guest satisfaction. Properties slow to adopt technology face competitive disadvantages.

Trend 4 – Sustainability investments: Solar installations, smart HVAC systems, and water-saving fixtures lower utility bills and help properties achieve green certifications that matter to corporate travel managers and individual guests alike.

Trend 5 – Alternative financing growth: Private credit funds, crowdfunding platforms, and joint venture structures have expanded as traditional banks tightened hotel lending standards following 2022–2023 rate hikes.

Trend 6 – Mixed-use hospitality development: New projects increasingly combine hotels with branded residences, retail, and co-living spaces. This diversification reduces risk and creates multiple revenue streams within single developments.

What Is a Good Hotel ROI and How to Evaluate Deals

Understanding return metrics is fundamental before committing capital to any hotel investment.

Key terminology to master:

• ROI (Return on Investment): Total gain or loss relative to initial investment
• Cash-on-cash return: Annual cash flow divided by equity invested—measures ongoing income
• IRR (Internal Rate of Return): Annualized return accounting for timing of cash flows over the hold period
• Equity multiple: Total cash returned divided by equity invested (e.g., 2.0x means you doubled your money)

Different investor types prioritize different metrics. Income-focused investors watch cash-on-cash yields. Growth-oriented investors emphasize IRR and equity multiple. Sophisticated investors model multiple scenarios to understand the range of possible outcomes.

Realistic benchmarks for 2026:

• Stabilized core assets: 6%–8% annual cash returns
• Value-add projects: 10%–15%+ IRRs over 5–10 year holds
• Development deals: 15%–20%+ target IRRs to compensate for construction risk

What constitutes a good investment varies by market. London’s prime yields hover around 4.5%–5.0%—acceptable given stability and liquidity. Secondary US markets might require 8%+ cap rates to attract capital. Emerging destinations like Vietnam offer higher returns but with currency and regulatory risks.

Consistent positive cash flow and downside resilience often matter more than headline IRR projections. A property that generates 7% annually through recessions outperforms one projecting 15% that fails during the next downturn.

Building an underwriting model:

• Forecast hotel occupancy monthly for years 1–3, annually thereafter
• Project ADR growth based on market trends and planned improvements
• Estimate departmental expenses (rooms, F&B, admin) as percentage of revenue
• Include management fees, franchise costs, property taxes, and insurance
• Calculate debt service based on proposed financing
• Reserve 4%–5% of revenue for capital expenditure

For a worked example: evaluating a 70-room limited-service hotel at $7 million purchase price with $2 million equity and $5 million loan. Year 2 projected NOI of $500,000, debt service of $350,000, leaves $150,000 cash flow—a 7.5% cash-on-cash return. Add principal paydown and projected appreciation for total return analysis.

Always conduct sensitivity analysis. What happens if occupancy drops 10%? If interest rates rise 100 basis points at refinancing? Conservative investors test downside scenarios before committing.

Key Metrics and Tools to Analyze Hotel Investments

This metric toolkit helps evaluate any hotel opportunity:

Break-even occupancy deserves special attention. This is the occupancy level where revenue exactly covers operating costs and debt service. A hotel with 45% break-even can weather downturns; one with 65% break-even faces cash shortfalls during soft periods.

Benchmarking sources for due diligence:

• STR reports provide market-level performance data
• Local tourism boards publish visitor hotel statistics and trends
• Commercial brokerage reports from CBRE, JLL, and HVS offer market analysis
• Smith Travel Research tracks competitive set performance

Modern hotel management software provides real-time dashboards tracking daily revenue, pace versus budget, and channel performance. Smaller owner-operators benefit from cloud-based systems that don’t require expensive IT infrastructure.

Always compare pro forma projections from sellers or sponsors against your own conservative assumptions. Sellers naturally present optimistic scenarios.

Boutique Hotels and Lifestyle Properties as an Investment Niche

Large chain hotels make up most of the market, but boutique hotels have found a unique financial opportunity. These hotels, which usually have 10 to 100 rooms and focus on design, local culture, and personalized service, attract guests who are willing to pay high prices for unique experiences.

