How to Invest In Hotels In 2025 (A Hotel Owner’s Take)
We spent ten years in multifamily and bought our first hotel in 2017.
If you’ve seen the higher CAP rates and returns and are curious about hotels, we get it. If hotel investment seems intimidating, we get that, too. A hotel runs like a business, not just a piece of real estate, so it can seem like there’s more work. Plus, you may not know how to invest in hotels in the first place.
You might be wondering where to start, how much work it really is, and whether it belongs on your radar at all. If you’ve asked those questions, you’re not alone. We asked them too before we took the leap. Breaking in isn’t simple, but it’s absolutely possible to invest.
This article shares our best tips for investing in hotels and why you might want to.
Are hotels good investments?
Should you even be looking at the hotel business? Let’s start there.
Here is a quick case study of our first hotel. We bought it in 2017. We sold it in 2025. Revenue climbed every year. That includes the Covid years, even with the hit from lost international tourism. All in, the project delivered a 172% return and about $1.9 million in profit.
Not all of that is ours. We bought the hotel with an operating partner, which is one way to break in if you are new to hotels. The numbers on this one are hard to ignore when you compare them with multifamily and other real estate investments.
Goals for hotel investments
Before you can decide if a hotel is a good investment for you, consider your goals and specific needs. For example:
- How much money do you have to invest?
- Do you need capital appreciation?
- Is cash flow important?
- What’s your risk tolerance?
- How does a hotel investment fit into your overall portfolio?
Ways to invest in hotels
Here are the main ways you can invest in hospitality real estate:
- Full ownership: You buy a hotel and either handle management yourself or hire a property manager. You can buy an existing hotel property. That might be a franchise, an independent, or a small boutique. You can also build one from the ground up. This route takes significant capital. You’ll also need experience, or you’ll need to partner with someone who’s been in the hospitality business.
- Hotel syndications: This is the closest thing to full ownership and involves pooling funds with other investors to buy a property. A sponsor leads the deal. They handle sourcing, financing, operations, and delivering returns. You get passive income without having to worry about management. It requires less capital than buying a hotel outright and can produce strong returns. But it’s not a liquid investment, and you’ll need to commit capital for a set period.
- Hotel REITs: In this scenario, you’ll buy publicly traded shares in companies that own and operate hotels. Going with a hotel REIT is a lower-risk way to invest, and you can sell your shares whenever you want. The trade-off is lower potential ROI and no direct control over the asset.
- Hotel stocks: Everyone’s heard of Marriott, Hilton, and Holiday Inn. You can buy shares in these companies and potentially earn dividends and capital gains. It’s a highly liquid way to invest and does not require much capital. For example, Marriott trades around $262 per share at the time of this writing, which is a very affordable way to own a hotel investment. The downside is lower returns since you are not taking as much risk or direct control as an owner.
Evaluating hotel investment options
Let’s say you want to invest in the hotel industry. What should you look for?
Key metrics
Start with performance. Before anything else, look at three numbers. Together, they show demand, pricing power, and efficiency.
- Occupancy rate: The percentage of rooms sold out of all rooms available. Occupancy rates give you an idea of how much demand the property attracts.
- Average Daily Rate (ADR): Since hotels don’t have set monthly rents and can change their pricing every day, average daily rates help you understand the price per occupied room.
- Revenue per Available Room (RevPAR): Revenue per room, whether or not it’s sold. It blends occupancy with ADR and shows how efficiently the hotel turns rooms into revenue.
Local market demand
You’ll want to understand the demand drivers for the specific hotel. Start with why people stay in that location.
We’ve had hotels right off the freeway, and the only reason people were staying there is that they were on their way from one point to another. We’ve also had hotels in an office park where most of our guests were business travelers. And now, we’re currently developing boutique hotels in Spain focused on tourism and retreats.
Besides looking at the reason why people are traveling or going to stay in the hotel, you’ll also want to understand the competition and potential for growth. There could be any number of factors to consider, including what’s happening overall in the specific area.
Hotel industry logistics
Another key area to consider is the hotel franchise. Not all brands are equal. If you plan to own a hotel outright, your choice matters. You can also switch later if it makes sense.
We did that with one of our hotels. The original franchise was fine, but it didn’t have the presence or loyalty program others did. Those programs can do a lot to boost occupancy. So we rebranded, negotiated the change, and made the switch.
If you’re thinking about making a change, you’ll want to know the timelines for the contract commitments, any costs, and what it would take to exit and go with a different brand.
One more thing to check is whether the hotel has a required renovation coming up, called a property improvement plan (PIP). Franchises schedule refreshes and upgrades to keep up with guest expectations. This is a type of hotel renovation that’s not optional. The bummer is that the cost can be high, and you don’t always see an immediate return for the investment.
Hotel property types
Just like there are different types of real estate asset classes, the same exists for hotels. The main types you’ll see include:
- Luxury: Like the Ritz-Carlton or The Four Seasons.
- Upscale / Upper Midscale: This includes hotels like Marriott and Hilton Garden Inn.
- Midscale / Economy: Brands here include Holiday Inn Express and Motel 6.
Independent - Boutique Hotels: These are not part of a big chain. They’re usually smaller, unique, and design or experience-focused.
- Resorts: Destination-focused properties with leisure amenities like the beach, golf, and spa.
- Hotels: This category is currently one of the most popular hotel investments right now, with a 3% increase in new construction projects. These hotels have suites with kitchen facilities for long-term guests.
Financing a hotel property
If you’re a passive investor buying hotel real estate investment trusts or shares of publicly traded hotel companies, you don’t have to deal with financing.
If you want to own a hotel outright, you’ll need a commercial real estate loan. And, if you’ve never been in hotels, you’ll need a partner. Banks are unlikely to give you a loan without an experienced management team.
In our first hotel, we partnered with a hotel operator. The loan was in our name, we brought the capital, and we owned the hotel, and he ran the operations. You can take a similar path by bringing in a hotel property management company and making them part of a joint venture.
Types of loans
One of the biggest advantages of hotel investing is that a hotel is a business. That means you can use Small Business Administration (SBA) financing. SBA loans usually have better terms and rates than many traditional bank options.
You can also use conventional loans and commercial mortgage-backed securities (CMBS) loans, just like in other areas of real estate.
Managing risk
Hotel investing can react to economic downturns more than other real estate. When travel budgets shrink or consumer preferences change, occupancy and rates can slip.
One way you can mitigate risks is by buying or building where there’s multiple demand drivers. If weekday business travel slows, a hospital across the street can keep rooms full. A college calendar or steady highway traffic can do the same. The aim is simple. Stack demand drivers that don’t move in the same direction at the same time, so you’re not relying on a single stream of guests.
Building a strong team
Your hotel investment won’t be successful without a strong management team. The biggest things you should look for are:
- Proven track record in the hotel industry.
- Leadership skills to inspire team members on ways to enhance guest satisfaction.
- Operational expertise to manage costs while also delivering on guest value.
- New ideas and strategies to increase occupancy rates and revenue per available room.
If you’re investing in a hotel syndication, you’ll also want to understand the GP’s track record. How long have they been in the industry? What returns have they delivered to investors? Have they ever had any losses? This can help you evaluate the quality of the syndicator and the opportunity.
