Opening A Guesthouse In Thailand

[simon43]

Unless you own the land your business, any business, is on, you will be a slave to the land-owner.

[\quote]

I don't agree. It's all down to having a long-term lease which is registered with the land office, and doing your calculations before you sign the contract to ensure that you will make the profit that you are seeking.

I rent the land where our new bungalow hotel is being built. But I have checked local hotel occupancy rates, typical room-rate per night, staff charges, building costs etc etc. Unless there is a major earthquake in Phuket (heaven forbid), and no tourists come for the next 10 years then we should make a tidy profit over the lease period.

Simon

[GuestHouse]

Simon is clearly correct.

Part of the confusion westerners get into arrises from a traditional reliance on property to generate wealth.

"I made money on the property market in the UK/US, I therefore need to own land/property to make money in Thailand".

As Simon demonstrates - If the business is a 'Guesthouse' then the business plan needs to account for the lease costs, correctly accounted for they do not prevent the business making a profit.

The tenant is in the business of running a guesthouse, the landlord is in the business of renting out land/property.

If you want to combine those two into one then you have to accept a number of problems.

1. Your business investment capital rockets

2. Your risks rocket ( you can't own the land so whatever means you are using to control the land have a risk attached).

My wife and I have bought our land, had we not done so, we could have leased it for a fraction of the cost, and used the capital we otherwise spent on the purchase to be up and running now.

Why didn't we take the lease route? Because our plans are not purely business based.

If they were we would have leased.

[~G~]

He is the owner of a guesthouse business, and the owner of a lease on a building. An assett that can be sold on at any time.

Interesting way of describing it. A lease is not an asset, it is an agreement between two sides, where the so-called "owner" is on the paying side. Nor can it be sold at any time, it may be transferred until the end of the lease, by which date it will worth exacty zero.

Edited September 27, 2006 by ~G~

[~G~]

Unless you own the land your business, any business, is on, you will be a slave to the land-owner.

I don't agree. It's all down to having a long-term lease which is registered with the land office, and doing your calculations before you sign the contract to ensure that you will make the profit that you are seeking.

I'd say it matter of time perspectives. How long is "long-term"?

[Moonfruit]

He is the owner of a guesthouse business, and the owner of a lease on a building. An assett that can be sold on at any time.

Interesting way of describing it. A lease is not an asset, it is an agreement between two sides, where the so-called "owner" is on the paying side. Nor can it be sold at any time, it may be transferred until the end of the lease, by which date it will worth exacty zero.

Hey G,

Your words 'it will be wirth exactly zero' at the end of the lease is exactly correct. However, that would imply that the lease did indeed have value when it was not nearing its end date. Anything with value is an asset, is it not?

[Jersey_UK]

Interesting thread folks. I am not a businessman in Thailand, but like (many??!!) others have had the odd "daydream" in years gone by, but decided it was not for me (too much work / aggro...........for too little money). But each must make their own judegment in this, I am not here to preach!

Regarding the comments about number of rooms and occupancy rates, I would caution OP about over optimistic projections. 10 (or 8 or 28??!) rooms MAY be sufficient for an income when the bizness is up and running, but what about the first year (or 2?), can you survive at lower occupancy rates?? (and remember that Thailand does have Tourist "seasons").

If your budget is tight then make doubley sure you make a good business plan, and have contingency plans for the "what ifs" and not just keep your fingers crossed whilst running yourself into the ground (invariably whilst working hard doing so!).

Regarding the "Thai copycats", it's not personal - it's just business. But as a comfort, from what I have seen / experianced as a consumer, is that the Thai version of any idea targetting Farang usually just misses out the essential X factor of the idea, plus they usually do not understand the Farang world outside Thailand (ok, large investors may be an exception - but I am talking "lifestyle" sized businesses here). Understandable really, cos they are not Farang.

In any case, even if they are succesful, if YOUR idea is good enough probably no reason why the market is not big enough for both.

Staff WILL be the key. For running the business I would avoid family (Thai AND Farang!!) like the plague!!, maybe ok for the construction phase or even as "advisors" (say, on doing bizness locally), as long as they are NOT employees and are unpaid or paid in kind.

Edited September 27, 2006 by Jersey_UK

[~G~]

He is the owner of a guesthouse business, and the owner of a lease on a building. An assett that can be sold on at any time.

Interesting way of describing it. A lease is not an asset, it is an agreement between two sides, where the so-called "owner" is on the paying side. Nor can it be sold at any time, it may be transferred until the end of the lease, by which date it will worth exacty zero.

Hey G,

Your words 'it will be wirth exactly zero' at the end of the lease is exactly correct. However, that would imply that the lease did indeed have value when it was not nearing its end date. Anything with value is an asset, is it not?

Well, the value may be zero or even negative before the end date. Take for example a lease for 3 years, that states you need to pay 50,000 baht a month on the property. First year, everything fine. Second year, real estate bubble bursts and the going rent drops to 30,000 baht a month for similar properties. What will the value of your lease be then? You may even consider paying someone to take it off your hands, meaning negative value!

A real asset, on the other hand, can never have a negative value. At least that's how I see it.

[simon43]

In my case, the hotel on rented land is just a business, not a home. We will build a house on some land owned by my wife, (when we find time!).

I agree that in the first year, the occupancy may be low. But I have taken Phuket Tourist Board occupancy figures, and then reduced these for my calculations. I'm aware of the big seasonal differences in occupancy. One of my tasks will be to try to improve low-season occupancy. But our little hotel does have some benefits, (apart from being fully accessible for disabled tourists). We are only 1 minute from the airport. So we can target aircrews, people seeking a quick weekend in Phuket, people wanting to stay the night before an early flight departure etc.

