Are Hotels Profitable in Canada? A Guide for Property Investors

Hotels can be profitable in Canada, but revenue alone does not make a property a good investment. Profit depends on occupancy, room rates, operating costs, financing, location, seasonality and the condition of the building. Investors need to analyse the hotel as two assets at once: commercial real estate and an operating hospitality business. Let’s take a closer look at this together with the experts at Yescapo Canada.

Are Hotels Profitable in Canada?

Yes, many hotels in Canada are profitable. The national accommodation sector generated record operating revenue of approximately C$35.9 billion in 2024, up 2.9% from the previous year. Operating expenses reached about C$29.5 billion, leaving a sector-level operating margin of roughly 18%. These figures cover the wider accommodation industry, so they do not mean that every individual hotel earns an 18% return. They do show that Canadian accommodation remains a substantial revenue-producing sector.

Tourism demand also remains supportive. Canada’s tourism sector generated around C$129.7 billion in revenue in 2024, while Destination Canada expects tourism spending to continue expanding in the coming years. National hotel occupancy reached 80.7% in August 2025, its highest August level since 2014, and summer hotel RevPAR increased by 7.6%.

Hotel Revenue Is Not the Same as Hotel Profit

A hotel can show impressive revenue and still be a poor investment. A busy lobby, strong booking calendar and high room sales do not tell you how much money the owner actually keeps.

Take a 60-room hotel. It may generate income from rooms, parking, events, food and beverage. On paper, the turnover looks strong. Then the real costs appear: payroll, utilities, insurance, property taxes, laundry, booking commissions, maintenance, supplies, debt payments and renovations.

That is why investors should focus on the cash left after normal operating expenses and necessary capital spending. Revenue measures activity. Profit measures what remains.

This is where many buyers get caught. The hotel looks successful from the outside, but due diligence reveals an ageing roof, unreliable HVAC, expensive franchise obligations or heavy dependence on online travel agencies. The business is making money, yet the property keeps absorbing it.

Before accepting the seller’s definition of “profit,” ask what is included and what is excluded. Does the figure account for debt service? Owner compensation? Renovations? Deferred maintenance? A lender, accountant and seller may all use the word differently.

The Three Metrics Every Hotel Investor Must Understand

Hotel performance is usually discussed through occupancy, Average Daily Rate and Revenue per Available Room. None of these figures is enough on its own.

Occupancy Rate

Occupancy shows how many available rooms were sold during a given period. If a hotel has 100 rooms and sells 70 of them, occupancy is 70%.

That sounds healthy, but the number can be misleading. A hotel can keep rooms full by cutting rates too aggressively. In that case, occupancy rises while profit shrinks.

The better question is why the rooms are occupied. Is demand coming from corporate contracts, group bookings, seasonal events or genuinely strong local demand? Or is the hotel filling rooms through discounts, emergency accommodation or low-cost booking channels?

The source of occupancy matters because not all occupied rooms are equally profitable.

Average Daily Rate

Average Daily Rate, or ADR, shows the average room revenue earned from each occupied room.

A hotel with lower occupancy can outperform a fuller competitor if it charges stronger rates and controls costs. This often happens with boutique hotels, premium resorts and properties serving business travellers.

A C$250 direct booking is also not the same as a C$250 booking from a third-party platform. The listed rate may be identical, but commission can reduce the amount the hotel actually keeps.

ADR should therefore be read together with booking-channel data and operating costs.

Revenue per Available Room

RevPAR combines occupancy and ADR. It shows how much room revenue the hotel generates across all available rooms, including those left empty.

This makes it more useful than occupancy alone, but RevPAR still does not equal profit.

Two hotels can report similar RevPAR and produce very different returns. One may have modern systems, efficient staffing and low maintenance costs. The other may carry high franchise fees, expensive utilities and constant repair needs.

These metrics help investors understand how well the rooms are selling. The next step is to check whether that revenue turns into real cash.

Location Determines What Kind of Demand You Are Buying

A hotel is not profitable simply because it is located in Canada. It becomes profitable when people have a consistent reason to stay there throughout the year. That reason varies from one property to another, and understanding it is one of the most important parts of evaluating a hotel investment.

Demand can come from many different sources. Some hotels rely on tourists visiting national parks or popular attractions. Others serve business travellers, conference attendees, airport passengers, university visitors, construction crews, healthcare-related travel or long-distance drivers. Each source creates a different booking pattern and a different level of risk.

