Discover Top Considerations for Peru Hotel Investment in 2023. Peru, and particularly Cusco, presents excellent opportunities for hotel investment in the coming year. To succeed in the Peruvian hotel market, investors must consider key factors that impact their investment, including the local economy, tourism trends, and regulatory environment.
In this article, we explore the top considerations for hotel investment in Peru and provide insights to help investors make informed decisions. Learn how to position yourself for success in this growing market and take advantage of Peru’s thriving hotel industry.
The regulatory environment for hotel investment in Peru
The regulatory environment for hotel investment in Peru is favorable. The government has taken steps to encourage foreign investment in the country’s tourism industry, which includes the hotel sector. The Ministry of Foreign Trade and Tourism offers incentives to investors, such as tax breaks and streamlined permit processes.
As a result, Peru has become an increasingly attractive destination for international investors looking to capitalize on the country’s rich cultural heritage, stunning natural landscapes, and growing tourism sector. The country’s favorable investment climate and government support have helped to spur the development of new hotels, resorts, and other tourism infrastructure, while also creating jobs and boosting economic growth.
With its diverse attractions and welcoming culture, Peru is poised to continue its upward trajectory as a top destination for travelers from around the world. And with the government’s ongoing commitment to promoting foreign investment in the sector, there has never been a better time for investors to explore the opportunities available in this dynamic and rapidly growing market.
It is important for investors to work with experienced local advisors who can help navigate the regulatory landscape and ensure compliance with all applicable laws and regulations.
As one of the main tourist destinations in Latin America, the hospitality sector in Peru, and particularly in Cusco, is poised for sustained growth in the years to come.
Before making any investment decisions in Peru’s hotel industry, it’s crucial to ask some essential questions:
What is the financial status of the hotel?
To evaluate the financial status of a hotel, it is essential to review its financial statements, which include the balance sheet, income statement, and cash flow statement. These financial reports provide an overview of the hotel’s financial situation and its profitability in the market it operates.
The balance sheet shows the hotel’s assets, liabilities, and equity at a specific point in time. It is crucial to analyze the assets and liabilities to identify any debt or financial commitments of the hotel. It is also relevant to evaluate the hotel’s equity to determine its financial solvency in the market it operates.
The income statement presents the hotel’s revenues and expenses during a specific period, usually a year. It is crucial to analyze the revenues to determine if they align with market expectations and if the hotel is generating adequate profitability. Additionally, it is important to analyze the expenses to identify any excessive or inefficient expenses that may affect the hotel’s profitability.
The cash flow statement shows the hotel’s cash inflows and outflows during a specific period. It is essential to analyze the cash flow to determine if the hotel has enough cash available to pay its expenses and debts. It is also relevant to analyze the cash flow to identify any liquidity problems that may affect the investment in the hotel.
A financial consultant can offer a broader view of the business’s financial situation, considering economic and market factors, as well as the business environment in which it operates.
What is the level of competition of other hotels in the area?
We should evaluate other hotels operating in the area by following these steps:
Area research: Start by researching the area in which the hotel is located, identifying the quantity and variety of hotels that exist in the area.
Competition segmentation: Once the number of hotels in the area has been identified, segment them by category, type of service, size, rates, and market positioning.
Supply and demand analysis: Analyze the supply and demand of hotels in the area, determining the occupancy rate, average prices, and services offered.
Identification of strengths and weaknesses: Identify the strengths and weaknesses of each of the competing hotels, this will allow you to know the opportunities and threats of the market.
Customer profile analysis: Analyze the profile of customers staying in the area, determining their preferences, needs, and buying behavior.
Hotel positioning evaluation: Evaluate the hotel’s positioning in the market compared to the competition, this will determine if it is in a competitive position or not.
Identification of opportunities: Identify improvement opportunities for the hotel based on the weaknesses of the competition, customer desires and needs, and the market situation.
What is the growth potential of the hotel?
Evaluating the growth potential of the hotel involves a detailed investigation of the market and the financial performance of the hotel in the past, present, and future. Here could be a procedure for a proper evaluation:
Identification of growth opportunities: The hotel’s growth opportunities must be identified, which may include expanding facilities, improving service quality, diversifying the business, or acquiring new customers or market segments.
Feasibility analysis: The feasibility of the identified growth opportunities must be analyzed, determining if they are realistic and if they are aligned with the hotel’s strategic objectives. Additionally, the financial impact and investment required to take advantage of these opportunities must be evaluated.
Development of an action plan: Once growth opportunities have been identified and their feasibility evaluated, a detailed action plan can be developed to implement them. This plan should include clear objectives, a timeline, a budget, and responsible parties for each action.
What is the management team’s experience?
