Are Hotels Good Investments In 2026?

Are hotels good investments going into 2026? The honest answer is that it depends on where the hotel is. In the U.S., some areas of hospitality are getting squeezed by inflation, and margins are tight. Meanwhile, in other areas of the world, like Spain, room revenue grew by 6.9% while inflation is around 2.8% which leaves room for profits.

We’re currently on both sides of this. We own hotels in the United States, and we recently walked away from a 1031 exchange because we couldn’t find properties that met our investment criteria. About two and a half years ago, we started looking seriously at properties outside the U.S.

This article covers what to look for when evaluating hotel investments for 2026.

What makes hotel investments different

When you invest in a hotel, you’re getting more than just property. You’re buying an operating business backed by a major real estate asset. This “business plus real estate” model separates hotels from passive investments like residential rentals or office buildings.

Unlike a typical lease-based property, hotels generate revenue daily through room bookings, food and beverage sales, event hosting, and other services. This dual nature creates both higher complexity and higher potential returns.

More importantly, it gives investors access to loans unavailable in the residential world, like SBA loans to creative seller financing options that can improve overall deal economics.

Pros of hotel investing

Hotels are more complex than most real estate because they’re active businesses. That extra work can be a downside, but it also creates opportunity. Hotels can generate strong cash flow, which works well in a higher interest rate environment. Unlike traditional real estate that has fixed leases, hotels can adjust their pricing daily based on demand.

When you do this right, it can drive much higher returns.

Multiple revenue streams and income potential

Hotels make money in more than one way, which gives them an advantage over properties that rely on a single income stream. Room bookings are still the main driver and usually make up about 60%- 75% of revenue, but they’re not the whole story.

Food and beverage, events, and other on-site services also bring in income. When one area slows down because of seasonality or market shifts, the others can help pick up the slack and keep cash flow more stable.

Primary Hotel Revenue Streams:

Room bookings: Primary source about 60-75% of total revenue.
Food and beverage: This includes restaurants, bars, and room service.
Meeting and event spaces: Events like conferences, weddings and corporate meetings.
Ancillary services: This can include parking, resort fees, spa, and fitness facilities.
Loyalty programs and partnership commissions: Could be referrals with related tourism-focused businesses.

Hotels in great locations and strong markets can charge higher nightly rates during busy seasons and high-demand periods. In 2025, the recovery has been especially strong for luxury and urban hotels, which are doing much better than lower-end properties.

Capital appreciation in high-demand markets

Beyond day-to-day cash flow, hotels can also grow in value over time, especially in major cities and well-known tourism markets. As demand increases and it becomes harder to build new hotels, existing properties tend to become more valuable. CBRE reports that new hotel construction worldwide is slowing to about 0.7% per year through 2028, which is very low by historical standards. That slowdown helps existing owners by reducing competition and supporting higher pricing.

Cities where it’s difficult and expensive to build new hotels usually see the strongest appreciation. San Francisco is a good example. As the market continues to recover and the tech sector rebounds, CBRE notes that hotels in the area have seen an 8.9% growth in revenue per available room. When demand comes back, and supply stays limited, that combination can create value for hotel owners.

Portfolio diversification and tax benefits

Hotels diversify a real estate portfolio in ways that apartments or office buildings don’t. Instead of relying on long-term leases and tenant credit, hotels depend on travel demand. Their success rises and falls with tourism, business travel, and how people spend on experiences. That gives you exposure to a completely different set of drivers.

There are several great tax benefits as well, like:

Depreciation: You can depreciate both the building and the furniture, fixtures, and equipment, which often creates paper losses that offset income.
Operating expenses: You can reduce income with expenses like staff, utilities, and marketing.
1031 exchanges: Hotels also qualify for 1031 exchanges, so you can defer capital gains taxes when you sell and reinvest in another property. Be sure to review this with CPA who understands hospitality real estate.

Cons of hotel investing

Hotels come with their own set of risks, and they’re very different from more passive real estate investments. The upside can be strong, but you’re also dealing with a lot more moving parts and sensitivity to the market. Some of the disadvantages are:

Market volatility and economic sensitivity

Hotels are more economically sensitive than residential or industrial properties. Demand can change quickly with economic downturns, travel disruptions, changing consumer sentiment, or competitive threats. We saw this firsthand with a great hotel property that we bought in an office park…… three months before COVID hit. Suddenly, there was no business travel, and what was a great location was now severely lacking.

The recovery from pandemic lows has been notably uneven, with luxury and urban properties outperforming while economy segments have ongoing pressure from alternative options like Airbnb. This is changing the industry, creating winners and losers based on location and the quality of hotel management.

