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My hostel plan

Start a Hostel

DCplanet started this discussion 16 years 10 months ago

Hi all,

We hope to open a 60 beds hostel sometimes this year. Our location is vibrant, safe and easy access. It's indeed in an expensive area, but we are targetting international visitors and students who are looking for an affordable accommodation in a nice area. It will be a family and friends operated hostel. However, none of us has experiences working in a hostel, so we are considering to hire 1-2 experience staffs to help us on the day to day operation.

I have some questions & any advises/helps would be greatly appreciated.:)

1) We estimate the break even point would be at 60% occupancy rate in the first year and 55% occupancy rate in the second year. Is this project too risky?

2) Normally, how much ROI% should we expect in the first 3 years?

3) How many percentage of the occupancy rate should we expect in the first and second year? Our location is in Washington, D.C.

4) How many staffs should we hire for a 60 beds hostel? Is it okey to have 2 staffs during the day and 3 staffs during the night time?

5) Should we hire a full time cleaning staff or should we use the maid service? It would be difficult to find a full time cleaning staff here though.

6) This might be a dumb question, but how often to do the cleaning each day? Is it enough to clean twice a day for the bathrooms & kitchen (day & night) and once a day for rooms & common area? How the daily cleaning schedule should be?

7) We are discussing about the laundry. Should we use the laundry service or should we do the laundry by ourselves? I feel like our hostel is small, therefore should we get the day-shift workers to do the laundry? If we decide to use our staffs, should we buy the commercial size washer/dryer? We have a very small space, so is it possible to have only one set of washer/dryer machine? Would one set of W/D be enough? Or we should have 2 sets of W/D for guests and employees separately?

8) For the 60 beds hostel, should we separate the bathroom for men and women? Or we should do all mixed (full) bathrooms.

9) How many toiletts and showers are proper for the 60 beds hostel.

Thank you so much for reading & I would be very appreciated any advise.

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santa klaus

16 years

1) We estimate the break even point would be at 60% occupancy rate in the first year and 55% occupancy rate in the second year. Is this project too risky?

I think that´s a quite healthy break-even point.

2) Normally, how much ROI% should we expect in the first 3 years?

I have never done a calculation for a hostel of such a small size. Besides, I have no idea how much you invest.
However, my advice is not to open in fall. Sometimes you have no choice, but starting in winter can be really depressing.

3) How many percentage of the occupancy rate should we expect in the first and second year? Our location is in Washington, D.C.

You can have a pretty high occupancy if you start with very low prices. We opened a 350-bed-hostel in Berlin 5 weeks ago. Occupancy was 85% during those five weeks, but the price per dorm bed only 9 Euros. So, the question is, can you have a sufficient occupancy with "normal" prices. Never been in DC, so no idea about supply and demand.

4) How many staffs should we hire for a 60 beds hostel? Is it okey to have 2 staffs during the day and 3 staffs during the night time?

Aboriginalhostel anwered that question nicely in another thread. WTF are 3 guys going to do in the graveyard shift?

5) Should we hire a full time cleaning staff or should we use the maid service? It would be difficult to find a full time cleaning staff here though.

Hiring "slaves" from Manpower is easy when you open a hostel and have other things in your mind. In the long run, own staff is much better.

6) This might be a dumb question, but how often to do the cleaning each day? Is it enough to clean twice a day for the bathrooms & kitchen (day & night) and once a day for rooms & common area? How the daily cleaning schedule should be?

The rooms: once per day. Public toilets, i.e. in the lobby: once in the morning, before the cleaners do anything else, and once again just before they go home.

7) We are discussing about the laundry. Should we use the laundry service or should we do the laundry by ourselves? I feel like our hostel is small, therefore should we get the day-shift workers to do the laundry? If we decide to use our staffs, should we buy the commercial size washer/dryer? We have a very small space, so is it possible to have only one set of washer/dryer machine? Would one set of W/D be enough? Or we should have 2 sets of W/D for guests and employees separately?

By all means, get coin-operated machines for guest use. That´s easy extra money for you. Get one set of W/D first, but make sure there is space for a second or third set, whenever you think you need and can afford it. Maytag machines are legendary. We use Miele, they are horribly expensive, but never break.

8) For the 60 beds hostel, should we separate the bathroom for men and women? Or we should do all mixed (full) bathrooms.

9) How many toiletts and showers are proper for the 60 beds hostel.

We have only en suite bathrooms and I wouldn´t plan a hostel any other way.

Where are you from, BTW?

