From surprise costs to sky-high overhead, hotel investing plays by a different rulebook. This guide unpacks what short-term rental pros need to know before trading in their Airbnb for a boutique hotel.

Investing in Hotels: Why It’s Riskier Than You Think

Short-term rental investors often underestimate the operational complexity of hotels, including staffing, regulatory compliance, and the need for continuous capital reinvestment.

Hotels offer revenue upside through food & beverage, events, and brand equity, but poor operations can turn those levers into money pits.

Unlike vacation rentals, hotels are valued on income. If your NOI slips, so does your exit. 

The short-term rental (STR) market has turned thousands of everyday hosts into real estate investors. As regulations tighten and competition grows, however, many are tempted to “level up” by buying boutique hotels. On the surface, it seems logical: more rooms, more revenue, bigger scale.

The truth is more complicated. Hotels represent full-fledged operating businesses that come with all the associated payroll and compliance headaches, as well as a whole new playbook for valuation and financing. Done right, boutique hotels can be institutional-grade assets. Done wrong, they can bleed investors dry.

Let’s explore where STR investors often misjudge the leap, and what you need to know before jumping in.

Before diving into the operational, financial, and regulatory nuances of investing in hotels, it’s essential to understand one key truth: hotels aren’t just “30 Airbnbs under one roof.” They’re entirely different businesses with different cost structures, risk profiles, and exit strategies.

While hotels can offer powerful upside through diversified income streams, professional-grade branding, and income-based valuations, they also come with higher fixed costs, stricter compliance requirements, and operational complexity that catches many first-time hotel investors off guard.

At a glance, here are some of the biggest differences between short-term rentals and hotel investments:

STRs are typically asset-light, low-overhead properties that can be run part-time or semi-passively.

Hotels, on the other hand, are fully staffed, high-burn operating businesses that live or die by occupancy, RevPAR, and team performance.

STRs can often be financed and sold as residential real estate, while hotels are valued entirely on income performance (net operating income, cap rate, and comp set competitiveness).

STRs may sit idle with minimal costs, but hotels bleed cash when demand dips. You’ll still be on the hook for payroll, insurance, and utilities.

In other words, while hotel investment opportunities can look attractive on paper, especially for experienced STR operators, they demand a completely different playbook. The table below offers a side-by-side comparison of what it really means to invest in hotels versus short-term rentals.

In this section, we’ll walk through the core advantages and hotel investment risks you need to understand before jumping in. These are the real dynamics that will shape your P&L from day one.

Upside: In hotels, you control everything. Room rates, upsells (think spa, food & beverage, events), and ancillary revenue streams add layers of income that STRs can’t touch.

Risk: That also means you’re responsible for managing all those operations. Each revenue stream comes with overhead, staffing, and logistics. A poorly run restaurant or spa can become a cost center, not a profit driver.

Takeaway: Don’t assume “more levers = more profit.” They also mean more moving parts that can break.

Upside: Hotels let you craft a consistent identity. From lobby design to pillow menus, you can build repeat business and brand equity, which is something that vacation rentals struggle with.

 Risk: Brand consistency requires serious investment. Guests expect uniform quality, and one bad experience can erode trust. Unlike STRs, where variability is expected, hotels are judged by their weakest link.

Takeaway: Hotels demand professionalized branding and service. “DIY chic” won’t cut it.

Upside: Cities often embrace boutique hotels as legitimate hospitality infrastructure, making zoning and permitting more predictable.

Risk: With legitimacy comes scrutiny. Hotels must comply with strict codes: fire safety, ADA accessibility, liquor licensing, labor rules, and more. These aren’t gray areas you can skate around. They’re costly and enforceable.

Takeaway: Hotels may be safer from bans than STRs, but they come with regulatory red tape that can choke margins.

Upside: Buy one hotel, get dozens of rooms under one roof. This represents instant economies of scale in staffing, marketing, and operations.
Risk: Bigger scale also means bigger exposure. A weak shoulder season or underperforming comp set can tank performance across all keys. STRs let you spread risk across neighborhoods, markets, or property types. Hotels concentrate it.

Takeaway: Hotels scale faster, but the downside risk scales too.

Upside: Banks and institutional investors understand hotels as commercial real estate. Financing is based on income, not just comps, and stabilized NOI can boost valuations.
Risk: That same model works against you in downturns. If occupancy dips or average daily rates (ADR) compress, valuations slide quickly. STR investors are often surprised by how fast hotel appraisals adjust downward when income drops.