What we’re seeing right now is a bigger gap between hotels that are doing well and those that aren’t. Location matters more than ever, branding matters, and the guest experience really matters. As an investor, a so-so property in a so-so location with so-so management is a tough place to be, because the market doesn’t give much room for error.

High operating costs and management complexity

Hotel operations demand constant attention and expertise. As one experienced operator bluntly put it, “your GM is your MVP, without them you’re just a proud owner of a dumpster fire.”

The general manager and the team they build make the difference between profitability and disaster. Hotels require 24/7 staffing across front desk, housekeeping, maintenance, food and beverage (if applicable), and management. Labor represents your largest controllable expense, and wage inflation has been substantial, with costs in the U.S. up 8% year-over-year according to industry data.

Beyond labor, other operating costs include:

Cost category	Description	Typical % of revenue
Labor & payroll	Staff wages, benefits, training	35-45%
Operating supplies	Linens, toiletries, cleaning supplies	5-8%
Utilities	Electric, water, gas, internet	5-7%
Insurance & property tax	Liability, property coverage, local taxes	4-6%
Maintenance & repairs	Ongoing upkeep, emergency repairs	4-6%

Costs keep going up in all of these areas. For example, insurance costs are higher because of storms, wildfires, and extreme weather. Property taxes keep rising as cities look for more revenue to cover infrastructure repairs. Energy and utility costs, as well as maintenance, continue to increase, which puts pressure on margins and makes strong operations more important than ever.

Competition, financing, and capital requirements

Popular destinations can get crowded fast, with a lot of hotels competing for the same guests. Before buying, you really need to understand the competitive landscape. That means looking at what’s already there, what’s being built, how other hotels are positioned, and what kind of market share you can realistically capture. Underestimating competition is a mistake that can get expensive quickly.

Financing has gotten more complicated since late 2024 and into 2025. Higher interest rates have pushed borrowing costs up, lenders are asking for larger down payments, and they’re more selective about the markets, brands, and properties they’ll finance.

The upside is that commercial real estate gives you far more financing options than residential. Ways that we’ve financed hotels include:

SBA loans
Community bank loans
Seller financing
Syndications
Private capital

Ways to invest in hotels

Here are the main ways to invest in hotels:

Direct ownership: You buy the hotel yourself and control everything. This comes with the highest potential upside, but also the most responsibility, from operations to financing to staffing.
Hotel syndications: You invest passively alongside other investors in a larger hotel deal. A sponsor finds the property and runs the day-to-day operations while you share in the cash flow, appreciation, and tax benefits.
Hotel REITs: You buy shares in a publicly traded company that owns hotels. These trade like stocks, are easy to buy and sell, but don’t offer the same tax advantages or control as direct ownership.
Crowdfunding platforms: You invest through an online platform that pools investor capital into hotel projects. The platform sits between you and the sponsor, handling communication and distributions.
Public hotel companies: You buy stock in companies that own or operate hotel portfolios. These investments are more like traditional equities and follow the broader stock market.

Gateway Private Equity Group Barcelona Hotel fund

How to evaluate hotel investment opportunities

Successful hotel investing comes down to doing the basics well. You need to understand the location, the numbers, how the deal is structured, and who you’re partnering with. This is where due diligence comes in.

The choices you make here impact your results for years, for better or worse.

Hotel business location and market

Location drives hotel performance more than anything else. You can’t rely only on broker packages or online research. Go and visit the property. Call competing hotels and ask about availability and pricing. Talk to people who work in the area. Hotels run 24/7, so there’s always staff around who can tell you things you’ll never see in a spreadsheet.

In the past year alone, we have flown to Oklahoma, Ohio, Indiana, and Texas to inspect hotels in person. Each time, we learn things we’d never be able to see with just the broker’s information.

You also want to look at what’s nearby. Tourist attractions, convention centers, business districts, airports, and major highways. All of this has an impact. For example, in 2025, hotels in city centers have bounced back the strongest, helped by the return of business travel and international tourism.

Market research means looking at a few things at the same time, not just one data point. Here’s what I focus on:

Competition: How many hotels are in the market, which brands are there, and what occupancy looks like across those properties.
Demand: Is demand steady year-round or highly seasonal? Is it driven more by leisure travelers or business travel?
Local economy: What’s happening with tourism spending, business growth, and major employers that bring people into the area.
New supply: Pay close attention to how easy it is to build new hotels. Markets with limited land, strict zoning, or high construction costs make it harder for new competitors to enter, which helps existing hotels keep or grow their daily rates.

