Investing in Hotels: How Returns, Risks and the Market Work
How hotels earn money, why they behave differently from apartments or offices, what the 2025 market data shows, and the risks to check before buying one.
Updated & fact-checked Figures are linked to their sources at the end of the article.
A hotel is a building with a business inside it. An apartment building’s tenants sign leases for a year; a hotel resells every room every night. That makes hotel income more volatile than most property income, and it makes the operator as important to the result as the real estate.
This guide is for investors weighing a first hotel, whether a select-service property on a highway, a downtown full-service hotel or a seasonal resort. It explains how hotels earn money, how they differ from other income property, what recent Canadian and U.S. market data shows, and the risks to check before buying.
How a hotel makes money
Room revenue is usually the largest line, and three numbers describe it:
- Occupancy: the share of available rooms sold.
- Average daily rate (ADR): room revenue divided by rooms sold.
- Revenue per available room (RevPAR): room revenue divided by rooms available, which equals occupancy multiplied by ADR.
Full-service and resort hotels add food and beverage, meeting space, parking, spa and other revenue, each with its own staff and costs. After departmental costs, the hotel pays undistributed expenses (administration, sales and marketing, maintenance, utilities), then management and franchise fees, property taxes, insurance and a reserve for replacing furniture and equipment. What is left is net operating income, the figure lenders and buyers value. See key metrics and valuation for hotels and apartment buildings for how those numbers turn into a price.
Because so many costs are fixed, a small change in RevPAR moves profit by a much larger proportion, in both directions. That operating leverage is why hotels can earn more than apartments in good years and lose money in bad ones.
What the market looked like in 2025
Hotel performance, full year 2025
The two countries moved in different directions. CoStar reported that Canada’s hotel industry had its highest annual top-line performance on record in 2025, with every province and territory posting higher ADR and RevPAR; British Columbia led on all three measures.[1] In the U.S., annual occupancy and RevPAR fell year over year for the first time since 2020, even though ADR rose 0.9%.[2] National averages hide wide local differences, so underwrite a hotel on its own market’s data, not the country’s.
Seasonality: the Nova Scotia example
Seasonality is the first thing a buyer outside the hotel business underestimates. Tourism Nova Scotia’s 2025 figures show it clearly. Fixed-roof accommodations across the province averaged 60% occupancy for the year, but ran from 39% in January to 80% in August. Halifax, with year-round business and government travel, averaged 70%.[3]
Monthly hotel occupancy in Nova Scotia, 2025
- Halifax Metro
- Province
Show the data as a table
| Period | Halifax Metro | Province |
|---|---|---|
| Jan | 43% | 39% |
| Feb | 55% | 47% |
| Mar | 62% | 51% |
| Apr | 65% | 52% |
| May | 70% | 54% |
| Jun | 76% | 61% |
| Jul | 80% | 69% |
| Aug | 89% | 80% |
| Sep | 89% | 78% |
| Oct | 79% | 68% |
| Nov | 75% | 59% |
| Dec | 51% | 42% |
A resort that fills in August and sits half-empty in January must still pay its property taxes, insurance and debt in January. Lenders size loans and reserves with that in mind, and buyers should model cash flow month by month, not on the annual average.
How hotels differ from apartment buildings
Many investors come to hotels from apartments, and the two are often compared. The differences matter more than the similarities.
Hotel versus apartment building, as an investment
Hotel
- Rooms are resold nightly, so income reacts within weeks to a downturn or a boom
- An operating business: staff, food and beverage, sales and revenue management
- Usually tied to a brand through a franchise or management agreement, with fees and required renovations
- Strongly seasonal in many markets
- Rates can be raised the same day demand rises
Apartment building
- Leases of a year or month to month; income changes slowly
- Lighter operations: leasing, maintenance and collections
- No brand; the owner controls standards and capital spending
- Little seasonality
- Increases can be limited by law. Nova Scotia caps annual rent increases for existing tenants at 5% until December 31, 2027
That Nova Scotia rent cap, extended by the province in 2024, is one reason some investors look at hotels: a hotel’s rates are not regulated in the same way.[4] The trade-off is volatility. Some owners hold both types to balance stable apartment rent against hotel income that rises faster in good markets. Converting between the two is possible but costly; see our guide to adaptive reuse.
Ways to own a hotel
- Direct ownership, independent. You or your company own and run the hotel without a brand. You keep the fees a brand would charge but must win guests on your own.
- Direct ownership, franchised. You own the hotel and pay a brand for its name, reservation system and loyalty programme, under a franchise agreement that sets standards and requires periodic renovations. You, or a third-party management company, run it.
- Owner with a management company. A professional operator runs the hotel for a fee. The owner keeps the financial risk and approves budgets and capital spending.
- Passive investment. Units in a private hotel partnership or joint venture, or shares in a listed hotel real estate investment trust. You give up control in exchange for diversification and, for listed shares, the ability to sell.
Each brand or management agreement is negotiated separately, and its term, fees, termination rights and renovation obligations can affect value as much as the building does. Have a lawyer who knows hotel agreements read them before you buy.
Risks to check before you buy
A due diligence checklist for a first hotel
Trailing performance against the competitive set
Get at least three years of monthly profit and loss statements and, if available, benchmark reports comparing occupancy, ADR and RevPAR to nearby competitors.
Demand drivers
Who stays and why: business travel, government, events, tourism, hospitals or universities. A hotel that relies on one source is exposed if it goes.
New supply
Check planning applications for new hotels and short-term rentals nearby. Tourism Nova Scotia reports 682,000 room nights booked through sharing-economy platforms in the province in 2025, up 8%; the figure includes short-term rentals and some traditional properties.
Brand and management agreements
Term, fees, termination costs and any required property improvement plan on a change of ownership.
Capital needs
Age of rooms, mechanical systems, roof and elevators. Hotels need regular refurbishment to keep their rates.
Labour
Staffing levels, wage trends, union agreements and how hard it is to hire in the area.
Financing
Hotel loans usually come with lower leverage and stricter covenants than apartment loans because the income is less predictable.
The sharing-economy figure comes from Tourism Nova Scotia’s 2025 one-page summary, which also reports 3 million room nights sold in the province, up 1% on 2024.[5]
Sources
- Canada hotels post record-setting performance in 2025 (CoStar press release, republished) — CoStar via Hotel Online, January 21, 2026. Checked 2026-10-12.
- U.S. hotels report first full-year occupancy, RevPAR declines since 2020 — CoStar, January 20, 2026. Checked 2026-10-12.
- Nova Scotia Tourism Accommodations, January to December 2025 — Tourism Nova Scotia, 2026. Checked 2026-10-12.
- Changes to Rent Cap, Residential Tenancies Act — Government of Nova Scotia, September 6, 2024. Checked 2026-10-12.
- 2025 Tourism Performance Indicators (one-page summary) — Tourism Nova Scotia, 2026. Checked 2026-10-12.