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maelinva

16 years

Hey DCplanet, welcome!

I'm still working on opening my own hostel so I'm leaving the advice for those who know more about it, just wanted to suggest you to ask for estimates, both regarding the laundry thing and also the cleaning.

You have to consider covering days off and vacations and about the laundry you have to consider the higher initial investment of buying commercial size machines, room and consume costs, so if you get a good price from a laundry company it might be worthy to just have a normal washer/dryer set both for guests and some random hostel use and send most of the laundry to be done outside.

Best luck in your project!

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DCplanet

16 years

Thank you so much Santa Klaus and Maelinva for your kind advices. I’m very much appreciated.:)

I have never done a calculation for a hostel of such a small size. Besides, I have no idea how much you invest.
However, my advice is not to open in fall. Sometimes you have no choice, but starting in winter can be really depressing.

We are investing approximately $280K for the down payment of property and possible $150K for the renovation and equipment so that make $430K in total. What scares us most is the inspection, which could change our plan entirely. I don’t feel it’s easy to do the business here. DC’s rules and regulations really discourage us from time to time. Well.. I guess I have to go through these pains and hopefully it’ll pay off.

You can have a pretty high occupancy if you start with very low prices. We opened a 350-bed-hostel in Berlin 5 weeks ago. Occupancy was 85% during those five weeks, but the price per dorm bed only 9 Euros. So, the question is, can you have a sufficient occupancy with "normal" prices. Never been in DC, so no idea about supply and demand..

Agreed. I think pricing can be very sensitive, especially when we open in the low season. But here in DC, you will get what you pay for. Anything below $27/bed in a hostel, you can either expect it’s in a very bad area or outside the city. The DC metro system is excellent (much better than in NYC & better than in London), but it isn’t cheap. You basically need to pay $7-9/day for the commute to see attractions. But the good thing is most of attractions & museums here are free. I think our strategy for the first and second year is to get as high occupancy rate as possible. Keep our facility clean, friendly and get good reviews. Since we probably have to open it this Fall (keep fingers crossed), we will dump our rate to what we think is too low in this area but still very competitive. We hope that the location will be our strength against competitors. (There are not so many hostels in downtown DC, BTW. We called the city and zoning officials many times until we found this lady who really knew what we are trying to do. Then she said we needed to follow the ‘inn’ regulation because there is no such regulation for the hostel). It’s very easy and affordable to go to NYC and Philadelphia from DC these days so we hope to attract backpackers from NYC.

We have only en suite bathrooms and I wouldn´t plan a hostel any other way.

Where are you from, BTW?

We are trying to get 8 showers and 8 toiletts in total. We may have a public men bathroom, a women bathroom, and a couple mixed bathrooms.
(it's hilarious when my agent told me the more toiletts we install, the more taxes that need to be paid). :rolleyes:

We are originally from Thailand. I started my US journey about 7 years ago from Baltimore to DC to Philadelphia and finally back to DC again. As much as I love Washington, DC, I feel staying in this city is a bit too expensive for young travelers & students. That’s why we’re here. :)

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aboriginalhostel

16 years

Hi all,
1) We estimate the break even point would be at 60% occupancy rate in the first year and 55% occupancy rate in the second year. Is this project too risky?

What would be your average bedprice? (as maximum possible income per month/capacity)

2) Normally, how much ROI% should we expect in the first 3 years?

Return of Investment could be depending on a lot of variables.

3) How many percentage of the occupancy rate should we expect in the first and second year? Our location is in Washington, D.C.

As I've seen there are about 5-6 hostels in DC, the best one is 88% on HW with a location rating of 86%. The average price for a dorm in DC is between 20-40$. The second best hostel has a 67% location on HW.
On HB the same hostel was 91% with 72% of location.

If you can keep your prices for about 25-30$ during low season and beat its location, you can make an 80% occupancy, I guess. Although I'd concentrate on reservations for at least a month ahead, of course then everything should be ready for the deadlines. Also promotional offers are appreciated. ;)

4) How many staffs should we hire for a 60 beds hostel? Is it okey to have 2 staffs during the day and 3 staffs during the night time?

5) Should we hire a full time cleaning staff or should we use the maid service? It would be difficult to find a full time cleaning staff here though.

One receptionist in a shift, maybe two in busy hours.
See this thread for more information.

6) This might be a dumb question, but how often to do the cleaning each day? Is it enough to clean twice a day for the bathrooms & kitchen (day & night) and once a day for rooms & common area? How the daily cleaning schedule should be?