A hotel in downtown Toronto, for example, may benefit from business travel, international visitors and year-round events. A resort in Banff is likely to depend much more on leisure tourism and seasonal demand. A roadside motel may earn most of its income from highway traffic, local industries and temporary workers. Although all three properties operate as hotels, they function as very different businesses.

One mistake many first-time investors make is assuming that every room sold has the same quality of revenue. In reality, a hotel supported by several demand drivers is usually more resilient than one relying on a single employer, one annual festival or one tourist season. If that main source of demand disappears, occupancy and room rates can fall much faster than expected.

Before making an offer, investors should understand exactly why guests choose that property. They should look at what happens outside the busiest months, whether new competitors are entering the market and whether the local economy depends heavily on one employer or one industry. A location described as “good” means very little unless there is clear evidence that demand will remain stable over time.

Different Types of Hotels Produce Profit in Different Ways

Not every hotel follows the same business model, so comparing two properties based only on revenue can be misleading.

City hotels often benefit from a broader mix of demand. Business travellers, conferences, sporting events, hospitals, universities and year-round tourism can create relatively stable occupancy. At the same time, these properties usually face higher operating costs. Labour is more expensive, property values are higher and competition from established brands can make it difficult to increase room rates. A busy urban hotel can still produce disappointing returns if financing costs and operating expenses are too high.

Resort properties work differently. During peak seasons they may achieve excellent occupancy and premium room rates while also generating additional income from restaurants, spas, equipment rentals and organised activities. The challenge appears during quieter months. A resort that performs exceptionally well in summer may experience long periods of weak cash flow during winter, while ski destinations often face the opposite situation. Investors should always review monthly financial results rather than relying only on annual averages, because seasonality can hide significant cash flow pressure.

Motels and limited-service hotels usually operate with simpler structures. They often require fewer employees and provide fewer guest services, which can improve operating margins. However, many older motels also require continuous maintenance, room upgrades and infrastructure repairs. Their performance may depend heavily on nearby highways, industrial projects or regional traffic, making local economic conditions especially important.

Boutique hotels and independent inns often compete through character rather than scale. Unique design, personalised service and a strong local identity can justify higher room rates and encourage repeat guests. On the other hand, smaller properties have less room for error. A handful of empty rooms can noticeably reduce monthly revenue, and many boutique hotels still depend heavily on the owner’s direct involvement, reputation or personal relationships with guests.

There is no single hotel format that consistently outperforms the others. The right investment depends on the investor’s budget, management experience, financing structure and willingness to operate a more complex hospitality business. A hotel should always be evaluated based on how its specific business model generates cash flow, not simply on the type of property it happens to be.

Investors who want to compare different property types in practice can visit listing of hotels to review city hotels, resorts, motels and independent accommodation businesses currently available. Looking at live listings makes it easier to compare locations, asking prices, room counts and operating models before moving to a deeper financial review.

Why Seasonality Can Distort Hotel Profitability

Annual revenue can make a seasonal hotel look healthier than it really is. A few strong months may carry the entire year, while the rest of the calendar produces weak or negative cash flow.

The problem is that many costs continue even when rooms are empty. Mortgage payments, insurance, property taxes, core payroll, utilities, security, software, maintenance, marketing and franchise fees do not disappear when occupancy falls. Some expenses can be reduced during the quiet season, but many remain fixed.

That is why investors should ask for monthly operating statements covering at least two or three full years. Annual totals are too broad. Monthly figures show how occupancy, ADR, payroll, utilities, maintenance and cancellations change throughout the year. They also reveal how much cash the hotel actually produces during its weakest quarter.

A common mistake is valuing the property based on peak-season performance. The buyer sees strong summer or winter numbers, assumes the hotel is consistently profitable and completes the purchase shortly before the slow period begins. Revenue drops, but debt payments remain exactly the same.

On paper, the annual forecast may still look acceptable. In reality, the buyer may run out of working capital before the next busy season arrives. Seasonality does not always make a hotel unattractive, but it must be reflected in the valuation, financing structure and cash reserve.

Labour Can Decide Whether a Hotel Makes Money

Hotels are labour-intensive businesses. A guest may see only the receptionist, but every room sold depends on housekeeping, laundry, maintenance, reservations, management, security and sometimes food and beverage staff.

Payroll can become a problem in several ways. Some hotels rely heavily on overtime because they cannot retain enough employees. Remote properties may struggle to recruit staff or may need to provide seasonal housing. Weak supervisors can increase mistakes and turnover. In family-owned hotels, relatives may work long hours for less than market pay, making reported profit look stronger than it really is.

