fao brokers/advisors; buy-to-let hotel room finance?

tucbiscuit

Hi, any advice or help apreciated.

I was wondering if anyone here has any experience of supplying or would be able to supply a mortgage on a buy-to-let hotel room?

If so what sort of rates would we be looking at?


thanks

herbiesjp

DO you have a hotel?

Or do you ahve a property that you let out for holidays?

Leon_W

I'm guessing you mean one of those schemes whereby you "buy" a hotel room and share the revenue ?

If it is, I'm not aware of any lender who lends for this purpose but am prepared to be corrected. These schemes also sound very dodgy to me.

HelpWhereIcan

There are lenders who will agree these - depending on how the property is split legally. However, from what I know, most of these are done on a commercial mortgage basis and depend on the lender knowing the developer.

In most cases you are sold a 'leasehold' hotel room which on which you then receive a 'rent' from the hotel based on the room's occupancy after paying the service charge/ground rent for the maintenance of the common areas.

As long as the developer has split the building/rooms into individual leaseholds, the property is theoretically mortgageable.

There are lenders who will look at it on a case by case basis and it will be very dependant upon the comments the surveyor has regarding the income and the future saleability of the room, location, viability of hotel etc etc.

From what I gather, rates tend to be commercial at approx 2% - 2.5% above base rate (5.75% at the mo) and will be no more than 70% of the value and often lower than that.

There is often a problem convincing a lender how they will recoup their security if you default, so the lender available is (more often than not) a lender connected to the project - either as a backer or as someone who has been spoken to beforehand and agreed the business plan of the whole development as being strong enough to support the individual mortgages/loans.

hope this helps

Leon_W

Thanks HWIC

I've seen these schemes advertised but would be concerned that the management company would just creme off practically everything and leave investors in deep doo doo when the place is going to ruin after a few years. Selling these rooms on long leases seems like madness as how often do hotels have to be refurbished to compete in a modern market place. Quite often I would imagine.

I think you are right about it being a commercial proposition. Any residential or Buy To Let lender is ultimately looking at the assets as a way out if it all hits the fan. Fairly easy to do with a house or flat. But a hotel room ? How is it reposessed ? How is it resold ? If the company that is running the hotel goes bust ? Too many risks if you ask me.

HelpWhereIcan

Not for the risk averse at all.

Leon has given the exact reasons why a lender (and ultimately any investor) should be cautious when looking at a development like this.

Having said that, most of the hotels concerned tend to be boutique style and towards the top end of the market so tend to demand the best in rates and attract the better end of the business traveller.

While refurbishment costs etc are higher, the whole building is run as a hotel and the hotel management company tends to make their money from the restaurant etc as well as the room rate.

They have an incentive to get full occupancy as they tend to pass no more than 50% to the room owner so still make money from the room.

The thing that would be of interest to me would be to make sure that the hotel is pitched correctly - right location, right room rates, size, facilites and USP etc.

After all, few are able to compete head to head with the Marriotts etc so they need a real USP - hence the boutique angle.

But I suppose a model pioneered by Donald Trump can't be all bad.

dunstonh

Another issue to consider is that the hotel will also own some (most) of the rooms or there will be an individual/company that will own a block of rooms who will have a rep pestering the hotel on bookings etc frequently. Guess which rooms they will put people in first

silvercar

The thread on the benefits/ risks of hotel room BTL was discussed here:

http://forums.moneysavingexpert.com/showthread.html?t=600161

I guess you've decided to go ahead tucbiscuit?

The cheapest finance would be increasing your residential home mortgage, if circumsatnaces allow you to do that.

tucbiscuit

dunstonh wrote: »

Another issue to consider is that the hotel will also own some (most) of the rooms or their will be an individual/company that will own a block of rooms who will have a rep pestering the hotel on bookings etc frequently. Guess which rooms they will put people in first

yeah I thought that at first too, like maybe some owners were giving the manager a dropsy and getting their rooms full first, but all people with the same type of room (ie. single, double, suite) get the exact same money as anyone else with the same type of room



and thanks to everyone else, some interesting points


the one I am looking at guarentees a minimum 10% return for the first 2 years, but there are still a lot of things I nedd to find out

tucbiscuit

silvercar wrote: »

The thread on the benefits/ risks of hotel room BTL was discussed here:

http://forums.moneysavingexpert.com/showthread.html?t=600161

I guess you've decided to go ahead tucbiscuit?

The cheapest finance would be increasing your residential home mortgage, if circumsatnaces allow you to do that.

not decided to go ahead, just doing research and trying to work my figures out

silvercar

The Paddington one was a success in terms of return and resale according to a recent ST article.

I would say location and management are crucial.