Few tips: Your guests don't want to see the mess what other people made last night, also most of the people are in the city during the day. Bathrooms should be anal clean especially for the morning showers.

7) We are discussing about the laundry. Should we use the laundry service or should we do the laundry by ourselves? I feel like our hostel is small, therefore should we get the day-shift workers to do the laundry? If we decide to use our staffs, should we buy the commercial size washer/dryer? We have a very small space, so is it possible to have only one set of washer/dryer machine? Would one set of W/D be enough? Or we should have 2 sets of W/D for guests and employees separately?

Maytag is American, you may get it cheaper than Miele, which is German import. Klaus is right, both will last for life. :)

In our hostel we rather ask the guests to leave their laundry at reception instead of letting them doing it, which prevents machines breakdowns and feels more like a service. We also charge for it and the cleaner is responsible for taking care of it.

For such size, you may need two 10kg capacity washer and two same capacity dryer. These are either for residental or semi-pro use, the professional ones are usually available for triple price.
If you don't have much space, you may try to hide it in either the basement or somewhere at the backyard, but definitely somewhere people are not disturbed by the noise.

8) For the 60 beds hostel, should we separate the bathroom for men and women? Or we should do all mixed (full) bathrooms.

Bathrooms should be either gender separated or at least offering some private dressing room space. Ensuites are definitely advantage for private rooms, although could be a PitA in dorms, when someone is puking in the toilet at 2am.

9) How many toilets and showers are proper for the 60 beds hostel.

This should refer to your zoning laws restriction, but for such size about 6-8 showers would be quite enough, although it depends on the possibilities... no one likes to walk in a towel around the hostel and especially finding an occupied one at the end of the walk. You should make sure there is always hot water in the showers.

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Josh Hostels

16 years

A slight tangent here, but wanted to mention that I've started a new section on a Wiki page about laundry machine recommendations:
http://wiki.hostelmanagement.com/wiki/Start_a_Hostel#Laundry_Facilities

Feel free to add laundry machine tips to that page also if you have them... :)

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Green Mango

16 years

I'm just curious, is there a minimum number of beds for an ordinary hotel business to be viable as a business or feasible?

Green Mango Inn is a garden-style hostel which used to be a residential mansion, we have 19 rooms---of which 2 are mixed dorm beds with 6 beds each. We have flower gardens, trees, a vegetable garden, a big kitchen area, a dining area in the patio with TV on the wall, a reception area with TV on the wall, a verandah area, seats in the gardens, etc. all our rooms have color TVs with international cable channels, except the 2 dorm rooms. Some of our rooms have private toliet/baths, while others have shared toilet/baths. we have hot shower facilities, also internet, WiFi coming soon. We have large parking lot for up to 10 cars. It's an old-style Spanish colonial-era architecture mansion.

We just opened in January 2008, and have not yet fully recovered our total investments/costs, I al;so purchased this property with a 15-year bank loan. So far, we are doing well, receiving more and more international guests although we do not yet have our own website and other internet marketing strategies...

My question now is whether we should add more rooms, because I read in this forum and various threads about hostels having lots more beds than we have.

Is there a minimum number of beds for a hostel to be viable as a business?

Thanks for any advices you can share...

Warmest best regards

Green Mango Inn:), Manila, The Philippines

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santa klaus

16 years

The smallest hostel I have been to has 10 beds (The Aquarium, Budapest), the biggest 900 (The Generator, Berlin). Both have been in business for more than a few years, which proves anything is "feasable".

There is a difference to be made between small "Mom&Pop" hostels, where the owner(s) do all the work themselves, hence no extra staff is needed. With an average price per bed of € 20, a ten-bed hostel can generate enough revenue for one person to run it.

When a (big) hostel is run entirely by employees, things are different. It needs to make enough money to pay for a 27/7-manned reception, a manager, a maintenance man and some cleaners. These costs will always be the same, regardless of the size of the hostel. So - in order to make enough money, there needs to be a certain number of beds. In addition to that, high real estate prices bite into your margin. Still more beds are needed.

In Munich, where buildings AND staff are expensive, the smallest hostels have around 200 beds.
In Vienna, where both are cheaper, the death zone is lower.

I guess in the Phillipines, wages are very low. How much does your cleaning staff get? $200 per month? Ours in Munich earn that amount in two days!

