Alternative investments are a great way for investors to diversify their portfolios and there are a number of investment opportunities available. Care homes and hotel rooms are two alternative investments with similar characteristics, but also some contrasting features. It is important for investors to get a professional opinion on the benefits of each investment opportunity and calculate the risks against them in order to choose the option that best suits their investment preferences. HyLife has chosen to compare two alternative investments to convey the differences across the various alternative options in the market.
Today, the hotel room investment market holds a value of £40 billion, a total that is expected to increase given the projected 5% increase in bookings this year alone. With the increase in bookings, the prices of hotel room investments will concurrently increase as well, providing a fruitful investment opportunity for investors with healthy returns. On the other hand, the care home market is booming, especially for private investors having already injected £15 billion into the industry. Also, the United Kingdom’s population of elderly citizens is growing significantly – with the demand for care projected to increase by 150% over the coming 4 years.
When it comes to returns, care homes are seen to be a high yielding investment, paying a fixed return of 8-10% per annum with assured capital growth. Investors can also expect to see returns after only 3 months followed by quarterly income payments. Similarly, hotel rooms provide a fixed yield of 8-10% per annum and up to 10% net yield assurance for 5 years. However, unlike care homes, hotel rooms do not rely on capital growth as returns are executed on a direct income basis, paid monthly from the first day.
The number of years of assured returns is an important deciding factor for our investors. Hotel rooms usually have 5 to 10 years of assured returns, whereas care homes benefit from 20 years of assured returns. At the end of the 20 year period the investor is then given the opportunity to exit their investment or the operator will offer the investor a new contract.
On the other hand, buy back options on the two alternative investment opportunities are contrasting. For care home investments, assured buy back options become available for investors from year 3 of ownership onwards, with a capital uplift of 9%. Then there are buy back options available after 5, 9, 15 and 20 years – with a capital uplift of up to 40% by the 20th year. Hotel room investments also have healthy buy back options available from the fifth year typically with uplift between 15% to 25% from year five to ten.
Lifestyle advantages are also relevant when comparing the two investment opportunities. Both investment opportunities are hands-free investments, giving the investor a stream of passive income. Hotel rooms however, sometimes have the advantage of granting the investor the opportunity to use the hotel room for personal use for a specific number of days per year. Whereas care home have the unique advantage of being an ethical investment supporting much needed social infrastructure.
Lastly, in relation to volatility, care homes are a market with a constant demand. Regardless of the state of the economy, specialised care will always be needed as the population will always get older. For this reason, the likelihood for drastic changes in the demand within the care home market is unlikely. Investors are also offered the opportunity to choose between investing in government funded care homes or luxury care homes. Government funded care homes are seen as the least volatile option – given the nature of the institution. Meanwhile, hotel room investments are considered to be quite volatile as the spend on hotel rooms is susceptible to fluctuate with economic turmoil. Nonetheless when it comes to alternative investments, volatility is viewed as a benefit. Recent studies show that due to BREXIT and the drop in the GBP, the UK has become a popular holiday destination and in return the demand for hotel rooms have increased, thus driving up the prices and increasing returns.
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