Hotel industry metrics

You’ll need to know hotel-specific performance metrics so you can get a sense of how the hotel is doing:

Occupancy rate: This is the percentage of available rooms that are filled, calculated as rooms sold divided by total rooms available.
ADR (average daily rate): Average revenue per occupied room, calculated as total room revenue divided by total rooms sold.
RevPAR (Revenue Per Available Room): The industry’s primary performance metric, calculated as ADR multiplied by occupancy rate, or total room revenue divided by total available rooms.

Metric	Definition	Calculation
Occupancy rate	The percentage of available rooms that are filled.	(Rooms sold / total rooms available) x 100
ADR (average daily rate)	The average revenue generated per occupied room.	Total room revenue / total rooms sold
RevPAR (revenue per available room)	The industry’s primary performance metric; the total revenue generated per available room.	ADR x occupancy rate OR total room revenue / total available rooms

These metrics give you the complete story of hotel performance. A property might have high occupancy but low ADR, which means it’s filling rooms by discounting rates. And then if you see a high ADR with low occupancy, it means pricing is too high for market demand. Strong RevPAR in the hospitality industry means there’s the perfect balance.

Underwriting hotel real estate investments

Hotel investors use three main ways to underwrite a hotel:

Revenue multipliers: This is the property value expressed as a multiple of its annual revenue.
Cap rates: This is the net operating income (NOI) divided by the property’s value.
Per-key valuation: This metric is the total price divided by the number of rooms, used to compare against market benchmarks.

When you look at a property, start with the trailing twelve months of performance so you can see a full year, including the slow seasons. This matters even more in seasonal markets where a strong summer or winter can hide weaker months. Don’t base your decision on peak season numbers alone.

You also need to understand the franchise agreement. Franchise fees are usually tied to revenue, and royalty payments of around 2%-4% are common. Those fees come straight out of your profits, which is why the underlying performance numbers really matter.

Investment strategy for hotel property investments

If you’re new to the hospitality business, don’t start with a 300-room hotel. Bigger properties just magnify every problem. They take more capital, more experience, and a lot more day-to-day oversight.

Starting smaller is better. This could be boutique hotels or limited-service hotels without full restaurants that are easier to run and avoid a lot of labor and management headaches. Something in the 20 to 80 room range is manageable, requires less capital, and still gives you the benefits of commercial real estate.

That’s exactly what we did. We started with a limited-service hotel and set up a joint venture agreement with someone who had years of hotel industry experience. This helped us learn the business without taking on unnecessary risk.

You can always scale up later, once you have more experience and the right team or partners like a hotel management company.

Franchise agreements and brand partnerships

The franchise model has strong advantages for hotel investors.

Benefits of franchise hotel investments

The brand puts its name on your building and brings a built-in booking engine and loyal customer base that would be very hard to create on your own. You’re tapping into their reservation systems, marketing reach, and brand recognition from day one.

Franchise hotels also come with a playbook. You get established operating procedures and details on how the hotel should run. It’s basically a hotel in a box, which makes execution much easier, especially if you’re newer to hotels.

Key components of franchise agreements

However, understand what you’re signing up for. As a franchisee, you own the land, you own the real estate, you own the operations, the employees are your liability, and you guarantee the loan. The franchisor provides the brand and platform, but you have all operational and financial responsibility. This structure means you control your asset and operations while leveraging their brand power.

Key components of these agreements include:

Royalty fees: These are based on revenue and usually range from 2%-4%.
Marketing fees: Cover national campaigns and brand promotion.
Technology fees: Costs for reservation systems and property management software.
Upfront application fees: These initial costs can be very high, exceeding $150,000.
Agreement length: Franchise agreements are long-term contracts, around 10–20 years, with built-in renewal options.
Performance requirements: Agreements include performance standards tied to key metrics like RevPAR and occupancy that you’ll need to meet.

Before you sign anything, review every single line item in the purchase and sale agreement. You can save a lot of money before you even close if you know what to look for. Negotiate where you can, especially if you bring leverage through experience or multiple properties.

Finding hotel investments

If you want to add hotels to your investment portfolio, you have to be proactive about finding deals and lining up financing. You can’t rely on just one broker or one platform. The brokerage world is fragmented, so you need to look in several places. Some steps:

Diversify your search: Get on the email lists for multiple national brokerages.
Network intensely: Go to hospitality conferences and start meeting owners and operators.
Leverage relationships: Be ready to find those great “off-market” deals through your partners and network. We saw this firsthand, as our JV partner found the first hotel we invested in through his network.