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aboriginalhostel

16 years

The smallest hostel I have been to has 10 beds (The Aquarium, Budapest)

I've been working there for two years before opening my own shop, it had 17 beds by then. It has been closed finally about two years ago, then relocated to a different location... and as I've heard the owner has financial problems, but instead of the size, it's rather due the lack of Q-management. (The guy has 5 hostels in town) :rolleyes:

There is a difference to be made between small "Mom&Pop" hostels, where the owner(s) do all the work themselves, hence no extra staff is needed. With an average price per bed of € 20, a ten-bed hostel can generate enough revenue for one person to run it.

Olga runs her business with an avg. 12EUR! ;)

A ten bed hostel is relatively small, therefore rents and utensils are cheap. One person is enough if you can afford to close down the place when you need day-offs. We started with two, now we have four staff and triple capacity. Anyhow, I think the weakest part of every hostel is about the off-season. Any fool can make easy money during the summer, although you shouldn't forget there are 12 months in a year. :cool:

Lollis Homestay in Dresden started with around 10 beds... now they have 54. It seems they run a good business!!!

When a (big) hostel is run entirely by employees, things are different. It needs to make enough money to pay for a 27/7-manned reception, a manager, a maintenance man and some cleaners. These costs will always be the same, regardless of the size of the hostel. So - in order to make enough money, there needs to be a certain number of beds. In addition to that, high real estate prices bite into your margin. Still more beds are needed.

Before getting deeper into the "puppy wants to bite it's tail"-syndrome, you can make business in small sizes as well. We don't feed peanuts, but still exist since five years... My philosophy is: Think big, start small!

In Munich, where buildings AND staff are expensive, the smallest hostels have around 200 beds.
In Vienna, where both are cheaper, the death zone is lower.

Munich has over 1 million square meters (over 10 million sq.ft!!!) of office spaces, which makes the real estate prices very expensive. Even Berlin (especially the former East) is much cheaper, no wonder there are plenty of hostels. In Vienna the smallest hostel is Believe it or not, has 14 beds and it's there already for ages... Not sure about the exact opening, but around ten years(?).

I guess in the Phillipines, wages are very low. How much does your cleaning staff get? $200 per month? Ours in Munich earn that amount in two days!

C'mon, would you pay for a professional cleaner who has a standard time of 15 minutes for each rooms including deep cleaning? In such big hostel as yours, if they do it fast and properly, they worth it!!!

IMHO, the whole question is so relative, I think there are two types of hostels: you can either make a good hostel or a bad hostel, regardless the size. :D

There are plenty of other variables though which makes the result so depending... If I have the time for it, I may make a calculator for the whole financial part which fits all demands! :cool:

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santa klaus

16 years

I've been working there for two years before opening my own shop, it had 17 beds by then. It has been closed finally about two years ago, then relocated to a different location... and as I've heard the owner has financial problems, but instead of the size, it's rather due the lack of Q-management. (The guy has 5 hostels in town) :rolleyes:

I have been there in 2003 AFAIK. It was near Keleti. I thought I counted three rooms with 10 beds and one bathroom with a tub! I saw the same rabbit-cage-like lockers in various hostels - same ownersip explains the strange sight!

Olga runs her business with an avg. 12EUR! ;)

Hats off to Olga! But then I guess she has not much spare time to spend the money!

Before getting deeper into the "puppy wants to bite it's tail"-syndrome, you can make business in small sizes as well. We don't feed peanuts, but still exist since five years... My philosophy is: Think big, start small!

Exactly my philosophy: feed peanuts, get monkeys!

Munich has over 1 million square meters (over 10 million sq.ft!!!) of office spaces, which makes the real estate prices very expensive. Even Berlin (especially the former East) is much cheaper, no wonder there are plenty of hostels. In Vienna the smallest hostel is Believe it or not, has 14 beds and it's there already for ages... Not sure about the exact opening, but around ten years(?).

The problem in Munich is that it´s full, literally. The city council has not made more land available for construction since decades, while there are empty lots everywhere in Berlin.

"Believe it or not" is a "Mom&Pop" hostel without staff, like Panda, for example. That sort of hostel is do-able everywhere. For a hostel with 24/7 reception, the Ruthensteiner is already very small - they have around 100 beds. Besides, they own the building, so they don´t have to pay rent. IMHO, you always have to compare your profit to what you would get if you just sold the building, put the cash on a savings account and collect the interest. I figure Ruthensteiner´s profit wouldn´t look very good from that perspective.

C'mon, would you pay for a professional cleaner who has a standard time of 15 minutes for each rooms including deep cleaning? In such big hostel as yours, if they do it fast and properly, they worth it!!!

