Thread: Building a guesthouse on empty land

I have lived in Bangkok for about 3 years now with a steady job and income. I would like to build a small guest house about 2 hours away from bkk (exact location under survey). I know the risks involved, potential legal issues and estimated cash flow needed. So this isn't about to do this or not, but rather HOW to do this. The motivation behind this is both financial and interest and I'll try to balance the both the best I can.

1. First of all, I need to understand average occupancy rates (for business projection purposes so I can work out a budget) for locations such as khaoyai. I read a post about a guesthouse near Phuket airport where occupancy rate is near 100% whole year round. I find it too hard to be true but would really like to understand from someone who have some facts on this. I've been to khao yai during off peak and it can be very quiet. I will focus on other locations if khao yai occupancy rate sucks.

2. I would like to use my cash flow for things like furnishing, fittings, hiring, legal fees (and also when I'm not yet getting enough revenue during the start) where needed and take up a loan for the purchase of the land + construction of the house. Now I would like to do this step by step by spot a land, buy it, then design and build the guest house - hopefully without rush cause I'm keeping my full time job. (I plan to setup a company with a Thai partner for the land purchase/business in case you're wondering how can I own a land). So I don't really want to take up a business loan where my business plan will be scrutinized. Anyone has experience of taking a loan for land purchase through a company name, and then later on adding another loan to it for building the property. So this isn't a business plan loan but rather an asset-backed loan. I have yet to speak to a bank officer and will do so once I decide on location but would like some hints here.

3. proper electricity, water and sewage system are needed since I plan to buy an empty land. Anyone has recommendation for a trust worthy contractor? These things can be tricky and I would really like to get it right the first time.

FYI, I'm looking at a 10 room guesthouse on possibly 2 rai of land ... It will be back to basics kind of concept (cottage style) potential having 6-7 bedrooms within one building and the rest are standalone cottages. 2 rai of land is for other landscaping ideas depending on the features of the land I find.

Originally Posted by Droozy

FYI, I'm looking at a 10 room guesthouse on possibly 2 rai of land ... It will be back to basics kind of concept (cottage style) potential having 6-7 bedrooms within one building and the rest are standalone cottages. 2 rai of land is for other landscaping ideas depending on the features of the land I find.

Sounds like a niche market. Not many or them in Thailand.

Sounds interesting...Welcome to the Buffalo Board...

You will get some very good advice here...

Originally Posted by kingwilly

Originally Posted by Droozy

FYI, I'm looking at a 10 room guesthouse on possibly 2 rai of land ... It will be back to basics kind of concept (cottage style) potential having 6-7 bedrooms within one building and the rest are standalone cottages. 2 rai of land is for other landscaping ideas depending on the features of the land I find.

Sounds like a niche market. Not many or them in Thailand.

Are you sure...??

^ On the other hand if one wanted to "retire", live full time on the property and use occasional income. Then it might work. Hard work but..
Who is the target market? Walkers, drivers? families with small children? cyclists?

It sounds like the op wants to build a 'resort' or go into competition. Too much cheap accommodation up here in my opinion.

The first hurdle to jump is getting a Thai who is trustworthy. This takes time to establish. You just can't get anyone.

Pick the wrong one and you're out on your arse after you have invested your money.

Secondly there is plenty of cheap accommodation available in Thailand, a Guesthouse ain't something new.

You quote Simon's resort near Phuket Airport .

Good business plan, caterers to the short stay market, in out, no frills, low cost, close to the airport, low competition, high occupancy rate.

Thirdly, do your homework, take your time and good luck with it.

Be prepared to do your dough and its all good.

Originally Posted by pseudolus

Good luck with all sincerity OP.

Simply put, if you do not have the funds yourself to back the venture, and you have no experience in hotel management, then there is a huge possibility that this will be very harmful to you and your family. I include the last part because the financial strain on top of very long working hours devastate families especially when people go into it thinking it will be easy.

I might sound like I am trying to put you off, and in reality, I am. If you have no background in hospitality and hotel management, you are blind going in. Aside from the fact that I can not see a bank funding it for you, no matter where you go in Thailand by the way, you are getting into a world that will dominate your life. And what if you don't like it? What if after a while you simply discover that you are not of the right personality to run a guest house and can not turn on your hospitality smile when ever a guest is about? What if the financial drain on you gets to the point where you have to leave? You can not in Thailand walk away from a company as the Thai share holder will be up shit creak, even historic share holders, held accountable for the punitive fines and not closing down the company.