Takeaway: Income-based valuations cut both ways. Your upside is tied to performance, but so is your exit.

Upside: A well-run hotel is attractive to hotel groups, private equity, or lifestyle brands, offering strong institutional-grade exits.

Risk: Exit opportunities vanish if your hotel isn’t profitable or differentiated. Unlike houses, where market appreciation can carry value, hotels only sell well when they perform well.

Takeaway: Your exit depends on being a great operator, not just a great buyer.

Upside: Hotels have higher fixed costs, but well-managed properties can smooth volatility through events, upsells, and loyalty strategies.

Risk: Those fixed costs never go away. Payroll, insurance, and utilities are due regardless of occupancy. A slow season can quickly turn into negative cash flow.

Takeaway: STRs can sit vacant with minimal burn. Hotels cannot.

Without reliable rental comps, you're making pricing decisions in the dark. Use real data to compare your listing performance to similar properties and discover your true market position.

By now, the message should be clear: investing in hotels requires stepping into an entirely different business model. The pros are real: more control, greater revenue potential, and scalable operations. But so are the risks: high fixed costs, strict compliance requirements, and revenue volatility that can erode even the most optimistic pro forma.

And yet, many short-term rental investors still get tripped up when they make the leap to hospitality. Why? They bring STR assumptions into a hotel context, and those assumptions don’t hold up.

Here are the most common hotel investing mistakes STR operators make when they treat boutique hotels like supersized vacation rentals.

1. Treating hotels like scaled-up short-term rentals

Many STR investors gauge hotel investment opportunities by simply taking their average daily rate (ADR), multiplying it by projected occupancy and room count, and calling it revenue.

For example, an investor assumes a 25-key boutique hotel can hit $250 ADR at 75% occupancy, just like their top-performing Airbnb. That’s ~$1.7M in projected revenue. However, this calculation ignores food & beverage, event space, and parking revenues and the associated costs. When the first-year P&L rolls in, their actual NOI is half of what they modeled.

The bottom line is that hotels aren’t “just more rooms.” They’re multi-revenue businesses with complex cost structures.

Short-term rentals are lean: maybe a cleaner, a property manager, and some utilities. Hotels are a whole different story.

A 20-room inn, for example, may need a 24/7 front desk, housekeeping staff, maintenance, and a general manager. Even at a modest $18/hour average wage, payroll can run $500K+ annually—and that’s before benefits. Add software (PMS, channel manager, accounting tools) and insurance, and fixed overhead easily tops 40% of revenue.

The mistake lies in STR investors budgeting for their hotel investment like they’re still running a lean Airbnb, when in reality, overhead eats margins if you’re not prepared.

STR investors often assume steady 70–80% occupancy, but hotels swing hard.

Picture a coastal boutique hotel that runs at 90% occupancy in July and August but drops below 40% in January. STR investors accustomed to year-round weekend bookings don’t model this seasonality. The result is cash shortfalls in the off-season and over-optimistic annualized revenue forecasts.

Hotels ride the wave of demand cycles. Stress-testing occupancy is non-negotiable.

STRs can sometimes command premiums because they’re unique. Hotels live in transparent markets with nightly comps.

Let’s say an STR investor expects to charge $400/night because their Airbnb treehouse gets it. However, the boutique hotel they acquire competes against a branded Holiday Inn and Marriott Courtyard at $220–$250. Guests shopping on Expedia see all three side by side, so the boutique’s ADR settles around $260, not $400.

Hotel pricing is capped by the comp set. You can’t “float” far above without losing bookings.

STRs need light refreshes for things like paint, linens, maybe furniture upgrades. Hotels require ongoing, structured reinvestment.

Industry standard FF&E (furniture, fixtures, equipment) reserves are 4–5% of annual revenue for hotel investments. For a $2M-revenue boutique hotel, that’s $80K–$100K earmarked yearly for room renovations, lobby updates, HVAC replacements, and ADA compliance upgrades. STR investors who don’t plan for these cycles face huge cash calls every 5–7 years.

Hotels eat capital. Ignore CapEx reserves, and your property will quickly fall behind competitors.

6. Forgetting about OTA distribution costs

Airbnb takes ~3–15% fees. Hotels rely heavily on online travel agencies (OTAs) like Booking.com and Expedia at 15–20% commissions.

A 25-room hotel with $2M in annual revenue that books 70% of stays through OTAs will pay ~$280K in commissions. STR investors often forget to model this line item, and their NOI projections collapse.

When you run a vacation rental, you can lean into a direct booking strategy or feasibly rely exclusively on a low-commission platform like Airbnb. OTA commissions aren’t optional when you’re investing in hotels, they’re table stakes in hotel distribution.

STRs are often valued as residential homes (per square foot or comps). Hotels are valued on income (cap rate, NOI, RevPAR index).

For example, an STR investor buys a 30-room hotel for $5M. They’re expecting appreciation like a home, but when they go to sell, the buyer only cares about stabilized NOI. If NOI has slipped from $800K to $500K, the valuation tanks. Cap rate math means the property may only fetch $3.5M.

Hotels trade on income, not vibes. If the business underperforms, the valuation does too.

8. Overlooking strict compliance obligations

STR investors often operate “in the gray” when it comes to zoning, safety, and licensing. Many short-term rentals fall into regulatory loopholes. That might mean running in residential zones not formally approved for lodging, skipping permits, or taking advantage of lax enforcement in lightly regulated markets. In some cases, STR operators simply list properties on platforms like Airbnb and operate with minimal oversight, flying under the radar until regulations catch up.

Hotels, however, are not afforded this gray zone luxury. Let’s say a hotelier in California failed to budget for ADA bathroom upgrades, which cost $250K. Another investor underestimated union requirements in New York, where labor costs are ~30% higher. STR investors used to light-touch regulations are blindsided by just how demanding (and expensive) it is to operate a compliant hotel.

Unlike STRs, hotels are expected to play by the same rules as large hospitality brands. You’re no longer a homeowner with a side hustle. You’re now an employer, a commercial landlord, and a licensed hospitality provider.

The legal gray areas that many STR investors have learned to navigate don’t exist in hotel investing. If you're not ready to operate above board—and pay for the privilege—then investing in hotels might not be the right fit.

At the end of the day, the most dangerous mistake STR investors make is treating boutique hotels as “scaled-up Airbnbs.” In reality, hotels are operating businesses with higher costs, stricter competition, and different valuation rules. Treat them like STRs, and you’ll overpay, underperform, and struggle to exit.

Boutique hotels can offer strong returns, multiple revenue streams, and institutional-grade exits. However, they also come with high fixed costs, compliance obligations, and operational risks that don’t exist in short-term rentals. Success depends less on market appreciation and more on day-to-day performance. If you’re a short-term rental operator looking to transition into hotel investing, you need to treat them like operating businesses rather than just income properties.

What’s the biggest difference between investing in hotels and short-term rentals?

Hotels require professional operations. That means staff, systems, regulatory compliance, and significant ongoing reinvestment. STRs are typically lean and semi-passive. With hotels, you're running a 24/7 business and your hotel investment strategies need to reflect the associated complexity.

How to invest in hotels if I only have experience with short-term rentals?

Start by adjusting your mindset. Look at boutique hotels like you’d evaluate a small business: check historical P&Ls, budget for payroll and CapEx, and plan for seasonality. Some investors begin with passive options—like REITs or partnerships—before jumping into direct ownership. If you do go direct, start small and surround yourself with experienced hospitality professionals.

Returns vary widely depending on location, operations, and occupancy. A well-run boutique hotel might produce 8–12% cash-on-cash returns, but only if it’s optimized and staffed properly. Underperforming hotels can quickly turn cash-negative, especially in the off-season.

What are the biggest risks in hotel investing?

High overhead: Payroll, insurance, and utilities don’t pause in the off-season

Regulatory pressure: ADA, fire code, zoning, and labor laws are strictly enforced

Revenue swings: Seasonality and compset pricing can compress margins fast

CapEx cycles: Hotels require ongoing capital reinvestment

OTA reliance: Distribution costs can eat 15–20% of revenue

Can I finance a hotel like a short-term rental?

Not quite. STRs are usually financed like homes with loans based on comps. Hotels are financed like businesses, with lenders looking closely at income (NOI), occupancy, and RevPAR. The more stabilized and profitable the hotel, the better the financing terms.

What’s the best strategy for short-term rental operators looking to expand into hotels?

Don’t copy-paste your Airbnb playbook. Instead:

Run the numbers like a hotelier, not a host.

Prioritize operational talent and systems.

Treat compliance as a line item, not an afterthought.

Start small and scale only when you have proven operations.

Discover properties with the highest yield potential in your budget.

Thinking about investing in hotels? Learn the key differences from STRs, the hidden risks, and what every short-term rental investor needs to know.

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Investing in Hotels: Why It’s Riskier Than You Think

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