What to Know about Buying and Selling Hostels
The hostel industry is a niche and still somewhat unformed component of the hospitality industry. Finding hostels for sale, or knowing how and where to sell them, then, is an incredibly valuable parcel of information for prospective and current owners.
This article will highlight some of the key things to know about buying hostels, as well as selling them, using expertise from former hostel owners with a breadth of insight and knowledge on the topic.
How and Where to Buy Hostels
For those in the market to buy an existing hostel, or with plans to start one, there are not a ton of resources online for finding available hostels, other than this website. Hostelmanagement.com has long been the industry platform for people looking to purchase or sell a hostel. Moreover, purchasing a hostel can come with its own hurdles. Mainly, those who are looking to buy a hostel don’t always have the capital to put down a major down payment for a property, and since starting a hostel is not as popular as, say, starting an ice cream shop or laundromat, it can be a challenge to secure a loan for a new buyer. However, there are ways around the financial hurdles, and different paths that prospective hostel owners can take when looking to invest in their next hostel.
If owning the property outright is not feasible at the moment, one possible alternative is to lease the building where the hostel will be located and try to include a clause in the arrangement to create an opportunity to buy the property in the future. That can be beneficial in a few ways. For starters, it creates the opportunity for the property to appreciate in value, since a business has been successfully running at that property. A successfully operating business, then, will look much more appealing to a bank when it comes time to get a loan to purchase the property down the road.
Not all contracts are written the same way, so it can behoove prospective owners to try to incorporate this type of clause in their buying agreement with the seller, giving the buyer a chance to purchase the building down the road without having to come up with an exorbitant amount of capital up front.
Another option for getting into the hostel industry is to take over an existing hostel. These opportunities might be rare and come along by chance or through word of mouth, but there are hostel owners out there who are looking to move on from the business they built, whether that is due to old age, fatigue from being in the hostel game for so long, or financial reasons. This can create a perfect marriage between an ambitious buyer and someone who has already established a brand or built out the infrastructure for a hostel, taking care of a lot of the legwork for a first-time owner, such as taking care of the zoning and permits.
Management contracts or partnerships are popular ways for a first-time hostel owner to enter the industry without having to take on the burden of building something from scratch on their own.
At Hostelmanagement.com, we hope to connect prospective buyers with active sellers, especially in this regard. On our platform, you’ll find owners with turnkey hostels that are available to purchase outright, as well as others that include different buying agreements for the property and business.
What to Know About Selling a Hostel
As with buying a hostel, selling an existing operation can feel cumbersome and ultimately fail to materialize for an owner because the right offer never comes along. But, as with buying, Hostelmanagement.com offers hostel owners a platform to list and sell their hostels.
Darren Overby, who built out Hostelmanagement.com and owned Pacific Tradewinds Hostel in San Francisco for nearly 30 years, spoke on the selling process and how Hostelmanagement.com can serve those looking to move on from their existing operations.
“Usually, the people who are the most competent hostel owners aren’t the ones who have the money to put down a big down payment, but there are a lot of creative strategies out there when it comes to getting around the money,” said Darren. Being creative as a seller, as well as a buyer, is something that Darren emphasized as being a game-changer when it comes to getting a deal done.
Whether that is creating escape clauses into the sales contract, creating an ‘earn out’ agreement where the buyer agrees to pay a percentage of gross receipts for a set number of years in the future, drawing up a ‘lease to own’ agreement where the buyer can purchase the building after a set number of years, or using the more traditional methods such as seller or buyer financing, Darren touched on the many ways that buyers and sellers can craft unique contracts to fit their respective budgets and time frames.
From all of his experience in the industry, Darren has positioned himself to coach prospective hostel owners on not only what it takes to buy a hostel but also how to start one. He actively works with prospective buyers and sellers, working as a contact point for sales to help connect and facilitate a deal. While each deal is different and poses its own unique circumstances, Darren said that he has seen similar trends within the way that both buyers and sellers view the process.
“I find that buyers often undersell their value proposition, or they don’t always have the confidence to make the steps to get their hostel. Whereas on the seller’s side, a lot of times there’s reluctance to do anything creative, so if they don’t get the cash, they’ll just keep running their hostel,” said Darren. “I think there’s a lot of missed opportunities out there because of that.”
At the same time, Darren acknowledged a shift in the industry, saying that there is a changing of the guard underway. Part of fostering that shift and helping the industry flourish is by connecting the right buyer with the right seller, which is something that Hostelmanagement.com, and people like Darren, strives to do.
