In this day and age, hoteliers know the ROI (return on investment), or at least they should, before deciding on any type of investment. ROI is the economic value resulting from various activities. This data enables us to measure the yield obtained from an investment. In fact, certain variables help us calculate the return through our hotel establishment, and based on this calculation, we can decide how much to invest.
We know that hotel investments are on the rise thanks to market growth. This explains the boost that investments have undergone and continue to experience, even in times of crisis, when international demand has managed to keep us afloat. But by how much should we increase our investment and what will be the rate of return? What is the importance of ROI in the purchase, construction or renovation of a hotel?
To accurately estimate the return, hoteliers should assign a monetary value to each of the proposed objectives. Basically, there is a high level of investor interest, particularly in the case of international capital for new hotel projects, when the maturity is longer, the capacity for growth surpasses yield rates and investor profiles experience significant changes.
What is the role of ROI in the hotel industry?
As mentioned earlier, the importance of ROI in hotel management processes plays a role from the investment stage, through construction and up to the purchase and renovation. Firstly, hotel investors must be able to calculate the ROI of their investments, and spend time evaluating the assets and economic viability in which the financial analysis projects the ROI and profit margins, as well as submit financial alternatives to the market.
An investor who purchases a completed hotel wants a return on investment from the hotel’s operating profit and from the revaluation of fixed assets since the hotel’s value increases over time. The hotel’s future residual value must be taken into consideration when calculating the return on investment. By calculating the ROI, we are able to make better decisions and optimize our hotel project.
On the other hand, a growing number of hotels have decided to renovate their establishments. These changes involve much more than meets the eye. Refurbishing spaces, redefining the strategic model, repositioning the brand, renewing mature destinations and improving the customer experience have become key aspects for renovations. In fact, a renovation is a strategic decision made by the owners of hotels in locations with better operating results. Add to that the time it takes to plan everything from the interior design to hiring the skip bins sydney to sourcing the required materials, it’s a serious investment for a hotel that can’t go over budget. It involves reinvesting a significant portion of profits in improvements aimed at building customer loyalty.
What are the main goals?
The goal is to purchase assets and create value so as to sell them after a few years, and this is where there continue to be numerous opportunities to transform them into hotels. The best way to do this is by increasing the profitability of assets and to encourage improved service quality.
In summary, the hotel industry must keep in mind that identifying, measuring and evaluating the ROI before making an investment will stimulate the market in terms of hotel management and real estate transactions. The assets and new projects, along with their development, will continue to attract potential investors with in-depth knowledge of the destination and its future, the details that may have an impact and the ability to create new market niches.