Save yourself the expense and heartache. Don't bother. If you do, then firstly get yourself on a hospitality management course and learn beyond the basics. Running such a place is completely incomparable to many other jobs you might have done and not least in that it will take over your life, and if you don't let it, it will drain you financially as the people doing the work you should be will not have the passion to make it work. I've seen quite a few successful businessmen in the west and in Thailand thinking that this type of thing would be a good idea. Their business skills only go so far though, and more often than not, they end up selling for a loss because running any type of service like a Guest house, hotel, restaurant is a learned profession - having a stab at it will usually end in failure. The only way this would work, assuming you have no experience at all, is if you do not need the place to turn a profit or pay you a salary very much and you want to do it because its a lifestyle you enjoy.

Hospitality trade is a lifestyle - its addictive, and if you are a natural to it, you will have some fun and make a little coin. But it takes certain skills and a certain personality to make a small venture work.

There will of course be some posters here saying "yeah ignore him, give it a go, good luck" etc but on the whole you need to ignore them. They will have said the same to thousands of other people who have had their lives destroyed by opening a hotel / guest house / restaurant/ bar and they do not realise that it is a profession. You need to know what you are doing or be very very lucky and a natural. Would you risk your family's future on the potential that you might be lucky? I wouldn't.

I knew there will be someone who will tell me how this will burn the cash i have and how i have no experiece. Well, I am keen on doing this and i know i will have many hiccups and some failures. but it's worth a try and hopefully i calculated my risks enough. I dont wanna be in a situation when I am approaching 50 and regret that i never had the balls to do something daring.

at least i have 1 advantage, i have no family to worry about. So I'm only putting myself at risk if that helps. My current career is already dominating my life (it's getting better, hence i have time to think bout this), so this guest house venture isnt meant to do so. My Thai partner will be involved in running the business partially and I'll need to get a manager who has experience in a resort to help run this properly. I dont mind spending a little more on salary especially at the start. So the plan isnt to get a couple of local maids and hope for the best that they know what to do.

having said so,... thanks a lot for all the good pointers.

Originally Posted by pseudolus

the furnishings should come from Hotel suppliers - the furniture needs to be robust and strong or else you will have tatty rooms in about a month. This is double ++ the price so you need to factor that into the mix. Same with fittings as well. Pay to do it properly up front and not let an average somchai builders do it - other wise things will start falling apart as well.

Investigate air conditioning as well - a central integrated air con system will be cheaper in the long run and this needs a specialist to design and install it.

I dont really like commercial hotel designs. So i dont plan to get furnishing from hotels but rather have a contractor build it to my perferred design. I can't manage the somchais as well... so my choice would be to get a trustworthy contractor to execute this. As for furnitures, this will be sourced individually by myself.

Originally Posted by pseudolus

You are picking the wrong time to do this with the Junta cracking down on hospitality ventures where farangs are involved. You would need to make sure that your Thai partner has active investment in it (and prove it if they call - a paper trail). If they are a silent partner, you will need to show them actually getting a return on their investment as well.

this is very good to know. I hope i got that covered since my partner will be involved in the operations and will also get paid fairly of course.

Originally Posted by pseudolus

This might well be the point that should stop you. Aside from the fact that as a new company your chances of getting a loan will be verging on zero, you then will likely see your profits / salary going straight to a bank. That will be very depressing after working 18 hour days for a few months.

Originally Posted by Droozy

Anyone has experience of taking a loan for land purchase through a company name, and then later on adding another loan to it for building the property.

Again - I doubt it will happen especially with farang involvement.

Originally Posted by Droozy

So this isn't a business plan loan but rather an asset-backed loan

How much are you planning on putting down? Its a business loan against assets and with a new non trading company they would want to see you putting down a large chunk of change. You might get away with it by buying the land yourself first and trying to raise capital against the land to build the guesthouse. If you do not have the cash to do that, I struggle to see what your business plan would look like - a lot of "if we can get 80% occupancy after a months" type of thing which will have the bank chuckling before they send you an sms saying "no".

Probably I'll work out on putting about 30% down - of course it still depends on the size of the loan. but if it's tricky with the loan, i'll probably get a loan for the land but build the property with cash. Banks will never approve a busines loan for my 'company' for the exact points you said. So i'll really need to focus on getting a property loan instead. Hopefully for both the land and building (to save me some cash flow) but I'm also ok for one of the 2 options.

thanks for all the links.. will check it out. I found 2 empty lands for sale too. will post it here later.

Originally Posted by VocalNeal

^ On the other hand if one wanted to "retire", live full time on the property and use occasional income. Then it might work. Hard work but..
Who is the target market? Walkers, drivers? families with small children? cyclists?

I'm still very far from retirement but if this works out... that's the plan in the very long run. Maybe not this guest house, maybe by then it will be another one :P

Target market will be drivers since i'm looking at places near to hills / mountains / creeks. It's not going to be in the city so too bad for the walkers though they might be the largest customer base.

Another point to consider, if you are not going to be hands on you will have problems controlling money matters.

Honesty and accountability when the boss ain't around can be a problem.

You do get my drift EH.

