Lodging and hospitality property trusts are enormous investments for growth and income. Often, hotel real estate investment trust (REITs), which have winning business models, pay substantial dividends. This is even the case despite the fact that hotels are the most defensive type of real estate.
Thriving REITs specializing in hotel properties can find fantastic profits in healthy economies. While it may be a challenge to learn which REITs are most attractive and mitigates the most risk, through research, you’ll learn how to make a smart addition to your portfolio.
Among the different types of REITs, including self-storage, malls, apartments, healthcare, offices, and more, hotel REITs rank high on the list of investment types that are vulnerable to market weakness or recessions.
The reasons for this are numerous, including the fact that hotels lease their property on a daily basis, versus retail spaces, which lease their spaces for a year or even a decade. During economic strife, the rates for hotel rooms can tumble. Of course, this is motivated by the high risk and high reward philosophy, whereby market rates can increase by 20 percent in a year, and owners can partake of some highest dividends in the real estate sector. Simply put, investors opt-in for the risky nature of hospitality REITs because of the high reward.
If you’re considering hotel, lodging, or hospitality REITs as an investment option, there are a few things that you may want to consider ahead of investment:
- Seek out mid-level hotel properties, as opposed to super luxurious resorts. High-end REITs can sometimes be a challenge to maintain, and they understandably face threat when value-conscious individual decide that they will cut down on expenses. With that in mind, mid-range hotels may lose some of their clientele during times of economic difficulty, but most consumers who would typically choose luxury hotels will instead select a mid-level hotel, making it an extremely desirable.
- Be aware that REITs that have too many properties laid out in too many locations are more vulnerable.
- Consider a company’s debt load before investing. It’s very likely that a company with an excessive debt load will not pay interests out during challenging economic times.
- Educate yourself on why certain REITs outperform others. Why is it that Apple Hospitality REIT exceeds others?
What are some other things that investors should consider ahead of investing?