Hotel Investment Apartments: when do they make sense and what are you really buying?

At first glance a hotel investment apartment may seem like a straightforward property purchase: you buy an apartment and rent it out. But the model is actually quite different. The apartment is part of a hotel resort with a professional hotel operator managing the rental and day-to-day operation under an established hotel brand. That is why the headline return should never be the only thing you look at. Before buying, it is important to understand how the rental programme works, what the operator takes care of, how you can use the apartment yourself and what you can and cannot decide as the owner. This article explains how hotel investment apartments work, who they may suit and how rental income is calculated in different projects. What is a hotel investment apartment? A hotel investment apartment is a property located within a hotel resort. As the owner, you therefore get not only your own apartment, but also access to the services and facilities of the wider resort. The rental and operation of the apartment are generally handled by a professional hotel operator often under the name of an established hotel brand which also takes care of its day-to-day management. This model does however come with certain limitations. As the owner you do not have full control over the rental process, such as pricing or how the apartment is marketed and rented. Your own stays are also subject to the rules of the particular rental programme. Who is it suitable for? A hotel investment apartment may be of interest to an investor who: prefers to have an operator take care of the entire operation, rental and property-related services, all under the name of a reputable hotel brand values the convenience of hotel services and wants to make use of the facilities and benefits of the entire resort wants the property to generate income when they are not using it themselves is willing to accept the rules of the rental programme including conditions regarding personal use and how the apartment is rented is looking for an investment with a minimum guaranteed return (this does not apply to every project) Who is it NOT suitable for? A hotel investment apartment is not necessarily the right choice for everyone. If having maximum freedom and control over your property is important to you, this model may not be the best fit. It may not be suitable if: you want to use the apartment entirely according to your own preferences you want to decide for yourself on the rental price, rental terms and choice of guests you are unlikely to make enough use of the hotel services and facilities to justify the associated fees you want to actively manage the rental and communicate with guests, or choose an independent property management company to take care of the apartment How does the rental income work? One example is Wyndham Portocolom in Mallorca where the way rental income is calculated changes after the first three years. During the first three years, the minimum guaranteed return is 5% per year of the purchase price. From the fourth year onwards, the income depends on how often the apartment is rented and at what price. To make the calculation easier to understand we can break it down into four steps: 1. Rental income The starting point is the gross rental income - the amount generated by renting out the apartment. 2. Costs associated with securing bookings The costs associated with generating bookings are then deducted from this amount. These may include commissions paid to online booking platforms such as Booking.com and Airbnb.com, travel agency commissions, as well as costs related to distribution and communication through Wyndham's sales channels. 3. Operation and management The next step is to deduct the costs of operating and managing the apartment and the resort's shared areas. These may include maintenance, utilities, cleaning, minor repairs and professional management. 4. Owner's income Once all of these costs have been deducted, the remaining amount is the income the owner receives from the rental before tax. Why might Wyndham Portocolom in Mallorca be an interesting option? Another interesting aspect of this project is the possibility of short-term rentals under the resort's existing licence. For the owner this means there is no need to obtain a separate tourist rental licence. This is an important advantage in Mallorca where new tourist rental licences are currently not being issued for new developments. The location itself also plays a role. Mallorca has long been a popular holiday destination with stable demand for accommodation. This creates favourable conditions for apartment rentals over the long term as well. Learn more >> Falkensteiner Aurora in Croatia works on a different principle With Falkensteiner the owner can choose how the rental income is structured. Under the partnership models, net rental income is shared between the owner and the operator - either on a 60/40 or 50/50 basis. The individual models mainly differ in the number of weeks and the time of year when the owner can use the apartment personally. An alternative is the guaranteed return programme under which the owner is guaranteed an annual return of 4% of the property's purchase price before the deduction of related costs and tax. The owner can therefore choose between a share of the rental income and a predetermined guaranteed return. If the owner does not want to rent out the apartment they can use it exclusively for their own private stays. Learn more >> So, what does owning a hotel investment apartment actually mean? You are buying a freehold property (registered in the land registry) within a hotel resort. This gives you access to hotel services and facilities, while also allowing you to leave the rental and day-to-day operation in the hands of a professional hotel operator. In exchange for this convenience you accept the rules of the particular rental programme. These determine, for example, how the apartment is rented, how the income is shared and under what conditions you can use the property yourself. A hotel investment apartment is ultimately a combination of property ownership, hotel comfort and professional management. Its main advantage is convenience and a hands-off approach, but this also means having less control over your own property.