Of course, they are worth every Cent they get. They have won HW´s "cleanest hostel worldwide" award - twice! Some of them have been working for us since 1999, too - because we pay well.

IMHO, the whole question is so relative, I think there are two types of hostels: you can either make a good hostel or a bad hostel, regardless the size. :D

That´s true. It almost always makes financial sense to make a good hostel instead of a bad one.

There are plenty of other variables though which makes the result so depending... If I have the time for it, I may make a calculator for the whole financial part which fits all demands! :cool:

I have already done that! I´m not the Wombats Controller for nothing! It can do everything you can possibly think of. You can set all taxes, room prices, room types, capacity, occupancy rates per month and/or weekdays, salaries, bar revenues, vending machine revenues, breakfast revenues and costs, booking engine commissions and paybacks, rent, credit rates, variable costs, absolutely everything there is. It took me several weeks to make it, but it´s a great tool. I have done the reverse check, too: I fed our old occupancy data and price lists into it and the result is always spookily close to our accountant´s reports.

Before, it took me more than a day on the calculator to find out if a new project somewhere makes sense, now I can do several scenarios in ten minutes.

No way I give that file away, though! :p

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aboriginalhostel

16 years

I have been there in 2003 AFAIK. It was near Keleti. I thought I counted three rooms with 10 beds and one bathroom with a tub! I saw the same rabbit-cage-like lockers in various hostels - same ownersip explains the strange sight!

You must have missed one room... There was a room with 4+1 beds, right next to the entrance, then three rooms by the end of the hallway: The one to the left, 5+1 beds, the middle twin room and a 4 bedded on the right.
(the plus beds are fold-out beds). Which one is missing?

Also wanted to mention that the owner is the godfather of almost all hostels in Budapest: That's because all the new hostel owners became from his former employees. :D That's because he was feeding peanuts! ;)

Hats off to Olga! But then I guess she has not much spare time to spend the money!

Well, at least she is doing it for herself. People take care more about their own properties, than just being employees. It gives a big motivation to make your own business.

Exactly my philosophy: feed peanuts, get monkeys!

I guess it's not only about the money... there are things called motivation, team-building, career, etc. You can give a lot of money to your employees but if you don't put responsibility behind, then they won't care at all.

I guess you agree about training your staff properly is at least as important as giving them a good salary.

The problem in Munich is that it´s full, literally. The city council has not made more land available for construction since decades, while there are empty lots everywhere in Berlin.

"Believe it or not" is a "Mom&Pop" hostel without staff, like Panda, for example. That sort of hostel is do-able everywhere. For a hostel with 24/7 reception, the Ruthensteiner is already very small - they have around 100 beds. Besides, they own the building, so they don´t have to pay rent. IMHO, you always have to compare your profit to what you would get if you just sold the building, put the cash on a savings account and collect the interest. I figure Ruthensteiner´s profit wouldn´t look very good from that perspective.

You may have to ask Erin about their revenues, hence I got no clue about it.... ;) I rather guess they like to do it and they would even do it if they would have only ten beds. Anyhow, they don't have goals to conquer the world, if they would, they could have conquered it twenty-thirty years ago.

Although they don't want to expand anywhere, which is respected, and even your point of view is understandable that you open up your third shop in the same city as not enough hostels are in town. The more hostels in Vienna, the more guests will come to Budapest! :)

Of course, they are worth every Cent they get. They have won HW´s "cleanest hostel worldwide" award - twice! Some of them have been working for us since 1999, too - because we pay well.

My respect on that! ;) Although are you sure you didn't put behind any know-how then? Only the paychecks? :rolleyes:

That´s true. It almost always makes financial sense to make a good hostel instead of a bad one.

But a lot of people want to take out the money asap, and milk the cow as much they can. Those are not business minded. They can easily make a bad hostel.

I have already done that! I´m not the Wombats Controller for nothing! It can do everything you can possibly think of. You can set all taxes, room prices, room types, capacity, occupancy rates per month and/or weekdays, salaries, bar revenues, vending machine revenues, breakfast revenues and costs, booking engine commissions and paybacks, rent, credit rates, variable costs, absolutely everything there is. It took me several weeks to make it, but it´s a great tool. I have done the reverse check, too: I fed our old occupancy data and price lists into it and the result is always spookily close to our accountant´s reports.

Before, it took me more than a day on the calculator to find out if a new project somewhere makes sense, now I can do several scenarios in ten minutes.

No way I give that file away, though! :p

Hmm, just gave me some more tips on that, thanks for not telling anything... :cool:

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