Dubai Hotel Rooms and Apartments - The Pros and Cons
In a perfect world, most property investors want to receive a high net rental yield along with capital growth without having any involvement in the day to day running of the property
A passive income without any hassle
Dubai developers have been offering this type of investment for the past 15 years by building and then selling branded hotel rooms and serviced apartments to individual private investors with the promise of high returns and a regular income without any hassle.
The fact is that very few of these investments work out as hoped with the negatives far outweighing the positives in most cases.
The Pros
Very little hands-on involvement for the owner – pay for the property and then sit back and wait for the money to arrive
Full management of tenant/guests
Maintenance is taken care of – in-house teams take care of all maintenance issues
High-quality property and facilities
Good location – most hotels and serviced apartments are in high-end locations where there is demand from tourists and visitors
Free nights and offers to owners – many operators offer owners a limited amount of free stays
Guaranteed returns and with some offering buyback guarantees
The Cons
High price in comparison to a normal residential property
Difficult to resell – a limited market for this type of investment and the resell price will be totally dependent upon the net income received.
No mortgages available in most cases
Very little transparency on costs and fees – investor is last in line for their share of whatever income is left after all expenses have been deducted.
Sales and purchase agreement is almost always skewed in favour of the operator and the developer
High management costs – the investor has no control over the costs including refurbishment costs, staff, marketing, utilities and the amount the operator charges to manage the property
Hidden and unforeseen costs are the responsibility of the investor
Low returns – investor only receives an income for the room rate and not from the food and beverage sales or other revenue that the operator can generate – this will be net of housekeeping, laundry, maintenance, marketing, travel agent and booking fees, local taxes etc
Income is dependent upon the success of the operator and their ability to market and obtain the highest possible room rates at all times
Rates and therefore, income varies enormously with low and high seasons.
Guaranteed returns and buyback agreements always have limitations and caveats attached to them.
Rental guarantees are built into the original sales price
The overall investment is dependent upon the financial strength of the operator and their ability to generate income
Restrictions on exiting any agreement with the operator
Few to zero alternative revenue streams available to the owner
In summary, there are always exceptions to the above with some success stories over the years, but in my experience these are few and far between. For sure, there are far better property investments available in the market where investors have greater control, enjoy higher yields and growth with more options on how their property generates income and still with minimal hands-on involvement
Always happy to discuss individual cases of the successes and failures with you in person or over the phone.