Questions and Answers
What is the Return on Investment (ROI)?
The percentage rate of financial return achieved on the money invested in a hotel property.
What does profit refer to?
The money remaining after all the expenses of operating a business have been paid.
What are two reasons hotels are typically operated?
What is the formula for calculating ROI?
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Are sizable ROIs easy to achieve?
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What do sizeable ROIs require?
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What happens when the owner's ROI expectations are met?
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What is the first asset that a hotel owner owns?
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What is the second asset that a hotel owner owns?
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Is it usually easier to establish the worth and purchase price of a hotel that is operating than of one that has yet to be built?
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A hotel that is performing well will most likely have a sales price that reflects its performance.
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A hotel that is underperforming will generally be sold for more on a per-room basis.
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Can individuals own hotels?
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Can legally formed partnerships and corporations own hotels?
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What does REIT stand for?
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What is the definition of a REIT?
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What is a timeshare?
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Who invests in and owns hotels?
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How can hotel owners be categorized?
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What is depreciation?
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What is appreciation?
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What are reasons for investing in a hotel?
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What is an investor in the context of hotel ownership?
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What is the investment level?
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What is an owner/operator?
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What is net income?
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What is a parent company in relation to hotels?
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Study Notes
Financial Concepts in Hotel Management
- Return on Investment (ROI): Measures financial return as a percentage of the money invested in a hotel property.
- Profit: The remaining money after deducting all operating expenses from business revenue.
Reasons for Hotel Operations
- Hotels operate to serve the traveling public and meet owner's long-term ROI goals.
- Addressing guest needs profitably is crucial for success.
ROI Calculation
- ROI Formula: After-tax profits divided by total hotel investment, expressed as a percentage.
Challenges in Achieving ROI
- Large ROIs are difficult to achieve.
- Success depends on wise hotel selection, aggressive sales efforts, and professional management.
Owner's ROI Expectations
- Meeting ROI expectations allows funds for hotel maintenance and guest appeal, ensuring ongoing success.
Hotel Ownership Assets
- First Asset: Real estate, including land, building, and furnishings.
- Second Asset: The operational aspect of the business, valuing both real estate and profitability.
- Established hotels are easier to value compared to hotels yet to be built.
Market Performance of Hotels
- Well-performing hotels typically have sales prices that reflect their success.
- Underperforming hotels are sold at lower prices per room with uncertain future performance.
Ownership Structures
- Hotels can be owned by individuals, legally formed partnerships, and corporations.
- Diverse groups invest in hotels, categorized by their operational role as investors or owner/operators.
Real Estate Investment Trusts (REITs)
- Definition: Public companies that can own and operate hotels, established since 1991.
Timeshare Ownership
- Hotel owners may offer shared ownership, allowing customers to occupy a room for a set time each year.
Financial Considerations in Hotel Investment
- Depreciation: Reduction in asset value due to wear, serving as a non-cash tax deduction.
- Appreciation: Increase in asset value over time, which is not taxed until the asset is sold.
- Investment motivations include favorable tax treatment from depreciation, long-term real estate appreciation, and operating profits.
Investor Roles
- Investors typically do not manage hotels directly and may include individuals, corporations, or government entities.
- Investment levels can vary, with individuals or groups pooling resources to acquire larger properties.
Owner/Operator Dynamics
- An owner/operator is both an investor and the manager of the hotel, integrating ownership and operations.
Key Financial Terms
- Net Income: The revenue or sales generated by the hotel.
- Parent Company: Operates multiple hotel brands across various market segments (high-end, middle, low-end), with 19 parent companies in the US alone.
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Description
Test your knowledge with these flashcards from HMGT 2100 Chapter 2. This chapter covers essential concepts such as Return on Investment and Profit, crucial for understanding the financial aspects of hotel management. Perfect for students looking to enhance their grasp of the subject.
