Well, in its entirety its actually a 10 year (5+5) Lease, with purchase options for both time periods
It works like this:
NET Lease: Over the course of the next 5 years I have a regular NET lease (base + ops costs) NET meaning the owner pays the insurance/utilities/taxes
Purchase option: On top of that I have a purchase option on the property. I can exclusively purchase the property within a predetermined time period at a predetermined price.
Lease-to-own: A portion of my lease money each month goes to towards the purchase of the future property purchase. My lease rate is the same as it would be if I were just leasing the property.
From a value perspective, I actually am not spending any more or less that I would had I just signed a lease and decided at a later time to purchase. But I have an option to purchase and a guaranteed purchase price with this deal, some of my purchase cost is slowly knocked down over the course of the five years to ten years. If I find I do not have the capital after 5 years or the access to credit - well, I have another 5 years to purchase it (though obviously the pricetag changes after the first 5 years).
so what you're saying is, there's a set price for the property for the first 5 years?..... what if after a couple of years, property values go up 50%... your landlord will stick the agreed value?
never heard anything like this, sounds like a good deal.
Well, I negotiated the deal myself, though my landlord had a realtor that I deal/dealt with intermittenly but I find it much better dealing directly with the landlord. The reason being is that you both have motivation to get the deal sealed, realtor's are more worried about getting the best commission aka highest price (right now) they can out of the deal whereas the landlord wants his property filled and the lease revenue coming in. My landlord has actually been a huge help to getting this project going and I see him as a stakeholder in my business. My success is means his success. I make money, and he makes money. When we all make money, we are all happy, happy, happy.
I started my search for a property with a realtor of my own, then I found out that trying to make anything happen took forever - I would talk to my realtor, then he would talk to the landlord's realtor, then the landlord's realtor would talk to him then the reply comes back again through the realtors. It was like trying to talk through water. Also I would refer my realtor to potential leasehold properties, he would in turn call the realtor associated with the ad. If the other realtor said no to our use as a hostel he would accept no they are not interested in us. I don't really accept no in business (in my experience, "no" is an obstacle and just means make a better offer). SO I would then call the other realtor myself and get a viewing, helping him understand exactly what a hostel is. So the entire time I really didn't see any benefits in having a realtor other then they slow down the process and make it more difficult. So I dropped them and just did my own research on commercial leasing. (basically a whole new education on the subject)
Another reason I got rid of the realtors (and I leave the lawyers at bay until the last minute) is negotiation. Why let someone else negotiate such an important deal for you, they have no real motivation in it other than getting a good deal for themselves and getting you to approve it. Negotiation is business and business is negotiation - one and the same. Anyways enough euphemisms, realtors have left a bad taste in my mouth and I doubt I will ever use one again.
i've been looking online at properties abroad... very hard to find properties, especially in south and central america, they just seem to advertise short term, expensive holiday homes.
how did you do it yourself, without a realtor? did you just check the local newspapers?
my only caveat and concern regarding negotiating a lease is the length of time, the longer the lease I think it's much better, thus allowing hostel to earn money. If the lease is too short or in my opinion less than 10 years, we the hostel had already improved/renovated the place and promoted t as a viable business like a hostel through internet and marketing, then the property owner will just forever benefit from a better-value property or might even be tempted to take over the business himself under a new hostel name?
My personal opinion is that in negotiating for a lease, it is best to not only get a fair and good deal, but hopefully a long-term one so that a hostel venture can have the chance and the time to profit through any possible ups and downs in the future economic/business or tourism environments.
Anyone has similar concerns or experiences, hopefully you can share? I wonder how the bigger chain hostels do it too?
Another concern, some property owners might hear a hostel plan, and might himself just decide he'd like to operate and open his own hostel instead of leasing it out? Has this happened to anyone?
this is a very good point... even if the lease is 10 years... if your hostel is a huge success, the value of his building has increased allot.... what's to stop him starting his own hostel.. or even jacking your rent up...
There's some pretty good info in here, just wanted to keep this thread alive if possible! Can anyone else elaborate on their leasing experiences...Was it similar to College of Party's experience? Would be good to know what you guys actually experienced when going through this process yourself, any hidden dangers outside of the obvious.
I’d be particularly interested in things like the type of lease you went for, did you lease an empty space or did you negotiate the redesign into the price (bathrooms etc), did you take a lease to own option, or get any initial month’s rent free...well you get the idea.
Any help would be great as I'll be going through this soon. Thanks a lot
I would not buy the property even if I had the money. It's really not worthy to put all that money in upfront, it raises the risk waaaay too much. If you do have the money you'd rather put the money on the bank and use the monthly interest to pay the rent. At least in Brazil rent is usually 0,5% of the property value and any savings account pays you more than that.
If and when I start my hostel I'll certainly look for investing as minimun as possible when starting it. Offcourse avoiding debts at all.
I don't think there is one right answer to this question. It all depends on the details of the contract (price of the property vs. the lease contract, rent, maturity, who's is responsible for the maintenance work of the property etc.). However, I think that running a hostel is essentially a totally different business compared to real estate investing. If one wants to invest in the hostel business, the safest way is to stick in the core of the business, that is running the hostel. Investing in real estate is a totally different game, and may well be a good option for a person who knows what he/she is doing. I still think that is possible to own and run a perfectly done hostel business, but then screw it all up by also owning the property.
Hi!! Im from Buenos Aires, Argentina (thats me, south america) and Im thinking of opening my own hostel.
And thats how everyone does it here, usually rent a place or agree on leasing terms with the option of buying it within a few years
where in south america are you thinking?
(or since your pot is like a year old, have you opened a hostel yet?)
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