Your thoughts on this business opportunity....

[lovedog100 1,372]

An option if the owner is a stickler for the % that he wants for key money would be something like a 5 year lease, with an option for 5 more. Key money would drop to 2.5 million. Keep in mind that at the end of 5 years, he will want another 2.5 million key money. Have that in the contract also, you don't want him to increase it to 3 or 4 million. Honestly though, unless you seriously think that you could raise occupancy above 50% It's not a good investment. With the numbers that you listed, and it doesn't include everything. It's not that much income. It would just about pay my bar bill at FLB Next year may get better, but you will seriously need to have a marketing plan to increase occupancy. Ask another successful hotel / guest house owner, I believe 70% minimum is what you are looking for. Again, I'm not an owner, however in my conversations with owners, I think that was the number they gave me.

[Kleyshay 0]

An option if the owner is a stickler for the % that he wants for key money would be something like a 5 year lease, with an option for 5 more. Key money would drop to 2.5 million. Keep in mind that at the end of 5 years, he will want another 2.5 million key money. Have that in the contract also, you don't want him to increase it to 3 or 4 million. Honestly though, unless you seriously think that you could raise occupancy above 50% It's not a good investment. With the numbers that you listed, and it doesn't include everything. It's not that much income. It would just about pay my bar bill at FLB Next year may get better, but you will seriously need to have a marketing plan to increase occupancy. Ask another successful hotel / guest house owner, I believe 70% minimum is what you are looking for. Again, I'm not an owner, however in my conversations with owners, I think that was the number they gave me.

 

Lovedog, that sounds slightly more in the buyers favour, as presumably the option to get out after the 5 years is then available, assuming you wanted / needed to, which seems to be a requisite for everyone.

A 70% occupancy throughout the year, has got to be hard to achieve nowadays, although, like yourself I'm not an owner, I would think working at that percentage would make a very successful hotel or guesthouse, judging by the figures I know and didn't know about.

My personal opinion is that an increase in occupancy rates may be achievable with this place, with an improved website and some advertising, although this may be counteracted with the declining numbers visiting Pattaya, or as I said originally more and more of those higher end clients coming and wanting to stay in the 4* / 5* hotels.

Incidentally, I asked once more to confirm the cost of utlities for latest month, December (so worse case scenario). Here are the figures:

 

Laundry: 8800

Electric: 20211

Water: 3500

Cable: 3675

Internet: 1100

 

So thats a total of 37786 at a 91% occupancy rate.

Using the theory a 100% occupancy rate would come at at 40973 THB, not strictly true because the cable and internet cost will not change, so maybe one would be obliged to buy the odd toilet roll for the guests with the few extra baht.

 

At a 50% occupancy rate costs would be approximately:

 

Electric: 10105 (20211 x 50%)

Water: 1750 (3500 x 50%) - not sure if this is correct as maybe there is a standard minimum chargeas in some countries ?

Total: 11856

Add 10% for common areas 1185

 

Total: 13041

Laundry: 4400 (8800 x 50%)

Cable: 3675

Internet: 1100

 

TOTAL: 22216 THB

Add to this a waste collection service of 200 baht p/m which I have just been informed of as I write this !!!!

 

OK this calculation is never going to be a truly accurate cost, and was never intended to be, it was always approximate (based on what I was told. I agree, I had ommited some of the costs in the first place, but maybe the utilities figure in the original post isn't so laughable afterall eh ? Maybe it's just the notion of having a business in Thailand that is......

I did ask the question on everyones behalf, "Did everyone sit in the dark, with no TV and sweating their apricots off with no air con on?" but this was just met with "Arai Na?'

Edited January 21, 2010 by Kleyshay

[lovedog100 1,372]

As I said, ask another successful hotel / guest house owner, maybe even ask two or three. I don't know if the 70% would be an average all year, or for each month. During high season, many hotels are at 95-100% I've talked with several people that had to go with their second or third choice lately. It seems like there were a couple of post on this board that mentioned full hotels also.