Financing options for hotel investors

Here are the main financing options you’ll find for hotel investments:

SBA loans: Small Business Administration loans have really great terms for qualified buyers.
Conventional loans: Community banks and regional banks might be a good candidates to get started with.
Seller financing: This is a creative structure where the seller is willing to carry the financing. We’re looking at this for one of our boutique hotels in Spain.
Private capital: Leveraging friends and family or syndications. You can also go the same route as us with a joint venture (JV) agreement.
Hybrid capital: You can also stack a few different capital options, like mezzanine debt and preferred equity.

It’s good to find several options. Shop multiple lenders, compare terms, and negotiate aggressively. The difference between so-so and great financing has a huge impact on your ability to see consistent returns and a return on investment.

Is now the right time for hotel investments?

We don’t get many chances to be early. For a long time, experienced investors have viewed hotels as one of CRE asset classes with great opportunity. Now more people are starting to pay attention, but there’s still a window if you know what to look for.

Hotel transactions are picking up, with volumes expected to grow about 15%-25% as some owners are forced to sell and funds reach the end of their life cycles. New supply is still very limited and demand in major cities is coming back.

This market rewards being picky. Picking the right hotel, in the right location, with a plan that works is more important than ever. Hotel investing isn’t for everyone. It takes involvement or the right partners who know hospitality inside and out.

But if you’re willing to deal with the complexity, do the work on location and market research, line up smart financing, and build the right management team, the upside can be meaningful and long-lasting. Or, you can partner with someone else and enjoy passive income without having to deal with the day-to-day operations.

Partner with Proven Hotel Investment Experts

At this point, you can see what hotel investing is like. There’s more going on operationally, the financing is more involved, and the general manager has a huge impact. That part isn’t easy. But you can also see the upside and how the current environment creates opportunities for strong returns.

You don’t have to figure this out on your own. At Gateway Private Equity Group, we focus on value-add hotel investments, handling everything from acquisition and renovation to day-to-day operations. Investors get to co-own performing hotels without running them, so you can benefit from multiple income streams and tax advantages.

If you want to learn more, check out our latest hotel investments fund here.

Are hotels good investments: FAQs

What is the average return on investment for hotels?

Hotel investments can have average return on investment ranges of 6% -12%. So many factors impact this number, including:

Hotel type: Limited-service hotels usually have lower expenses and steadier margins, while full-service or luxury hotels can generate higher returns but come with more complexity, labor, and risk.
Pricing strategies: Hotels that do a great job of managing rates adjust pricing daily based on demand, seasonality, and events. Strong revenue management makes a big difference in overall returns.
Financing: Loan terms matter. Interest rates, leverage, amortization periods, and whether the debt is fixed or variable all impact cash flow and risk.
Expenses: Labor, utilities, insurance, property taxes, and ongoing maintenance directly affect profitability. Hotels with tight cost controls and efficient operations tend to outperform.

Are hotels a risky investment?

Hotel investments are like any other real estate asset class, where high risk comes from skipping due diligence, not making informed decisions based on data, and not hiring a strong team. To reduce risk, look at:

Location and market fundamentals: Demand drivers, seasonality, competition, and whether new supply is coming into the market. One of our best hotels was in a small town, right off the highway, with truck parking. It was all of these perfect scenarios in one hotel.
Sponsor experience: If you’re passively investing, look at the operator’s track record with hotels specifically, not just real estate in general.
Operational plan: Check out the plan for day-to-day management, including staffing, pricing decisions, and cost controls.
Financing structure: Look for a conservative approach to loan terms, interest rate risk, and the amount of leverage being used.
Deal structure: Since you’re investing to make passive income, look at the operating agreement details for return splits, fees, hold period, and alignment between investors and the sponsor.
Downside protection: What happens if revenue drops or expenses rise, and how the sponsor plans to handle tough periods.
Communication: How often the sponsor updates investors and how transparent they are when things don’t go as planned.

Can you invest in hotels?

Yes, you can invest in hotels. There’s a few ways to do it, depending on your level of involvement:

Active ownership: You buy and operate the hotel yourself. This means handling financing, staffing, operations, and decision-making. It offers the most control and potential upside, but also requires the most time and experience.
Passive ownership: You invest alongside others in a hotel syndication or similar structure. A sponsor handles operations and management while you share in the cash flow, appreciation, and tax benefits without running the hotel.
Paper ownership: You invest through REITs, ETFs, or publicly traded hotel companies. These behave more like stock investments, are easy to buy and sell, and don’t involve property ownership or operational involvement.

This information is for informational purposes only and does not constitute tax, legal, or investment advice. Consult your own professional advisors before making any decisions. This is not an offer to sell or solicitation to purchase any securities. Investment opportunities with Gateway Private Equity Group are available only to accredited investors.