Boutique projects in places where authenticity and atmosphere are important, including Tulum, Oaxaca, coastal Spain, Portugal's Alentejo region, and new places in Southeast Asia, are popular with investors. Hotels in these areas can charge 30% to 50% more than similar chain hotels while creating a loyal base of return guests.

The money side of things is different from regular hotels. Higher costs for design and fit-out raise development budgets. Social media presence and earned media are more important to marketing than worldwide distribution methods. Operations need hospitality workers that know how to curate experiences, not just how to quickly turn over rooms.

Risks specific to boutique investments include:

• Dependence on niche markets and traveler trends
• Higher per-room construction and renovation costs
• Vulnerability to fashion shifts and social media sentiment
• Greater operational complexity with smaller scale

Strong local partners who know the culture, design preferences, and rules are usually needed for boutique investments to work. When an outside investor gives money to a local operator's vision, it usually leads to better results than when someone owns an independent property from far away.

Look at successful ideas like design-forward establishments in Oaxaca that show off the work of local artisans and charge $300 or more per night, or ancient structures that have been turned into hotels in Lisbon, where the architecture and neighborhood authenticity justify high prices.

What Makes a Boutique Hotel Special to Guests and Investors

Four pillars define successful boutique properties:

Authentic local culture: The best boutique hotels blend seamlessly with their environment. In Oaxaca, this involves trying mezcal and going to workshops for local textiles. Cenote trips and Mayan culinary workshops in Yucatán. Guests pay for things that aren't offered at typical chain hotels, and that gives investors a return on their money.

Unique design: Working with local artists and architects makes interiors that stand out and make higher room rates possible. These residences stand out because they have handcrafted furniture, materials that are acquired locally, and building designs that take into account the climate and culture. The money spent on design pays out in the form of ADR premiums and earned media coverage.

Personalized service: Smaller teams make it possible to have real conversations. Staff members recall guests who come back, tailor their experiences, and make the kinds of memories that get five-star evaluations. Those reviews lead to direct reservations, which lowers the cost of OTA commissions and increases the value of the brand.

Memorability: Guest posts are a great way to get free advertising for your business if you have Instagram-worthy settings and story-driven branding. A unique pool, stunning building, or a restaurant that is well-known in the area can all make material that can be shared with thousands of potential guests for free. This organic visibility raises the return on investment (ROI) and occupancy rates for marketing.

When done correctly, these elements can create assets that can go up a lot in value, giving you both capital appreciation and operating income.

Key Partners: Lenders, Operators, and Management Companies

Critical partnership decisions determine boutique and independent hotel success:

Lenders with hospitality expertise: Banks and private lenders who understand hotels underwrite more realistic projections and offer flexibility during challenging periods. They’ve seen cycles before and structure loans accordingly. Regional banks with local hotel portfolios often provide better terms and relationships than national institutions unfamiliar with hospitality.

Operator selection involves fundamental strategic choices:

• Global brand management: Provides systems and distribution but may impose standards inconsistent with boutique positioning
• Regional operators: Offer relevant expertise with more flexibility on design and guest experience
• Self-management: Maximum control but requires building or hiring an experienced team with hospitality operations expertise

Asset managers represent owner interests when third-party operators manage properties. They push operators to hit performance targets, review budgets and forecasts, and ensure owner priorities receive attention. For hands-off investors, a good asset manager is essential.

Alignment of incentives matters enormously. Fee structures tied partly to GOP or NOI performance—not just base fees calculated on revenue—motivate operators to control costs and maximize owner returns.

Questions to ask potential partners:

• What comparable properties do you currently operate or lend on?
• How did your hotels perform during the 2020–2021 period?
• What happens if we miss performance targets?
• How are decisions made about capital expenditure and renovations?
• What’s your typical owner communication and reporting cadence?

Risks, Pitfalls, and How to Protect Your Capital

Hotel investment carries real risks that demand honest assessment and proactive risk mitigation strategies.

Market and macro risk: Recessions, travel bans, pandemics, and changes in aircraft capacity can all quickly lower occupancy. Even the best hotels aren't safe from what happened in 2020. By spreading out across several markets and segments, you lower the risk of concentration. Having properties in both business and vacation spots gives you some natural protection.

Operational risk: Bad management, not enough workers, or bad reviews online can quickly hurt cash flow. A single viral complaint can hurt a property's reputation for a long time. Reduce risk by hiring experienced general managers, setting up strong systems, and keeping an eye on performance. The right operator is more important than practically everything else.