The Hotel Association of Canada says the industry employs more than 148,000 people, while many properties are still small or family-owned businesses. That makes labour quality and labour cost especially important when evaluating an acquisition.

Investors should recalculate payroll using realistic market wages. If the owner manages the hotel full time but pays themselves little or nothing, the stated profit may be overstated. The same applies when family members handle housekeeping, bookkeeping or repairs at below-market rates.

The most useful question is simple: what would payroll cost if the current owner and their family stopped working tomorrow?

That number often gives a more honest picture of hotel profitability than the seller’s stated net income.

Deferred Maintenance Can Turn Profit Into a Repair Budget

A hotel is used hard. Guests run water, heating, cooling, lighting and appliances every day. Rooms are cleaned constantly, furniture is moved, bathrooms wear out and building systems gradually lose reliability.

Owners preparing to sell sometimes delay renovations to keep short-term cash flow looking stronger. The financial statements may then show attractive profit, but only because the property has not received the investment needed to preserve it.

What a Property Inspection Should Actually Reveal

A serious inspection should cover the roof, windows, exterior, plumbing, electrical systems, heating and cooling, elevators, fire and life-safety equipment, room furniture, mattresses, bathrooms, kitchens, parking areas, accessibility, signage and any pool or spa facilities.

The inspection should not end with a simple list of defects. Investors need an estimate of when major repairs are likely to be required and how much disruption they may cause. A roof that may fail within two years is not a minor note. It is a future cash call.

A hotel can look profitable before capital expenditure and unprofitable after it. That distinction matters because deferred maintenance often transfers directly from the seller’s balance sheet to the buyer’s renovation budget.

Brand Affiliation Can Help Revenue and Reduce Margin

A recognised hotel brand can bring reservation systems, loyalty members, marketing support, operating standards and access to corporate accounts. These advantages may improve occupancy and make financing easier.

They also create ongoing costs.

What Franchise Agreements Can Cost

Depending on the agreement, the owner may pay initial franchise fees, recurring royalties, marketing charges, reservation system fees, technology costs, inspection expenses and required renovation spending.

A branded hotel may benefit from stronger demand. An independent hotel may keep more flexibility and avoid part of that cost structure. Neither model is automatically better.

Why the Full Agreement Matters

Investors should review the entire franchise agreement, not only the current fee percentage. They need to understand how long the agreement lasts, whether it transfers to a buyer and whether the brand can require a property improvement plan after the acquisition.

That last point can change the economics of the deal.

The seller may present the hotel’s current cash flow, while the brand expects the buyer to renovate rooms, update signage and improve common areas soon after closing. The property may still be a good investment, but only if those costs are included in the acquisition budget.

Booking Platforms Can Fill Rooms and Weaken Margins

Online travel agencies help hotels reach guests who might never find the property directly. They can support occupancy, especially in competitive markets or during quieter periods.

They can also reduce margin.

A hotel that depends heavily on third-party platforms may appear busy, but a meaningful share of every booking leaves the business as commission. Strong occupancy does not necessarily mean strong net revenue.

Why Direct Bookings Are More Valuable

Direct bookings are usually more valuable because the hotel controls the customer relationship and avoids some platform costs. They also create better opportunities for repeat business, upselling and direct communication with guests.

Investors should ask for booking-channel data that separates direct website bookings, phone reservations, walk-ins, online travel agencies, corporate accounts, tour operators, groups, events and repeat guests.

The goal is not to count reservations. It is to calculate the net revenue from each source.

How Booking Mix Affects Profit

A property may be able to improve profitability without adding rooms or raising occupancy. Shifting more guests toward direct bookings can make existing demand more valuable.

That does not happen automatically.

Guests use booking platforms because they are convenient and easy to compare. Growing direct bookings requires a functioning website, competitive offers, clear cancellation terms, fast responses and disciplined marketing. The opportunity is real, but only if the hotel has the systems to support it.

Common Mistakes Buyers Make

One of the biggest mistakes is treating a hotel like a standard rental property. Hotel rooms must be sold every night, which makes pricing, occupancy and guest demand critical.

Buyers also tend to overestimate strong occupancy, underestimate future repairs or assume the seller’s management team and customer relationships will remain unchanged after the sale. Another common mistake is paying today for improvements that have not yet been made. Expansion plans, renovations or new revenue streams only add value after they have been successfully implemented.