Franchise Strategies
Nov 14, 2025
Hotel franchises may seem profitable, but high fees, strict rules, and market risks reveal they are often poor investments in real estate.
When it comes to real estate investments, hotel franchises might seem like a smart choice at first glance. They promise steady income from room sales and the backing of a recognizable brand. But the reality is far less appealing. Here’s why:
High Costs and Fees: Franchise owners face steep upfront costs, ongoing royalty fees, and mandatory contributions to advertising funds. These expenses grow as revenue increases, cutting into profits.
Strict Brand Rules: Owners must follow rigid guidelines for operations, renovations, and supplier choices, often leading to higher expenses and reduced flexibility.
Market Risks: Oversupply of hotels drives down room rates, while unpredictable demand and rising operational costs make earnings unstable.
Limited Control: Franchise agreements often restrict owners’ ability to adapt to local markets or exit contracts without significant penalties.
For investors seeking better returns, alternatives like self-owned hotels, mixed-use properties, or self-storage units offer lower risks, fewer restrictions, and greater control over profits. Franchise Ki provides free expert advice to help investors explore smarter, more profitable real estate options.
Is a Hotel Franchise a Good Investment? (Costs, Sales, & Fees)
High Costs and Franchise Fees
Owning a hotel franchise costs a lot of money. You must pay for day-to-day needs, and there are other fees that cut into your money. Some investments have costs you can guess, but hotel franchises do not. The fees change with how much your business makes. When you make more money, your fee is higher. If things slow down, you still pay a base fee, even if you make less money. Let’s look closer at how costs before you open, fees you must keep paying, and hard brand rules make things tougher.
Franchise Fees and Money You Keep Spending
When you sign up for a hotel brand, you pay a start fee. But this is not all you pay. There are more fees you must pay again and again, like the royalty fee. Royalties are a part of what you make in room sales. You also pay into the company’s ads fund. Many times you must also pay money for fixing buildings or making changes that help all hotels under the brand. Then there are fees for tech and booking systems. All of these costs together make it hard to know what you will pay each month, and it can be hard to manage all this money going out.
Brand Rules That Lower Your Profits
The problem is not just with fees. Hotel owners must follow many brand rules, and this can hit how much money they make. You must follow rules for how your hotel looks, who works there, and where you buy what you need. These rules may make you redo rooms, buy things that cost more, and offer certain services all the time - even when not many guests are there.
A big rule is that you must buy from set sellers. This keeps things the same across hotels, but you pay more than you would from other sellers. These high costs stick around even when fewer guests come, so all these rules and fees take away from the money you earn. Because of fees that don’t drop much and brand rules that cost a lot, it is hard to make much profit, and owning a hotel franchise can be a tough job if you want to keep more money.
Too Many Hotels: Room Prices Drop
There are lots of new hotels in the U.S. More hotels mean more sites fighting for the same guests. Owners lower their prices to win people in. This hard fight causes room prices to fall. Money gets tight, and owners still have to pay bills and fees.
Hotels Grow, More Rooms Than Needed
Big growth for hotel brands is good for their name. But too many hotels fight for guests. In big towns, hotels with the same name sit close together and fight over price. They try to beat each other and this hurts them.
In small towns, the problem is not the same. These places do not have enough people to fill the rooms. Hotels might be full when lots of people travel, but when not many come, rooms stay empty. The cost to run the hotel does not drop when rooms are empty, so money gets tight and owners feel stress.
Key Numbers Fall with Lower Rates
Too many hotels hurts key numbers for owners. One main number is money made from each room. With so many choices for guests, both this number and room rates fall. Cutting prices does not always bring enough guests to cover the loss.
Other things make it worse. People now pick homes and new places to stay instead of hotels. Work trips slow down and more people work from home, so hotels are less full on weekdays. Even with all this, new hotels keep opening, making it hard for old ones to pay bills as the market shakes and changes fast.
Money Changes and Risk for Hotels
When times get hard, hotels can be hit more than other places to put your money. Some kinds of buildings stay strong when things get rough, but hotels may face big tests as people spend less and travel goes down.
Money Problems Hurt How Hotels Do
When money is tight, people travel less for work and fun. With less money to spend, hotels lose out - fewer people come, and what people do pay can go down. Hotels that need both work and fun guests can see their cash drop.
When prices for things go up, it gets worse. Wages, food, power, and bills cost more. If hotel owners can’t raise room prices, they make less money. When borrowing money costs more, fixing things or keeping up can get too hard. Hard rules from the main brand also mean owners can’t change how they run things.
Hard to Change for Each Town
Big hotel brands come with rules that can be stiff. Owners can’t always make changes that help when things are slow. The main office may tell them what prices to use, how to market, and how many workers to keep. Even when fewer people come, the rules may say you must keep more staff or spend more on ads. This can make losing money even worse.
High costs to run things and small money left over make it tough. Rules in the deal can make it very hard to leave or change things when the market goes bad, trapping owners in place and blocking smart moves.
All these money worries and strict brand rules show why hotel deals are a risk when the world’s money isn’t sure.
Hidden Money Drains and Losing Control
When you look at hotel chains, the clear fees and set rules only show part of the whole story. Below what you see, there are more costs and strict rules that show up later. These can stack up fast and make running your place harder and more costly. Small costs you did not see before can show big money risks with hotel chains.
Unknown Fees and What the Brand Wants
Big hotel names often ask for more money after you sign the papers. For instance, you may need to fix up rooms or halls, put in new lights, paint walls, or even build new parts. Next, you have tech costs, like putting in new booking tools or phone lines, and these may need checks or updates that cost you month after month. All these small and big costs - fixing things, new tech, or simple daily needs - can eat up your money fast and make it tough to earn much.
