Hotel Investment Calculator
Hotel cap rate.
Calculate hotel investment cap rate from ADR, occupancy, and room count — the underwriting headline behind any hospitality acquisition.
What this tool does
This calculator models the income return on a hotel property investment by computing its capitalisation rate and stabilised net operating income. Starting from your property price, room count, average daily rate, occupancy percentage, and operating expense ratio, the tool estimates annual revenue by multiplying rooms, daily rate, and occupancy across 365 days, then deducts operating costs to arrive at NOI. The cap rate expresses this NOI as a percentage of your purchase price. The result reflects performance under the assumptions you enter—primarily occupancy level and expense ratio, which drive NOI most significantly. This calculation models a stabilised year and does not account for financing costs, capital expenditure cycles, market fluctuations, or property-specific factors like location or asset condition. Use this for comparative analysis across potential acquisitions or to understand how operational changes affect property returns.
Enter Values
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Formula Used
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Disclaimer
Results are estimates for educational purposes only. They do not constitute financial advice. Consult a qualified professional before making financial decisions.
Hotel investment ROI calculator measures cap rate based on rooms, ADR (Average Daily Rate), occupancy, and operating expenses ratio. 10M hotel, 100 rooms, 150 ADR, 75% occupancy, 50% opex ratio = 4.1M revenue, 2.05M NOI, 20.5% cap rate. Hotels typically deliver 8-15% cap rates - higher than residential due to operating intensity.
Example: 10M boutique hotel, 100 rooms, 150 ADR, 75% occupancy. Annual revenue = 100 × 150 × 365 × 0.75 = 4.1M. NOI at 50% opex = 2.05M. Cap rate = 20.5%. Strong return reflects operating risk - hotels are operating businesses, not passive real estate. RevPAR (revenue per available room) = 150 × 0.75 = 112.50.
Hotel investment realities: (1) Operating intensity - hotels are businesses needing daily management. (2) Cyclical (1st to fail in recessions, 2008 vacancies hit 30%). (3) Brand affiliation matters (Marriott/Hilton flag adds 10-20% revenue). (4) Seasonal patterns. (5) Capex heavy (full refresh every 7-10 years at 10-15% of value). Better to invest via REITs (Host Hotels, Park Hotels, RLJ Lodging) than direct hotel ownership for most investors - same exposure, professional management.
Run it with sensible defaults
Using hotel purchase price of 10,000,000, number of rooms of 100, average daily rate of 150, occupancy of 75%, the calculation works out to 20.53%. The defaults are meant as a starting point, not a recommendation.
The levers in this calculation
The inputs — Hotel Purchase Price, Number of Rooms, Average Daily Rate, Occupancy %, and Operating Expense Ratio % — do not pull with equal force. The rate and the time horizon usually dominate — compounding means a small change in either reshapes the final figure more than a similar shift in contribution size. Test this by doubling one input at a time.
How the math works
Annual revenue = rooms × ADR × 365 × occupancy. NOI = revenue × (1 - opex %). Cap rate = NOI / price.
Using this well
What this doesn't capture
Steady-rate math ignores real-world volatility. Actual returns are lumpy; sequence-of-returns risk matters most in drawdown; fees and taxes drag on compound growth; and behaviour changes in drawdowns can reduce outcomes below the projection. The number represents one scenario rather than a forecast.
££10,000,000, 100 rooms × ££150 × 75% = 20.53%.
Inputs
This example uses typical values for illustration. Adjust the inputs above to match a specific situation and see how the result changes.
Sources & Methodology
Methodology
This calculator computes the cap rate by first estimating annual revenue and then deducting operating expenses. Annual revenue is calculated by multiplying the number of rooms by the average daily rate, the number of days in a year (365), and the occupancy percentage. Net operating income (NOI) is then derived by applying the operating expense ratio to revenue, treating operating costs as a fixed percentage of gross income. The cap rate is computed by dividing NOI by the property purchase price, expressing the relationship between annual net income and initial investment. The model assumes constant occupancy, stable average daily rates, and operating expenses that scale proportionally with revenue throughout the holding period. It does not account for capital expenditures, debt service, vacancy loss beyond the occupancy input, variable cost structures, taxes, or changes in market conditions.
References
Frequently Asked Questions
Hotel cap rates by type?
Hotel vs residential investment?
Capex requirements?
Brand vs independent?
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