It is amazing how often investors from all horizons and calibers are basing their investment decision on a very emotional aspect. It is true that Thailand, especially the island of Phuket, offers exceptional sceneries, pristine white sand beaches, fantastic climate, and great hospitality. Not to mention the kindness and friendliness of the Thai people. On the other hand, it is also true that too often Land & Hotel Properties are drastically over priced compared to the value they have been purchased few years back. And yet outrageous deals are being made heading to disastrous investments that can take more than 20, 30, 50, 100, or even more years for a return on investment! Here are three easy steps to avoid such financial disasters when considering investing in the Hotel Industry in Phuket.
Benchmark your project potential Revenue in a realistic manner and on a conservative side. Remember that economic cycles repeat themselves every decade, so sampling a period having experienced Peak, High, Low and very Low Demands will serve as a good base to establish a fair business trend. Finding out your project competition Average Room Rate, Occupancy, Extra Revenue and Cost will guide you to a good Profit estimate. Working out those figures over 10 years, without taking into consideration Rates or Occupancy increments, will cover a return on investment including loan interests and loan Pay back, and, will give you a pretty good overall results assessment.
Consider all costs that might occur when purchasing your project. Such as hotel construction cost for a new property on an empty land, which usually is an average spending per room built that include all the hotel facilities and technical requirements. Note that the higher your project standard is, the higher the cost per room will be. Or, if your project is already built, decide if you want to operate the hotel as it is or renovate it. Renovation should always be the preferred option. Here also, you should work out an average cost per room built. You have now your Investment cost.
Deduct this investment cost, if any, to your Potential Profit (over a 10 years period) and the result of this simple deduction will give you an idea of the financial value of the Land or Property you intend to buy. You might be shocked by the difference between the so-called “market” price and your figure, but this will definitely be the right amount and no other consideration should affect the figure you have just calculated.
Now you are ready to offer a “down-to-earth” Bid for your investment, and once again, do not get emotionally involved nor carried away by potential astonishing revenue opportunities… Economic cycles contain high and low period, so you are looking at an average. Plus you just did the math taking into consideration all positive and negative aspects, so there is no reason to purchase higher! The best way to handle such investment is to consider two, three or more alternatives of the same nature and to deal with them one at a time until you get the transaction you are looking for.