Not Much Say and Exit Problems
To own a hotel under a chain means you give up a lot of say on how your place runs. Along with new costs, not being able to choose for yourself can mean you do not meet what folks who stay at your hotel in your town really want. You also may not be able to move quick if the market or the world changes. Paper rules from the chain can be firm and may not let you try new things or switch up steps for what you think is best.
One more big thing to think about: how your hotel does can be tied to all other hotels under the same brand. If one spot does not do well or has a bad name, this may hurt you, even when you are doing a good job at your own place.
When you want to leave and be out of the chain, it is hard to do. Many deals say you can not start a new place or tell you to keep staff or pay high fees to go. You may need the chain to say yes before you go. All this can take a long time and cost a lot, making it tough to break free from the deal. In the end, you could feel trapped.
Better Ways to Invest and Expert Help
Hotel franchises have lots of problems - high fees, strict rules, and markets that change fast. Because of this, many people with money look for other ways to invest. In hotel deals, you are stuck with high costs and rules. But the real estate market gives more choices. You get more say in how things run, spend less money, and could see more gains. These choices help you make a plan that fits what you want for your money.
Simple Real Estate Choices
Own your own hotel and you are the boss. You pick your team, set prices, and offer what you think people want. There are no franchise fees. You keep more money and can make fast changes if you need to.
Mixed-use places have shops at the bottom, offices in the middle, and homes at the top. If shops do not do well, maybe homes or offices will. This spread means less risk if one part has trouble. These places do well where lots of people live and work.
Office buildings give steady money. People rent space for years. You will not have to deal with guests every day like in hotels. These deals are not as hard to handle and money comes in for a long time.
Retail strip malls on big roads or in busy spots get good renters - food shops, banks, and places to eat. They sign long deals and run their own space. You do not have to fix things as much or take care of the rooms.
Self-storage units are also good picks. They do not need many workers, cost less to run, and people will need them even when times are hard.
How Franchise Ki Helps You Pick Better Investments
It can feel hard to figure out real estate and try to stay away from problems with hotel franchises. That’s where Franchise Ki comes in. They give free help and will work with you to find deals that fit what you know and what money you want to make.
Franchise Ki has leaders who know the market well. Liam Chase, who helps run the company, helped one client go from selling 13 spaces to almost 70 in a short time. They know how to help you make smart moves.
They listen and learn about what you have, what you want to do, and your big aims. You will not get just a one-size-fits-all plan. The team will help you make good choices that match your needs. They even help you check deals and work out good terms so you get deals that work for you.
Franchise Ki is different because you do not pay for their help. You get advice for free. You do not lose money on fees, so you can spend more on your new deal and focus on growing your money.
The End: Risks Of Hotel Franchises Are Bigger Than The Good Parts
Running a hotel with a big brand looks nice at first, but there are many rules. You pay high fees and have to follow strict plans from the brand. You can't make changes to fit your town or area as you see fit. Choosing to own a hotel on your own, not under a big name, lets you change things fast and do things your way. You get more say, and can act quick when things change or new chances show up. If you are thinking about what road to take, you should look hard at what each way offers before you choose.
Smart money moves start with good info. Franchise Ki can help for free and give you tips on where to put your money in the hotel world, all to fit your needs. The team there knows a lot and has helped others win. For example, Bennett Maxwell and Liam Chase helped a client grow from 13 hotels to almost 70 in just a few months. You get strong help to make a plan that works and can change with the times.
Look at your choices. Talk to people who know the field. Make sure you make smart moves before you jump in.
FAQs
What financial risks make hotel franchises a less attractive investment in real estate?
Investing in hotel franchises involves significant financial challenges, largely due to the high upfront and recurring costs. These costs typically include franchise fees, ongoing royalty payments, and required contributions to marketing and reservation systems. Together, they can take a big bite out of your profit margins.
On top of that, hotel owners are often obligated to allocate funds for furniture, fixtures, and equipment (FF&E) reserves. They also need to budget for periodic renovations to stay in line with brand standards - expenses that can quickly add up and become a regular burden. When you factor in market saturation and economic uncertainties, it’s easy to see why hotel franchises might not be as attractive as other real estate investments.
How do strict brand guidelines in hotel franchises affect owners' ability to operate and profit effectively?
Strict brand guidelines in hotel franchises can often restrict hotel owners from making their own choices. These rules typically cover areas like interior design, marketing strategies, and even which vendors to work with. As a result, owners may find it challenging to adjust to local market needs or try out new ideas.
This rigidity can mean losing out on chances to meet specific customer preferences or cut operational expenses. On top of that, following these rules often comes with extra fees, which can further eat into profits. While the goal of these guidelines is to maintain a consistent brand image, they sometimes limit an owner's ability to fully unlock their property's potential.
What are some safer and more manageable real estate investments compared to hotel franchises?
If you're exploring real estate investments with more control and fewer risks compared to hotel franchises, there are a few solid options worth considering.
Residential rental properties, such as single-family homes or duplexes, can be a straightforward choice. These types of properties often come with manageable operating costs and attract steady demand, particularly in sought-after neighborhoods. Their predictability makes them a favorite among investors looking for stability.
For those interested in a different approach, commercial real estate - like office spaces or retail units - offers the potential for long-term leases with dependable tenants. This option can provide a consistent income stream while requiring less frequent tenant turnover compared to residential properties.
Another hands-off option is REITs (Real Estate Investment Trusts). These allow you to invest in real estate without the hassle of direct property management. Plus, they offer the added benefits of diversification and liquidity, making them a convenient choice for many investors.
These alternatives are often easier to manage and come with fewer unexpected costs, making them attractive for anyone aiming for steady and reliable returns in the real estate market.
