Should You Invest in a Boutique Hotel or Franchise?

Boutique or franchise? That is the question when it comes to investing in a hotel.

In making the boutique hotel vs franchise investment choice, is it better to go with the trendy and maybe a bit quirky or to jump with both feet into a big chain?

Before Deciding Boutique Hotel or Franchise Hotel, Decide What Kind of Investor You Are

Let’s assume, first, that you aren’t a trophy investor. You’re not willing to break even, at best, on a property just because you like the idea of owning it. You want to make some money. With this caveat in mind, here are a few things to think about.

Location. Location. Location.

Yes, it’s a tired old bromide. But, like “a fool and his money are soon parted,” it’s to the point.

Of course, it’s also not that simple. Your location plays a major role in who decides to stay at your hotel. If you're looking for a particular kind of guest, you'd best appeal to that guest's tastes and desires.

If you want to franchise with, say, an international luxury chain, you’re most likely in pursuit of customers who don’t particularly appreciate surprises and tend to avoid “less-common” parts of town. So you probably want to look at properties in a more upscale setting with access to plenty of trusted chain shops and restaurants.

On the other hand, what if you want to tap into a more adventurous clientele who are in search of local flavor and desire a more intimate experience? A boutique hotel in a less popular neighborhood filled with independent shops and restaurants might be just the ticket.

The Demographic Devil in the Details

The two kinds of hotel might attract equally well-heeled guests and, truthfully, both might do just as well in either location. However, to be successful, you’re going to have to give some thought to issues like design, and demographics play a role again.

For example, baby boomers, Americans born between 1945 and 1964, often like their travel to be safe and predictable. If your luxury chain hotel is in a neighborhood that, although charming, is less than perfectly safe, you’ll want the safety factor built in. Details like secure parking matter to them.

If you prefer to cater to millennials, you’ll want a design that emphasizes freedom, maybe even with a bohemian flair. You might design (or redesign) your hotel to blend in with its surroundings, incorporating the personality of the area so guests become more a part of the little world they’ve entered.

Mastering the Money and Management Monsters

So you know what kind of hotel you’d like to invest in. Now where is the money—and all the support, such as management, training, marketing, budgeting, revenue management, and booking and reporting software coming from?

If you’ve decided to franchise, your problems could be solved pretty easily. The big chains can provide what you need. If you go with an independent boutique hotel, not so much. You’ll need more help, but it’s out there. One potential solution is to hook up with a company that specializes in hotel management and let the experts take care of you (for a price, of course).

On the plus side, though, boutiques do give you more freedom to shape your own approach to funding and management. You can choose your own investors, train your staff to do things the way you want them done, develop your own marketing strategy and so on. There’s a lot of work involved, but if you love what you do, it can be worth the effort.

A Note on the Changing Industry

With the boutique hotel movement burgeoning (the boutique/lifestyle/soft brand segment grew 20 percent annually from 2009 to 2014 to $11.5 billion in 2015), the chains have jumped on board. Marriott waves the Moxy flag, IHG has Hotel Indigo and Hilton owns the Tru brand. As an investor, you could find success within the best of both worlds: whether it be boutique hotel or franchise.

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