[torrenova 644]

Where is the accrual for depreciation and repairs ? or does the magic fairy give the building a lick of paint every so often and Home Pro comes around every 5 years and gives you a free mattress for each room ?

 

You can only work things out on a room cost basis, both fixed costs and variable costs. For example, if you buy a Bt40,000 plasma TV for the room which lasts 5 years then the fixed cost of that TV per day is 40,000/365/5=22 baht. Conversely, in room toiletries, laundry and to a virtually pointless small level the cost saved in not cleaning it, are all variable costs.

 

You can rack up Bt150 a day per room quite easily with full depreciation. There is another 650,000 baht cost which needs to be factored in.

[Kleyshay 0]

Where is the accrual for depreciation and repairs ? or does the magic fairy give the building a lick of paint every so often and Home Pro comes around every 5 years and gives you a free mattress for each room ?

You can only work things out on a room cost basis, both fixed costs and variable costs. For example, if you buy a Bt40,000 plasma TV for the room which lasts 5 years then the fixed cost of that TV per day is 40,000/365/5=22 baht. Conversely, in room toiletries, laundry and to a virtually pointless small level the cost saved in not cleaning it, are all variable costs.

 

You can rack up Bt150 a day per room quite easily with full depreciation. There is another 650,000 baht cost which needs to be factored in.

 

I believe the point of maintaining the place and repairs was first highlighted by Agogogaran and Lovedog within in the first two replies. Yes, torrenova, we are all aware and have accepted that the costs for this were not allowed for in the original post.

I see what you are saying about variable and fixed costs, and a good example used, but surely replacing TV sets that are in perfect working order with Bt40,000 Plasma TV's, would not be part of anyones business plan, as we are not going to attract those high end customers with just a Plasma TV are we ?

If you are going to start replacing a broken TV, with that Plasma, the 22 baht per day would surely have to be recoverable in the room rate, because I do not know of any Bt600 a night guesthouses with Bt40,000 Plasma TV's. Maybe one could charge Bt622 per day for the luxury of have one and Bt644 after five years when the new ones arrive.

Seriously, I would think at Bt150 per room per day, you would have to be a little unlucky with damages, breakages repairs, maintainance etc, but if thats the figure then so be it. Thank-you for highlighting these costs, as I really have no idea about them, except that one could buy 6 of those Plasma TV's to put in each room, with change for a toilet roll as a bonus, they'd have to make that last though.

 

First rule of business. Location, location, location. The place in question is not a good location. It is hard to find, and inconvenient for tourists. Just to go to walking street for example, your customer will have to get on a motorbike taxi, or flag down a baht buss. Many farang are uncomfortable on motorbike taxi's. That will give them a 100 bht ride on a baht bus each way just to go see walking street. Take that 200 bht, add it to your 600 bht a night, that is 800bht that they could use to find a hotel with in walking distance of walking street, beach road, or second road that has internet, and maybe even a pool.

I agree with most of that, except for the fact, I can get on a baht bus on Pattaya Klang at Carrefour, and it will take me to walking street. Might take me a while to get me there agreed, but it will get me there for 10 baht. Coming home, I get on at Walking Street, alight at the crossroads with 2nd Road and Pattaya Klang and pay my 10 baht, get on another and get off at Carrefour, again 10 baht for the ride. Thats a total cost of 30 baht, not the 200 baht you quote. I would suspect you are talking about chartering the baht bus at that price, which there is no need to do, unless I guess you are a first time visitor and don't know your way around, in which case you would probably pay whatever the driver told you the fare was.

 

This is not a bad deal, especially as a first offer. HOWEVER, why are you assuming a 50 per cent occupied rate? This is the real key, is how you are going to (partly) fill those 22 rooms.

 

 

Incidently Joekicker, why do you think this not a bad deal, as a first offer, based on the 50% occupancy rate, or more, as is suggested is needed, when that comment is in such contrast to all made by others ?

Edited January 22, 2010 by Kleyshay

[FatherMojo 2]

...

