I have had some experience in working in the hotel industry, and was planning on using this to my advantage in investing in the real estate market. The general advise I usually receive from experienced real estate investors is to identify a lucrative property at a good price, get financing and ensure the monthly cashflow from renting the property (Whether residential or commercial) can satisfy the monthly loan obligation. Basically have other people buy the property for you.
However, what I am currently working on is acquiring a building suitable for a hotel , and instead of renting it out for business like many owners do in Dubai, I hope to operate the hotel myself and thus multiply my income; because I will be paying the rent to myself and keeping the rest of the profit as well. Assuming it all works out of course, which is never a guarantee in business.
The thing is, commercial buildings that can operate as a hotel in Dubai dont come cheap, a simple 1 star hotel with 48 rooms and a restaurant can reach up to 4 to 5 million dollars to purchase; however when operating profitably, it can pull in around $800k to $1 million annually in income (40% of the income usually goes to just rent, so if the building is yours you get to keep that, which is pretty sweet).
Furthermore, the financial crises hit this place pretty hard and we are still economically recovering. The hotel and tourism industry is also very competitive in nature. However, there is still plenty of demand in the market if you can tap into what the customers are looking for (which is another topic for later). Below is my financing plan in brief, I can expand if needed.
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1. What I intend to do is get hold of some real estate investors, who can put up some hard money, 50% of the price of the building.
2. Negotiate with the current building owner to enter into a 50/50 partnership with us, where he sells 50% equity of his building at a significant discount. If the building is $5,000,000, I would need to purchase 50% ownership for $2,000,000.
Why would he do such a thing?
a. If the property owner only planned to rent the building, his cash flow would have been rent. However as a partner with us, he can still receive around the same amount of annual cash flow but instead from the hotel profit.
b. Cash is still king: he will be receiving $2,000,000 hard cash today, for the purchase.
c. Owner still has remaining equity in the commercial property. This is important because some people don’t ever want to let go of their property.
Now going back to the investors who put up the money, their incentives would be
a. estimated 12 % percent annual profit from hotel cash flow
b. around 7 % annual property appreciation
c. and the big incentive of having a 20% discount on property (only on purchase-1st year).
----------------
To wrap it all up
If you are wondering where I profit from all this, it is by acquiring a 12 percent stake in the property and business, without putting up any capital.
From the 50% capital raised by investors, 38% goes to the investor and 12% to me.
It would be transparent, the investor would know of course.
Since I negotiated the deal, found the property, convinced the buyer and would later manage and operate the business, my cut would be 12%.
---------
This is the financing deal I put together. I understand it is quite confusing, and perhaps unrealistic to some. But would love to hear honest and helpful feedback.
And thank you for reading!
However, what I am currently working on is acquiring a building suitable for a hotel , and instead of renting it out for business like many owners do in Dubai, I hope to operate the hotel myself and thus multiply my income; because I will be paying the rent to myself and keeping the rest of the profit as well. Assuming it all works out of course, which is never a guarantee in business.
The thing is, commercial buildings that can operate as a hotel in Dubai dont come cheap, a simple 1 star hotel with 48 rooms and a restaurant can reach up to 4 to 5 million dollars to purchase; however when operating profitably, it can pull in around $800k to $1 million annually in income (40% of the income usually goes to just rent, so if the building is yours you get to keep that, which is pretty sweet).
Furthermore, the financial crises hit this place pretty hard and we are still economically recovering. The hotel and tourism industry is also very competitive in nature. However, there is still plenty of demand in the market if you can tap into what the customers are looking for (which is another topic for later). Below is my financing plan in brief, I can expand if needed.
----------------
1. What I intend to do is get hold of some real estate investors, who can put up some hard money, 50% of the price of the building.
2. Negotiate with the current building owner to enter into a 50/50 partnership with us, where he sells 50% equity of his building at a significant discount. If the building is $5,000,000, I would need to purchase 50% ownership for $2,000,000.
Why would he do such a thing?
a. If the property owner only planned to rent the building, his cash flow would have been rent. However as a partner with us, he can still receive around the same amount of annual cash flow but instead from the hotel profit.
b. Cash is still king: he will be receiving $2,000,000 hard cash today, for the purchase.
c. Owner still has remaining equity in the commercial property. This is important because some people don’t ever want to let go of their property.
Now going back to the investors who put up the money, their incentives would be
a. estimated 12 % percent annual profit from hotel cash flow
b. around 7 % annual property appreciation
c. and the big incentive of having a 20% discount on property (only on purchase-1st year).
----------------
To wrap it all up
If you are wondering where I profit from all this, it is by acquiring a 12 percent stake in the property and business, without putting up any capital.
From the 50% capital raised by investors, 38% goes to the investor and 12% to me.
It would be transparent, the investor would know of course.
Since I negotiated the deal, found the property, convinced the buyer and would later manage and operate the business, my cut would be 12%.
---------
This is the financing deal I put together. I understand it is quite confusing, and perhaps unrealistic to some. But would love to hear honest and helpful feedback.
And thank you for reading!
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