Financial risk: During the rate hikes of 2022–2023, it was risky to borrow too much at floating rates. Properties with 80% or more loan-to-value and variable rates saw their debt payment eat up their cash flow. Use conservative leverage, with a maximum LTV of 65% to 70%, and stress test scenarios with rates that are 200 to 300 basis points higher than they are now.

Regulatory and legal risk: Different countries and cities have very different restrictions for zoning, labor legislation, licensing, and taxes. A property that is legal in one area may not be legal in another. For direct investments, you must have a local lawyer who knows about hospitality.

Illiquidity: It's quite hard to sell direct hotel assets and fractional room investments rapidly, especially if they're in secondary markets or have operating problems. Make sure your investing horizon matches your need for cash. If you might require money in the next three to five years, REITs or public stocks might be better than owning property directly.

Counterparty risk: In franchising, crowdfunding, or room ownership programs, how much you make depends on how well the sponsor and operator do their jobs. Do a lot of research on track records, financial stability, and how well incentives line up. Ask current investors for references and check their claims on your own.

Getting anything is the first step in risk management. Buy things at prices that are fair and allow for disappointment. Set aside extra money for unanticipated capital needs. Plan your exits before you invest. Knowing how you'll make money in the end makes it easier to make decisions ahead of time.

How to Start Your First Hotel Investment

Here’s an actionable roadmap for beginners entering hospitality investment:

Step 1 – Decide your role. Will you be a passive capital provider (REITs, crowdfunding), an active owner-operator running daily operations, or a limited partner in a private deal with professionals handling execution? Each path demands different time, expertise, and capital.

Step 2 – Educate yourself for 3–6 months. Read industry publications. Take online courses on hotel finance and operations. Attend industry events like local hotel investment conferences or regional AHLA meetings. Understanding the hotel business before committing money prevents expensive mistakes.

Step 3 – Build a network. Contact hospitality brokers (CBRE Hotels, HVS Brokerage, regional specialists) to understand current deal flow. Join local lodging associations. Find potential mentors who already own hotels and are willing to share experiences. The hospitality industry rewards relationships.

Step 4 – Start small. Begin with liquid, listed instruments—REITs or hotel stocks—or a modest crowdfunding allocation. Experiencing market cycles with small amounts teaches lessons that protect larger investments later. Don’t purchase a physical property until you’ve observed the sector through at least one downturn.

Step 5 – For direct ownership aspirants. Form an LLC to hold the asset. Prepare a hotel business plan showing acquisition cost, renovation budget, operating projections, and financing structure. Approach lenders with a clearly defined project and evidence of your team’s capabilities.

Step 6 – Assemble your team early. Before closing any deal, you need:

• Hotel consultant to evaluate properties and projections
• Real estate attorney with hospitality transaction experience
• Tax adviser familiar with hotel depreciation and structures
• Lender with hospitality portfolio and appetite
• Potential operating partners or management company

Realistic timeline expectations: From first research to owning a hotel typically takes 12–24 months. Don’t rush. Review performance quarterly once invested, comparing actual results against projections and adjusting strategy as needed.

Key Takeaways

• Hotel investment in 2026 offers compelling opportunities as the world recovers and travel patterns stabilize, but returns vary dramatically by property type, location, and management quality
• Multiple entry points exist: REITs and stocks for passive investors, crowdfunding for modest capital, franchises and direct ownership for those with more resources and expertise
• Essential metrics—RevPAR, ADR, occupancy, and GOP—drive valuations and should guide every investment decision
• Boutique and lifestyle properties offer premium ADR potential but require strong local partners and design expertise
• Risk mitigation starts with conservative leverage, experienced operators, and realistic projections that account for downside scenarios
• Building a qualified team of hospitality-focused professionals is essential before committing significant capital

Those who plan their hotel investments well will be rewarded. Know the cycles. Pick your partners carefully. Choose vehicles that are right for your level of experience. And always buy with enough extra money to handle the surprises that come with hospitality.

People keep going across the planet. Hotels will keep taking in those travelers. If you position yourself correctly, hospitality may be a profitable part of a diverse business.