Incidently Joekicker, why do you think this not a bad deal, as a first offer, based on the 50% occupancy rate, or more, as is suggested is needed, when that comment is in such contrast to all made by others ?

 

 

Yeah, me too.

 

But I think that he means (not putting words in his mouth) that as the starting point in bargaining for a proper price, it is not such a bad price. But then the issue becomes why are so many businesses for sale so over priced on the first offer.

 

 

FatherMojo

[torrenova 644]

I believe the point of maintaining the place and repairs was first highlighted by Agogogaran and Lovedog within in the first two replies. Yes, torrenova, we are all aware and have accepted that the costs for this were not allowed for in the original post.

I see what you are saying about variable and fixed costs, and a good example used, but surely replacing TV sets that are in perfect working order with Bt40,000 Plasma TV's, would not be part of anyones business plan, as we are not going to attract those high end customers with just a Plasma TV are we ?

If you are going to start replacing a broken TV, with that Plasma, the 22 baht per day would surely have to be recoverable in the room rate, because I do not know of any Bt600 a night guesthouses with Bt40,000 Plasma TV's. Maybe one could charge Bt622 per day for the luxury of have one and Bt644 after five years when the new ones arrive.

Seriously, I would think at Bt150 per room per day, you would have to be a little unlucky with damages, breakages repairs, maintainance etc, but if thats the figure then so be it. Thank-you for highlighting these costs, as I really have no idea about them, except that one could buy 6 of those Plasma TV's to put in each room, with change for a toilet roll as a bonus, they'd have to make that last though.

 

You'd be amazed at what people remember about rooms and why they choose this over that. Reverse the argument for a minute. Would you rather have 50% occupancy without replacing the TVs or full occupancy and "lose" Bt22 per day for the TV ? 1 extra room rented per day more than pays for all the TVs.

 

The hotel business is a marginal game. You need bums on beds. Plasma/LCD tvs, free wi-fi, good beds, top shower, don't use the shittest bog roll available, put in an amenity kit for people who have booked more than a week, it all puts you ahead of the game and crucially, you get repeat business. I go to Marriotts. I am in most other hotel programmes but Marriott suits me better. I get little extras which cost not a lot relative to the room charge and it keeps me happy. If I stay away 1 day when I could have stayed there, they lose say $100 or more a night (in Thailand) for the room plus whatever I spend in the bar and restaurant. They lose in one day far far more than the extras they give me over 20 days.

 

Plasmas are not high end these days, they are expected and you can see that from some of this place's competitor who do have them. They are not losing money at 50% occupancy. Wonder why ?

[Kleyshay 0]

Well guys, after my little issue with the condo (see VT6 Condo Scam post) I have now checked back in to my usual hotel.

The owner and I got onto the conversation of him selling, leasing, renting out the place, yet again.

It seems he has had very little or no interest in the prices he was quoting 4 or 5 months ago. Which I don't think any of you will be suprised at. I think we all agreed it was overpriced, and he realised that himself.

He has now revised his 'deals'........Yes he has two options

IMHO and reflecting the posts and comments of you guys, initially I feel they dont seem too bad now, probably a little room for negotiation still though.

'Deal 1' appears to be preferable as there is minimal initial outlay and obviously less risk, although income could be approx. 9000 baht p/m less, than 'Deal 2', and you may have to factor in you may not see the damage deposit again, (maybe my pessimistic nature is prevailing through), so this could turn into an extra expense of 6000 p/m, over the 7 years, on top of any interest you may have earned and inflation.

I must confess, although going against what I always said and thought, about having a business in Thailand, this scenario did get me slightly interested, but it is not really realistic for me.

Again I have used approximate figures and I have not included the 150 baht p/room p/day full depreciation as suggested. But also bear in mind, with advertising, an increase in occupancy rate could increase income and i have not included this either. I have stuck with the 50% occupancy, (11 rooms @ 600 baht x 365 days / 12 months), as they still continue to be consistant with last years figures.

I have however, made an allowance for consumables and advertising costs, and i would think the occupancy rate could increase with the advertising, that might achieve somewhere near the 65% - 70% needed.

 

Deal 1

7 Year lease (with option to renew)

Key Money: None

Rent: 90,000 p/m

Damage Deposit: 500,000 (refundable, alledgedly )

 

Income

50% occ. rate 200750

Expenses

Utilities 22400

Staff 22000

Consumables 3000

Tax & Accounts 5000

Advertising 10000

Rent 90000

Total Monthly Expenses 152400

 

(48,350 THB p/m)

 

 

Deal 2

7 Year lease (with option to renew)

Key Money: 3m (effectively 35000 p/m)

Rent: 45000 p/m

Damage deposit: None

 

 

Income

50% occ. rate 200750

Expenses

Utilities 22400

Staff 22000

Consumables 3000

Tax & Accounts 5000

Advertising 10000

Rent & Key Money 80700

Total Monthly Expenses 143100

 

(57,650 THB p/m)

 

As I said, ask another successful hotel / guest house owner, maybe even ask two or three. I don't know if the 70% would be an average all year, or for each month. During high season, many hotels are at 95-100% I've talked with several people that had to go with their second or third choice lately. It seems like there were a couple of post on this board that mentioned full hotels also.

 

I did speak to a friend of a friend that has a couple of hotels on Koh Chang, when I stayed down there for a few days.

He has a long standing hotel, on the island, where I stayed.

I had a chat with him about this and, yes Lovedog, you are correct, he admitted an annual average of 65 - 70% rate is needed at his place to make good money and he does get that. Advertising being the key to achieving this. And to prove that success, he has recently opened a new hotel, which appears to be doing well.

Edited April 14, 2010 by Kleyshay

[aras 4]

the only person who is qualified to answer your question is dave. He is the only one who actually runs a succesfull guesthouse.

 

But i can tell you the prices is pattaya are crazy and genrally they are nothing more than a scam, any price cited you should deduct 1/3 to 2/3 of the price to come to a realistic price

[ozboy 31]

Lovedog, that sounds slightly more in the buyers favour, as presumably the option to get out after the 5 years is then available, assuming you wanted / needed to, which seems to be a requisite for everyone.

A 70% occupancy throughout the year, has got to be hard to achieve nowadays, although, like yourself I'm not an owner, I would think working at that percentage would make a very successful hotel or guesthouse, judging by the figures I know and didn't know about.

My personal opinion is that an increase in occupancy rates may be achievable with this place, with an improved website and some advertising, although this may be counteracted with the declining numbers visiting Pattaya, or as I said originally more and more of those higher end clients coming and wanting to stay in the 4* / 5* hotels.

Incidentally, I asked once more to confirm the cost of utlities for latest month, December (so worse case scenario). Here are the figures:

 

Laundry: 8800

Electric: 20211

Water: 3500

Cable: 3675

Internet: 1100

 

So thats a total of 37786 at a 91% occupancy rate.

Using the theory a 100% occupancy rate would come at at 40973 THB, not strictly true because the cable and internet cost will not change, so maybe one would be obliged to buy the odd toilet roll for the guests with the few extra baht.

 

At a 50% occupancy rate costs would be approximately:

 

Electric: 10105 (20211 x 50%)

Water: 1750 (3500 x 50%) - not sure if this is correct as maybe there is a standard minimum chargeas in some countries ?

Total: 11856

Add 10% for common areas 1185

 

Total: 13041

Laundry: 4400 (8800 x 50%)

Cable: 3675

Internet: 1100

 

TOTAL: 22216 THB

Add to this a waste collection service of 200 baht p/m which I have just been informed of as I write this !!!!

 

OK this calculation is never going to be a truly accurate cost, and was never intended to be, it was always approximate (based on what I was told. I agree, I had ommited some of the costs in the first place, but maybe the utilities figure in the original post isn't so laughable afterall eh ? Maybe it's just the notion of having a business in Thailand that is......

I did ask the question on everyones behalf, "Did everyone sit in the dark, with no TV and sweating their apricots off with no air con on?" but this was just met with "Arai Na?'

 

 

You quote staff salary at bht 22,000 for 3 staff,now surely you would need 2 staff for cleaning 22 rooms and public areas,stairs reception etc,which means 1 staff member only for everything else i.e. reception,showing of rooms to prospective guests,checking mini bar etc and signing them out etc so how many hours per day(7 days per week,365 days per year) be expected to work? and obviously there are no sales of beer etc at all for the guests which COULD make a huge diference in turnover.

[Kleyshay 0]

You quote staff salary at bht 22,000 for 3 staff, now surely you would need 2 staff for cleaning 22 rooms and public areas,stairs reception etc,which means 1 staff member only for everything else i.e. reception,showing of rooms to prospective guests,checking mini bar etc and signing them out etc so how many hours per day(7 days per week,365 days per year) be expected to work? and obviously there are no sales of beer etc at all for the guests which COULD make a huge diference in turnover.

 

Good point Oz, and constructive comments, but please remember the hotel operates at 50% occupancy rates so therefore 22 rooms do not consistantly have to cleaned.

At present the staff situation works like this, there is only one cleaner, god know's what time she starts as I never surface that early, but she works until 5pm. At 50% occupancy she can get all the rooms cleaned, and the public areas, she has her time for food and watch TV in the lobby and from what I have seen she is all done well within her 5pm.

Now at 90%+ occupancy, she struggles but she copes, and could probably do with the likes of me getting my arse out of bed earlier. During these peak times, I have also seen the owners wife come in and help her too. Which unless one has this 'facility' obviously this would be an added expense. As for days off, I am not sure. I have always seen her around, this is not to say she doesnt have days off, but my room is always cleaned, and I assume is then carried out by the owner's wife.

The receptionist, is a chap that starts at 10am and he will deal with bookings, enquiries, check guests in and out, show the rooms etc etc. He works through until 9pm, as for days off, he gets 3 days off per month and the owner presently covers reception in his absence.

Finally the other receptionist, starts at 9pm and finishes at 10am. Again days off are 3 per month and other receptionist covers with the owner covering day shift.

So looking at the staff situation, yes I think it would be likely an addition would be needed, and especially so, if the average 70% rate was achieved. Obviously this would mean restructuring the working hours, rates duties etc to maximise the staff, yet keep them happy also. So perhaps factor in an additional expense of 7000 / 8000 baht per month ?

At present there are no beer sales & no mini bar, which I do not really understand. I must admit, personally, I would not want to stay above a bar, but providing beer, soft drinks, snack etc. in the hotel seems a good idea to me.

Would I be right to assume there would then be an addtional expense of a liquor licience though?

Yes each room is equipped with a fridge, and by adding a few bevs and snacks is one area I agree, could provide a good additional income. I did bring that up with the owner about supplying these and also the possibility of a upright commercial style fridge in the lobby for the guests, but he just said 'oh if you want a beer, you can buy from next door' (a restaurant, 10 metres walk away)

Edited April 16, 2010 by Kleyshay

[papillon 695]

It seems the general opinion is that to aquire the ideal business, no key money should be paid and just a higher rent each month handed over, that way if the person has to, or wants to, could, easily just walk away, so the advantage, for want of a better word, would then be handed over to the renter, but then you could ask why would the landlord put himself in such a position either. Does this actually happen ? He would still own the building agreed, but would then be forced to try and find another renter, while his property sits idle not making him money.

Hence the Key Money.

[torrenova 644]

but he just said 'oh if you want a beer, you can buy from next door' (a restaurant, 10 metres walk away)

 

Not clueless at all. Simply bright enough to know that his clientèle will not pay a mark up.

[englishinsiam 15]

Don't orget with a higher occupancy your other costs will go up.

 

You'll be using more incidentals and Utilities will be higher Air Con eats electricity like nobodies business.