Before investing in a hotel, it’s important to investigate the experience of the management team to determine if they have the skills and knowledge necessary to effectively manage the hotel and achieve financial objectives. These are some steps to follow to investigate the management team’s experience of a hotel:
Review hotel information: The hotel information can provide a general idea about the management team. For example, you can review the hotel’s website, social media profiles, business plan, and any other available documentation that provides information about the management team.
Review work experience: It’s important to review the work profiles of the members of the management team, including their previous work experience in the hotel industry. This may include their previous roles, the duration of their experience, their level of responsibility, and any notable achievements.
Review skills and training: You should evaluate the skills and training of the management team to determine if they have the technical and managerial skills necessary to operate the hotel effectively. This may include skills such as financial management, personnel management, marketing and sales, and specific technical skills related to the hotel industry.
Review references and testimonials: It’s important to obtain references and testimonials from people who have worked with the management team in the past, such as employees, colleagues, and customers. References and testimonials can provide valuable information about the management team’s experience and skills.
Conduct interviews and meetings: You can schedule interviews and meetings with the management team to discuss their experience and skills, as well as to gain a better understanding of their philosophy and management strategies. This can help evaluate their ability to effectively lead and manage the hotel.
What is the investment budget?
Defining the investment budget for a hotel is also fundamental to the success of the project. These are some of the reasons why it is important to define a budget:
Establish realistic goals: Defining a budget allows for establishing realistic and measurable goals for the hotel investment. By setting clear goals, it can be ensured that the investment is carried out effectively and desired objectives are achieved.
Control expenses: A well-defined budget helps to control expenses and avoid unnecessary costs. This is especially important in hotel investment, as the costs of construction, decoration, furniture, and equipment can be very high.
Evaluate profitability: By defining a budget, the profitability of the investment can be evaluated. This involves estimating the hotel’s income and expenses, as well as projected cash flows. By comparing this data with the budget, it can be determined if the investment is profitable and if it is financially and economically viable.
Obtain financing: Defining a budget is also important for obtaining financing for the investment. Lenders and investors will want to see a detailed budget before providing financing, as this allows them to evaluate the viability and profitability of the project.
Make informed decisions: A well-defined budget allows for making informed decisions about the hotel investment. By having a clear understanding of the costs and benefits of the investment, strategic and tactical decisions can be made to maximize results and minimize risks.
What is the hotel’s reputation?
And although it may seem obvious, researching a hotel’s reputation before purchasing it is essential for potential investors, as the hotel’s reputation can have a significant impact on the profitability and success of the business.
A bad reputation can affect the hotel’s occupancy and therefore its revenue, while a good reputation can generate an increase in demand and, consequently, in revenue.
When asked to help find investors for a hotel with a bad reputation, I like to explain to the selling clients that it is a property that has the characteristics and facilities to be operated as a hotel, but does not meet the standards to be properly considered a «hotel.»
In those circumstances, the value of the brand associated with the business is zero, so I personally consider it more convenient to start the project from scratch, implementing a new name and marketing strategy to position the business appropriately in the market. Overcoming a hotel’s bad reputation is something very, very complicated.
Evaluate the quality and condition of the hotel’s facilities
To evaluate the quality and condition of a hotel’s facilities, the following details should be taken into account at least:
Conduct a physical inspection: a visit to the hotel should be made and all facilities should be carefully examined, including the rooms, common areas, pool, spa, restaurants, among others. Signs of wear, inadequate maintenance or the need for renovation should be looked for.
Review documentation: health and safety inspection reports, licenses and permits, maintenance and repair records, as well as any other documentation related to the hotel’s facilities should be reviewed.
Conduct guest satisfaction surveys: guest satisfaction surveys can be conducted to evaluate their opinion on the hotel’s facilities. These surveys can provide valuable information about any issues guests may have experienced that were not identified during the physical inspection.
Evaluate technologies and systems: security, automation, lighting, HVAC, and other technological systems used in the hotel should be examined. It is important to ensure that these systems are up-to-date and efficient.
Without a good location, our business will struggle.
Location is a crucial factor to consider before investing in a hotel. The location of a hotel can directly affect its profitability and long-term success. A strategic location can increase the demand for accommodation and attract more guests, leading to higher revenue and profits. On the other hand, an unattractive or inaccessible location can decrease demand and affect the hotel’s occupancy.
Additionally, the location can also affect the hotel’s operating costs, such as the transportation of goods and supplies, the cost of utilities, and guest safety. For example, a hotel located in an unsafe area may require additional security measures, increasing operating costs.
If you are considering investing in hotels in Cusco and Peru, look no further than our portfolio of properties. We offer a range of attractive options that are sure to capture your interest. Whether you are seeking a luxury hotel in the heart of the city or a quaint bed and breakfast in a charming neighborhood, we have the perfect property for you.
Contact us today to learn more about how we can help you make a smart investment in the thriving hospitality industry of Cusco and Peru.
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Enrique L. Gonzalez
+51 951 066 165
CEO F2F CUSCO