As for the monthly land lease cost, I don't think it's relevant if land-rental prices fall in the future. I have done my calculations based on x baht per month. If land rental prices fall, then the only effect on me is that i moan a bit more each month when we pay the lease fee

Simon

[Bizz]

As for the monthly land lease cost, I don't think it's relevant if land-rental prices fall in the future. I have done my calculations based on x baht per month. If land rental prices fall, then the only effect on me is that i moan a bit more each month when we pay the lease fee

All well and good Simon43 if you have a financial cushion to fall back on.

[~G~]

As for the monthly land lease cost, I don't think it's relevant if land-rental prices fall in the future. I have done my calculations based on x baht per month. If land rental prices fall, then the only effect on me is that i moan a bit more each month when we pay the lease fee

I agree, my remark was in the context of using the term "asset" to describe the lease itself. In your case, the real assets are the buildings, marketing tools such as a website, and then hopefully a customer base and good reputation.

[GuestHouse]

I think the debate over the term 'Asset' underscourse the fixation with ownership nicely.

[Heng]

Unless you own the land your business, any business, is on, you will be a slave to the land-owner.

I don't agree. It's all down to having a long-term lease which is registered with the land office, and doing your calculations before you sign the contract to ensure that you will make the profit that you are seeking.

I'd say it matter of time perspectives. How long is "long-term"?

It's all relative... sometimes being 'slave to the land-owner' has little to do with the landlord at all... it's just the tenant allowing his/her business to fail/become outclassed or obsolete.

A common issue in small business is making sure your business keeps up with the times (if indeed keeping your business alive in perpetuity is a goal of course, and not just something to do for the next XX years). I've seen more than a few businesses fall by the wayside because they were unable to keep up with the competition, the market, and finally their own overhead costs (rent included). At that point it's easy to just blame it on the landlord for 'unfairly' expecting rent to still be paid on time, for raising the rent (along with the market rates), or for not extending the lease for another period on a business that the landlord feels is inferior to other potential tenants' businesses. That last point seems to be what bothers a lot of folks... but in the end, it's just a business decision, no different from you choosing to stock your guest house mini fridges with Pepsi instead of RC Cola.

[madmitch]

With the amount you have to 'invest', you will be limited to a leasehold deal.

It's difficult to ascertain what is a good price to pay for such an operation. You can be lucky and find a property fully equipped with no payment for the business and all equipment, furnishings etc. are also rented. Keep an eye on the local English language press.

It's more likely that you will pay for a going concern: assets are part of the deal, of course. Be careful and make sure you get what you have been promised. A pre-purchase agreement may be useful. Around here there is a story, maybe urban myth as I have never had proof, that upon payment of the cash for the business, the existing owner stripped all the aircon units overnight before the new tenant took over.

Thai leases are not necessarily like those in the West. In the UK, for example, a landlord generally picks up charges for building repairs, roofing etc. This is not necessarily the case in Thailand. You can end up footing the bill for long overdue repairs and maintenance. Roof leaks, plumbing problems, cracks in the wall: if you have a landlord like mine they won't pay a penny and your only option is often to do the repairs yourself. Also check the landlord has buildings insurance, if not get a policy that covers it. You have an insurable interest. And remember that any improvements and betterments you make to the fixed property are for you in the short term but the landlord's in the

long term, though also bear in mind that you too may want to sell the business in the future and the more attractive a property looks, the easier it is to sell.

I have owned a guesthouse for two years (well the lease anyway). I paid over the top for sure but the market was at its peak at the time in pre-tsunami Phuket. Less than two months after I took over, the tsunami wrecked my first year's business plan, so although a plan is essential, it can go wrong. Last year was much better down here and I have just acquired the lease on a second guesthouse so the chain is growing.

I hope I have been able to add something to the very good advice already given.

[Chang_paarp]

It's all relative... sometimes being 'slave to the land-owner' has little to do with the landlord at all... it's just the tenant allowing his/her business to fail/become outclassed or obsolete.

A common issue in small business is making sure your business keeps up with the times (if indeed keeping your business alive in perpetuity is a goal of course, and not just something to do for the next XX years). I've seen more than a few businesses fall by the wayside because they were unable to keep up with the competition, the market, and finally their own overhead costs (rent included). At that point it's easy to just blame it on the landlord for 'unfairly' expecting rent to still be paid on time, for raising the rent (along with the market rates), or for not extending the lease for another period on a business that the landlord feels is inferior to other potential tenants' businesses. That last point seems to be what bothers a lot of folks... but in the end, it's just a business decision, no different from you choosing to stock your guest house mini fridges with Pepsi instead of RC Cola.

This is a very important point. Technology changing can and does cause the expectations of customers to change.

It is something that got me. I had a camera shop when the digital evolution hit the industry. As I had just upgraded the processing equipment in my shop I was not in a position to do another upgrade that quickly. Add to that the change in customer demand for cameras from film to digital, I was stuck with a lot of obsolete product in a very short period of time.

This was one of a number of factors that caused the demise of that business. Some of the others are just as important to a guesthouse in a tourist area. As a result of a series of terrorist attacks the number of tourists (domestic and international) visiting the area I was in reduced significantly, one of the two domestic airlines servicing the region closed, and then there were the personal reasons that just added to the mix . I would like to have blamed the landlord, but they got stung along with a number of other suppliers including the tax office .