6 Steps to Get Investors for a Hotel
How to Get Investors for a Hotel
1. Solidify your pitch
Before you approach any potential investors, you need to spend some time thinking about what you will say.
If you don’t prepare, then you will increase your chances of stumbling over your words. You will portray yourself as someone who is not confident in their abilities even if you know exactly what you are doing. Investors will then turn their backs on you. The way you present yourself matters. It really does. Therefore, let’s prepare.
If you are planning to open a new hotel, then you need to convince investors why you are the right person to execute the business plan. You need to elaborate on your credentials and prior industry experience.
If you already own a hotel and are seeking additional capital to expand operations, then you need to convince investors why the hotel will continue to grow. This means going over your numbers. You have to pull out your income statement, balance sheet, and statement of cash flows.
Savvy investors will look over these financial statements and compute what they think the business is worth. If interested, they will then make you a reasonable offer.
You need to perfect your sales pitch early on so that you can talk about the hotel on the spot. You might come across potential investors in the most random places. That’s just life.
2. Talk to friends and family
Reaching out to friends and family about investing in the hotel will only be practical if your social circle has enough cash on hand. You also need to consider their risk tolerance.
Hotels are illiquid investments compared to broad-market index funds. Selling the hotel will take a while if that is something you are planning to do long-term. Not everyone has that kind of time.
Also, will your friends and family be involved in everyday business operations if they write you a check? Still, as shareholders, they have the right to vote on important matters.
What if they disagree with you? Do you think that will affect your personal relationship with them? This is why some business owners refuse to let friends and family get involved. They don’t want to take on that personal risk.
3. Consider crowdfunding
Crowdfunding is another way to get investors for a hotel. This is when you raise money by harnessing the power of the internet.¹ You set up a campaign on a crowdfunding platform and raise awareness about the project by posting on social media. If successful, business owners who go this route will typically receive a large number of small contributions.
Before you create an account on a crowdfunding platform, however, you must understand the pros and cons of crowdfunding. Let’s start with the pros.
Crowdfunding enables you to diversify your investor base. This means that you are not reliant on or at the mercy of any one investor.
In addition, by posting about your hotel project online, you will get a sense of what the market thinks. You might get valuable feedback from kind internet strangers, especially those who have worked in the hotel industry. Ultimately, creating a crowdfunding campaign will help you evaluate whether the hotel will be a viable business idea.
Unfortunately, crowdfunding is competitive. You will be creating a listing on a platform filled with many other listings. Your campaign will fail if you do not know how to stand out.
Also, crowdfunding platforms make money by taking a cut of the fundraising dollars. This is the price that you need to pay if you want to go in this direction.
4. Attend hotel industry conferences and events
Going to industry events is a great way for you to meet others who are also passionate about the hotel industry. Plus, it’s fun! Besides your standard panel discussion, industry events are filled with enjoyable activities, such as themed parties, fitness classes, and spa treatments.
By going to industry conferences, you will be able to network with other hotel professionals. Yes, that means investors too.
Overall, by being in this environment, you will gain valuable knowledge about the hotel industry that you can use to accomplish your business goals.
5. Reach out to real estate investment trusts
Real estate investment trusts, a.k.a. REITs, are companies that own or finance income-generating real estate properties, such as office buildings, shopping centers, and warehouses.² Some REITs focus specifically on the hotel industry. That’s great news! Here is what you need to do to convince a REIT to invest in your hotel.
First, research the REIT. Before you reach out to an institutional investor, you need to understand their investment criteria, portfolio focus, and any specific requirements that they may have. This knowledge will help you tailor your approach and demonstrate how your hotel aligns with their investment strategy.
Many REITs today have a website, so you can start your research process by simply going online. You can also find out more about specific REITs by speaking to professionals in the finance and real estate industries.
Next, call or email the REIT(s) to set up a meeting. This meeting is for the investment firm to conduct due diligence. They will ask you questions regarding the hotel’s financials and risk factors. You should be prepared to answer these questions. This is why we tell you to solidify your pitch as the first step in this article.
If the REIT is interested, then they will start a deal structure discussion. They will evaluate whether a debt or equity investment is appropriate for the situation. This is also the time for you to negotiate.
After writing you a check, the REIT will want regular updates about the hotel’s business performance. The REIT will also try to think of ways to help the hotel become even more successful.
6. Use social media strategically
Surprisingly, social media can be an effective tool for finding hotel investors. You just need to know how to use social media for business purposes.
First, you need to be on the right platforms. Logically, if you want to reach the investor class, then you should be on a platform filled with professionals. LinkedIn will be your best friend.
Besides publicly posting about your hotel project, you can privately message well-known investors on the platform. These investors can introduce you to the right people even if they are not interested in the project themselves.
In addition to posting on LinkedIn, you can join relevant groups on Facebook and Reddit. Search for communities related to hospitality and real estate.
Most importantly, do not spam. Read a group’s rules before posting anything. Contribute to the communities you join by actively participating in discussions and sharing insights.
Sources: