Buy hotel in Mallorca

Due to the steady growth of the hotel market in Mallorca, it is still a solid and interesting investment to run your hotel business in Mallorca. Whether you want to take over the hotel business (hotel management) or start a completely new hotel project, Mallorca is the perfect place to do so. However, the second option is only possible to a limited extent, and we recommend only buying properties that actually have a valid hotel license.

Mallorca is and remains one of the most popular vacation destinations in the world, and this is also reflected in the hotel real estate market.

When running a hotel, all permits and licenses should be checked by the municipality and the tourism board. It is also essential to check that the property is unencumbered. In the case of hotels, it is often the company that is sold and not the property itself, so a detailed due diligence/risk assessment is of course important.

Due diligence: the key to risk minimization

Aim of due diligence

Due diligence is a thorough review carried out by external consultants to ensure that the hotel does not pose any legal or financial risks. This review is critical to minimize transaction risks and provide the buyer with an independent valuation of the future asset.

Areas of due diligence

• Tax aspects: Checking for tax liabilities and compliance with tax obligations.
• Legal aspects: Analysis of the legal situation of the hotel, existing contracts and possible legal procedures.
• Labor law aspects: Ensuring compliance with labor law regulations and correct remuneration systems.
• Financial aspects: Assessment of the economic health of the hotel, including accounting and liquidity.
• Technological aspects: Examination of the hotel’s IT infrastructure and processes.

When buying a hotel, you should also carry out a detailed market analysis and draw up a concrete business plan for the operation and assessment of the next few years. The focus should not only be on the existing annual financial statements and key figures, but also on statistical future projections. A professional, but also external (i.e. not commissioned by the seller) valuation report should also be included in the purchase process.

Market development in the hotel sector

The hotel market has fully recovered in recent years. International investors have focused on affordable vacation destinations, while large chains have used their liquidity to renovate old buildings and build luxury hotels in sought-after cities. These strategic changes have borne fruit and investments have exceeded pre-pandemic levels. Selling a hotel has evolved from a difficult task to a realistic possibility.

ROI estimate and RevPAR calculation

ROI calculation

The return on investment (ROI) is calculated using the internal rate of return, debt ratios and cash flow. ROI is a key indicator for investors to assess the profitability of the investment.

RevPAR calculation

RevPAR (Revenue per Available Room) measures the revenue generated per available room and is an important indicator of a hotel’s financial performance. It is calculated as follows:

RevPAR = ADR x occupancy rate

Incidental purchase costs for a hotel purchase in Mallorca

• Private person buys (natural person) the hotel: if a natural person buys the hotel (and not the owner company) the VAT is 21% (IVA) of the price, and the stamp duty with approx. 1% of the price (Impuesto sobre actos jurídicos documentados).
  

  Hotel Investments in Mallorca

• Company buys (legal entity) the hotel: Generally, this is the common way, due to the more favorable taxes in this variant. The best thing to do is to register a “Spanish GMBH” (i.e. a Sociedad limitada) with your trusted tax advisor. This type of company in Spain can be formed with minimal share capital and the formation costs are also low (with notary, lawyer and registration fees of around €3,000).

 

One of the most important things when buying a hotel is to have a trusted person on site who knows everyone.

Asset management in hotel investment

What is asset management?

Asset management refers to the procurement of relevant information that leads to well-founded and successful decision-making processes. Professional asset managers analyze market strategies and sales processes in order to maximize the value of hotel properties and increase their profitability.

Basic principles of asset management

• Determine target return: Definition of target returns, risk budgets and investment horizons.
• Alternative strategies: Development of management alternatives that meet the specific requirements of the investor.
• Risk tolerance: Adaptation of strategies to the investor’s risk profile, values and individual situation.
• Decision support: Use of advanced tools for decision-making based on the defined investment strategy.
• Transparent reporting: Continuous evaluation of the investment through transparent reports.

Analysis of other factors.

Location analysis

The location analysis evaluates the availability of public transportation, nearby accommodation, the attractiveness of the neighborhood and the cost of basic services.

Calculation of the initial investment

The initial investment includes construction or renovation costs, equipment costs, operating costs and license fees for food and beverages. This analysis helps to determine the available financing options and the amortization period.

Analysis of supply and demand

By analyzing competitors in the region based on data from tour operators and booking platforms, targets can be set and unique customer loyalty services developed.

Determination of room rates

Based on the data collected, room rates can be set according to season and facilities. Long-term projections of demand and length of stay are also possible.

Construction investments

Based on the demand forecasts, investments in construction or expansion can be planned, whereby the extent of the renovations depends on the expected occupancy rate and the availability of rooms.

 

Conclusion from our team

There are of course other options and some tips and tricks that you can use when buying a hotel in Mallorca, which we will be happy to help you with if you are interested. The most important thing is to have all the documents that justify a possible purchase from a financial point of view, a trusted person on site who contacts the hotel owners (also discusses all important points as well as conducting the negotiation) and of course a good team of tax advisors, lawyers, architects and financing experts.