Hi!
I have always been curious, do hostel owners usually buy or rent the properties for running a hostel?
The properties where I am staying are very expensive.
Buying would be ideal I am sure but when the owner does not have the capital to buy, what happens after the rental lease is up?
Usually its a two years lease term here, and after spending money on renovation and furnitures etc, what will happen?
11 years
I don't know the answer to this, but it does seem like a ton of smaller hostels rent when they're getting started because it's just so expensive to buy. Here in the U.S. I've seen a lot of leases that are more like: "10 years with the option of a 5-year extension." And imagine that, if after 15 years you're doing well the owner will want to keep you in there. You're right, you wouldn't want to lease for less than 10 years...too much investment.
11 years
We are just renovating a property now, we are renting as the building sale price was £500,000, whereas the rent is only £30,000 per annum. However we have made it very clear that we intend to buy once the business has been established (4-5 years in).
11 years
Clayworks is right. A longer lease period is important, especially if you’re investing money to renovate someone else’s property. If you can’t recover your renovation costs within the lease period, then it’s not a good arrangement.
Many people will rent in the beginning to get the business up and running and then buy later, sometimes buying the same property and sometimes a different one. This also works well if you want to make the hostel bigger or move to a better location.
10 years
building sale price was £500,000, whereas the rent is only £30,000 per annum
return on investment is 6% which is not so bad .
Make sure You have terms of the agreement in writing
( length of the lease,when You have the option to buy and for how much, etc. etc)
10 years
As you state it’s cheaper to rent but this is not the same over a longer period as you are likely to see rent increases and the franchise itself will lose value as the lease gets shorter, the real winner is the property owner who gains from the appreciation of the property value, there a number of issues here which you should bear in mind and you should always carry out as much due diligence and research as is possible, there are other routes you could consider in raising capital other than the normal bank route.
1) Try talking to family and friends about a pooled/joint venture whereby they club together to raise the purchase price and they benefit from a good yield on their investment in return you give the same guarantees a bank would expect, you could provide additional guarantees/commitments e.g. that you will look to make capital repayments from income (use an open book approach where the investors get free and immediate access to you books).
2) Advertise for Joint ventures here and in relevant trade journals/investment magazines.
3) Look to Financial advisers who may have high net worth clients who wish to spread their portfolio
10 years
Yes at times it becomes difficult to purchase a new property or build a new flat for giving it in on rent. For such situations the idea of granny flats works. Because it can be build on the same property with minimal use of resources and money.
10 years
I think I would only buy if I was getting into this business. I just can't see how you would make a profit renting. But that is just me and my experience. I feel the only time we will make any decent profit is if/when we sell our business in the future.
10 years
Whether Renting or buying the same decision process is used:
If you have the capital to buy you have to work the loss of income from employing the capital i.e.
* If the capital you have is already invested and providing you a yield then then the loss from cancelling this investment, has to be factored into your decision to actually employ the capital
* If the rental yield is lower than the investment yield then it may not be prudent to use your capital
* If the capital you employ are the only funds available then it may not be prudent to use 100% of your savings leaving you nothing to cover down time or major repairs
* Is there sufficient capital growth on property (try to strip out inflation especially if you intend to repatriate the monies) This point has to be factored into the points raised above.
If you are going to rent is the lease:
*A fair rent for the area
*Fixed
*For a sufficient term
*Includes the right to acquire the premises in the future
*A full repairing lease
*Are all the terms understood and fair
As you can see rent v buying is not as simple as some may suggest.
10 years
in any case, you need an investment anyhow, whether you buy it or take it on rent for running your business but i had friend who started a hostel business and as far as i know he took the property on rent to run a hostel business.
10 years
i agree with your comment but sometimes prudent decision matters a lot and one must take into consideration those factors which can make you exercise your sound judgement before you proceed with your property.
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