Originally Posted: June 30th, 2010
Every day news programs report that the federal government is growing and spending well beyond their means. According to Bloomberg’s “Vinny” Del Giudice, “Administration officials and Democrats in Congress are looking to the commission for recommendations on reducing the federal debt, which is currently projected to reach 90 percent of the economy by 2020. Interest payments are forecast to quadruple to more than $900 billion annually by that year.”
There are only three ways the government can reduce the federal debt; 1) reduce spending, 2) increase tax receipts or income, and 3) print more money. It seems the only thing it has been good at is printing new dollars, which will inevitably give way to a rise in inflation. As a regular citizen, we have the power to change our government at the polls, but by that time, the damage could already be done. I say, if you can’t control the government, then make investments that will profit from their outlandish spending behaviors!
Hotel investments can be a great way to hedge against inflation. Generally speaking, as inflation begins to rise, so do the price of hotel room rates. “Since 1967, the rate of increase in the industry’s average daily [hotel] rate has exceeded the change in the consumer price index except during two periods: 1973 to 1975 and 1988 to 1993,” according to Hotel & Motel Management.
As the average daily rate increases and occupancy rates stay constant, the cash flow to investors increases as does the overall value or appreciation of the hotel. Now add to the equation the leverage factor: responsibly and conservatively borrowing money to purchase. As the overall value of the hotel increases, the return on your investment can multiply at a strong rate.
The bottom line: If the government is going to spend recklessly, there is a silver lining in investing in hotels!
Darren Nakos, CCIM
Resort Realty Capital
111 Main St
P.O. Box 630
Frisco, CO 80443-0630