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What is fair rent on leasehold when buying a run down hostel?

Buy / Sell a Hostel

hostelgirl started this discussion 13 years 10 months ago

We are looking at buying hostel that has seen better days. The purchase price for the business is fair - but the rent on the leasehold (agreed three years ago when the hostel used to be well run - and indexed to inflation since) is unbelievable given the place is now so dirty and crap. Is there anything we can do? Are we mad for even considering it?

Has anyone been in this situation?

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checkthemout

13 years

Under normal circumstances in the UK the Landlord (Vendor) owner will expect a return on their asset of around 8% of the value of the property. The majority are not willing to negotiate this point, unless you negotiate a deal in relation to ongoing capital maintenance and make sure it’s in the contract. Most landlords are greedy and will have you sign a fully repairing lease, so make sure you talk to a solicitor.

Also, you must remember that a property is worth what someone is willing to pay for it, and that is a reality.

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Marco-Millione

13 years

I am the owner of my properties. If I start new business, I will go for buying the place. It is yours and you now what to do with it.

It is better to pay credit than rent. In 30 years, place is your.

If you look for temporary solution, than do not listen to me. The point is: what is temporary solution? Wherever u get in, u need to invest 50 000. Plus costs every 30 days.

So you must look for cheap. Property owners, who knows the trade will not sell u for cheap. They can run business without u. So u must look for something not discovered yet.

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santa klaus

13 years

We are looking at buying hostel that has seen better days. The purchase price for the business is fair - but the rent on the leasehold (agreed three years ago when the hostel used to be well run - and indexed to inflation since) is unbelievable given the place is now so dirty and crap. Is there anything we can do? Are we mad for even considering it?

Has anyone been in this situation?

We have been there, although in the end there was no agreement with this particular landlord, for different reasons. What we agreed on was this: the building was in poor condition, this annoyed us AND the landlord. He refused to invest himself (I think he was more worried about the work involved than about the cost), but we would have been able to deduct renovation costs from the rent.

If UK landlords really expect 8% return, that´s very high. I can´t quite believe this figure. You only get this sort of ROI in dysfunctional markets and/or during inflating real estate bubbles.

I agree that buying is better in the long run, but for most start-ups it´s simply not an option.

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Scotch Argus

13 years

If UK landlords really expect 8% return, that´s very high. I can´t quite believe this figure. You only get this sort of ROI in dysfunctional markets and/or during inflating real estate bubbles.

I agree that buying is better in the long run, but for most start-ups it´s simply not an option.

I think a lot of landlords have an unrealistic expectation of the rents they'll get for a commercial property. It's part of the reason there are so many empty shops on main streets in the UK. There are other reasons too of course. It's the same as people selling property - they won't take market value, they will just sit on the property, in some cases for years, waiting for someone to come and give them the asking price. It doesn't make much sense, unless you believe the next bubble is just around the corner.

Certainly buying a property to use as a hostel in a UK city is unrealistic for most, unless you have a lot of cash to invest, as the mortgage on a property of the kinds of values seen in prime areas of the UK would be crippling. In short to my mind a fair rent is whatever someone is prepared to pay. Just make sure that your business plan can afford to pay the rent, and don't make unrealistic assumptions about occupancy - especially in the first few years.

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