Did you know that you can invest in hotel development and acquire hotel rooms using your self-directed Real Estate IRA?
One of our clients invested in a hotel at the beginning of the construction stage. Our client purchased rooms 1201 and 1503 of a hotel branded with a local name. He opted for rooms in ideal locations at the end of the hallways and away from elevators and ice/vending machines.
As the construction neared completion, the hotel was sold to a major, well-known chain of worldwide hotels. The location in a metropolitan city that caters to business travelers made this hotel a very desirable one. He claims that he received rent for over 200 days last year.
Hotels in a Real Estate IRA
The process of acquiring hotel rooms in your self-directed IRA is similar to that of the acquisition of other real estate assets. Whether it is through a Private Placement, a non-traded REIT or another syndication strategy, or even though a direct purchase, the end result is that the IRA buys the hotel rooms and a property management company rents them out. The collected rent is then sent back to the IRA.
The most successful properties are those in which the hotel itself has employed larger, well-established hotel property management with a proven track record; and those in a location that is a popular destination so that there are low vacancy rates. The income from the unit is split between the investor and the management.
As I thought about this idea, what I found interesting was that unlike other real estate investments, there is no reliance on the overall market conditions that real estate investors typically have to consider when buying property. However, I would think the economy might have some effect on the hotel industry as it could impact vacancy rates. Either way, investors would be less exposed to long-term vacancy as rooms are rented out on a short-term basis and with no hassles.
This is an interesting long-term strategy for the self-directed IRA investor.