How to invest in a Hotel business.

How to invest in a Hotel business.

Recreational facilities have one of the highest Return on Investments in the construction industry.
This can be achieved even on the smallest plot size-50feet by 100 feet.

Return on Investment.

The average return on Investment for a hotel on a 50 by 100 feet plot with 40 accommodation rooms charging KES 1000 par night for accommodation will be : 40 rooms x KES 1000 X 50% Occupancy rate x 30 days = KES 600,000. All this is achieved at a modest 50 % occupancy rate-meaning that the rooms are only occupied for a total of 15 days in a month. If the hotel is well managed and well located, it can achieve occupancy rates of 90% to 100%.
Add profit from the sale of food and drinks-say KES 200,000 per month on the lower side.
The total profit realized per moth is KES 600,000 + KES 200,000= KES 800,000.
The average floor area for construction of such a hotel on a 50 by 100 feet plot is 400 square meters per floor. To accommodate a bar, restaurant, kitchen, offices and 40 accommodation rooms you will need 3 storeys= 400×3 levels= 1200 square meters.
The average construction cost per square meter for such a hotel is KES 20,000 so the total construction cost will be KES 20,000 x 1200 square meters = KES 24,000,000.
The project will repay itself within KES 24,000,000 divide by KES 800,000=30 months. The project will repay itself within 30 months which is approximately 2.5 years.

This Return on Investment in Real Estate is excellent, given that real estate is usually a long-term investment.
Banks are willing and ready to offer financing of 80% to 100 % for such projects and most banks will fund the project as long as the feasibility study shows profitability and you own the land to construct on.
Such a project can be located any where –the Coast, in the game parks, along major highways or inside a town.

Location.

As the saying goes, the 3 most important factors in real estate investment are 1.Location, 2.Location and 3. Location.
Make sure that the property is located near a busy road for a motel or in a scenic location for a tourist lodge.

Target Clientele.
The clientele that you intend to attract is very important.
For tourist class lodges, the target clientele is high income earners from other countries. These kind of clientele will be looking to see something unique and different from where they come from.

This is the reason most 5 star hotels at the coast region use natural materials such as makuti roofs, mazeras stone floors and wooden walls.
The kind of clientele they attract-mostly Europeans do not see buildings made of these materials often so they find this attractive and are ready to pay top dollar for this.

For local citizens, they tend to be attracted more by the ‘artificial’ material finishes such as plastered masonry walls, ceramic tiles, steel grilles e.t.c.

Hotels such as ‘Blue Hut’ in Nairobi and restaurants such as ‘Tacos’, Riviera and the numerous bars and restaurants in Nairobi fall in this class. The more the ‘artificial’ materials used such as steel chairs, steel bar counters, shiny ceramic floor finishes e.t.c the more they attract the local customers.

A good fusion between tourist class and local clientele can be achieved through careful design.
Hotel Nomad in Kitengela designed by www.a4architect.com is a good example of this.

The Main bar area on the 1st floor has wide windows that bring the outside environment to the inside and also give magnificent views of the outside. The railing is made of rough cut wooden poles to give the space a natural feel. The floor finishes are random mazeras stones that also add to the natural feel.

Size.
Land will always be a scarce resource. The available space should be used to maximize the land use properly. A 50 by 100 feet plot can be designed to hold a restaurant, kitchen, bar, conference centre and more than 30 self contained accommodation rooms.
A good example of this is Nomad Hotel Kitengela designed by www.a4architect.com that has 40 self contained accommodation rooms per floor, conference facility, large bar lounge area, kitchen, restaurant, children’s play area, offices and parking-all within a 50 by 100 feet plot.

Conclusion.
People invest in Hotels for various reasons. Others invest for the profitability aspect and others invest so that they can get a good retirement home whereby they can kill two birds with one stone-run a business and at the same time get food, accommodation and company during their retirement years.
Whatever your reason, you too can also get to own a hotel one day.

Frank Gichuhi.
ww.a4architect.com