Originally Posted by Pragmatic

It sounds like the op wants to build a 'resort' or go into competition. Too much cheap accommodation up here in my opinion.

Probably a guesthouse is the wrong term. It's not cheap accomodation. It's going to be nicely designed with concepts very close to nature but it will also be lack of all the big resort features of say a swimming pool, fancy restaurants, and lots of concrete :P

I stayed once in Australia,.. Port Stephens. It was a very lovely treehouse within the woods. The treehouse was so nicely designed and well thought of. Run by 2 lovely retired couples and they have about 4-5 treehouses in the area. It has no hotel services, but the experience was beautiful with a very personal sense of service (or lack of service). But i truly enjoyed my stay there...

Droozy, before you even begin, what type of company are you going to use, who's going to own the land, buildings etc.

People out my way stick up short time resorts everywhere, but none make real money. Jim

Originally Posted by jamescollister

Droozy, before you even begin, what type of company are you going to use, who's going to own the land, buildings etc.

People out my way stick up short time resorts everywhere, but none make real money. Jim

For this I will need legal advice to set it up properly. I read the common knowledge stuff like 49/51 foreign / local ownership and then have another set of agreement which overrides that 51 ownership. I guess the company will own the land? But I'll prefer professional legal advice and don't mind spending some money for legal fees. 2nd option is have 2 Thai partners who aren't closely connected to each other except through me. So both will have less share than I do but I m not sure if it's really so simple. Currently don't have enough facts to 'design' the company structure or figure out ownership issues. Any experiences will be appreciated

Originally Posted by Droozy

Originally Posted by jamescollister

Droozy, before you even begin, what type of company are you going to use, who's going to own the land, buildings etc.

People out my way stick up short time resorts everywhere, but none make real money. Jim

For this I will need legal advice to set it up properly. I read the common knowledge stuff like 49/51 foreign / local ownership and then have another set of agreement which overrides that 51 ownership. I guess the company will own the land? But I'll prefer professional legal advice and don't mind spending some money for legal fees. 2nd option is have 2 Thai partners who aren't closely connected to each other except through me. So both will have less share than I do but I m not sure if it's really so simple. Currently don't have enough facts to 'design' the company structure or figure out ownership issues. Any experiences will be appreciated

Use a business accountant, get arrested call a lawyer.
Lawyers will draw up any contract you want, but probably not worth the paper it's written on.
If you go the 49/51 way, the Thai[s] own 51% and must be able to show it was their money, otherwise you have broken the law before you even start.

Your a farang, going into competition with Thais, you need to be legal with everything, otherwise someone, some day makes a complaint, one mistake and your gone.

No problem, no one cares, but where money is involved, greed cares.
Think of it this way, lands in a Thais name, no contract changes that, they can borrow against that title.
Be very careful, promises and contracts mean nothing, land act, civil code, foreign business act, you have to obey them. Jim

^ Correct. Also, if you get a personal loan for the land, you would then need to lease it to your business to build the house on. Moot point though as the loan to buy the land would not be given to you, and only your partner most of the time. To qualify for the loan the partner would need to show a salary of 45k a month ish to be in with a chance.

OP - You need to do a lot more research on this. The reason "Someone" as in ME has told you to not be so daft is because I am simply trying to get you to look at it like a dispassionate investment because that is what it needs to be. Forget the fairy tale of bumbling around in a guest house, and instead do the numbers.

8 rooms at 80% occupancy gives you 192 nights per month. Charging how much a night? 1000 baht? More than that then you will not get the price conscious Thais who should be your target market. On rooms then, 192k per month.

A good hotel manager up country, 35k. Maybe more if you want good English skills. Settle for lower, and you risk your business.
Other staff another 40-60k a month all in depending upon the services you offer.
Loan - 20k a month.
Consumables - 10k a month
Laundry 10k a month
Electricity - 20-30k a month.
Water - 2-3k a month
advertising / commission to agents / websites etc - 2-3k per month


Loss time already.

This is at 80% occupancy. What if you are not full? What if you have 2 -3 month when you struggle to get 25% occupancy?

The loan / manager cost is where you would take something back for your investment. Long term you might get a trickle back but not much.

Crunch the numbers - make the calls I suggested to the other places trying to book 10 rooms in peak time. See if they are getting the numbers. IF they are sold out, then maybe you have a chance of getting a consistent 60-80% OR. However, you should base your numbers on 30-40% OR and see what happens - Play with different rates as well, but the higher you go, the lower the OR might well be.


Re Furniture - resist all the cheap shit in index / ikea etc - it will be broken in about 3 minutes.
Thailand International Furniture Fair 2014 – Department of International Export Promotion
Hotel Furniture - ThaiMid Co Ltd
Bamboo furniture from Global Hotel Supply, Bangkok, Thailand - rattan, bamboo, teak wood, aluminium, classical style, modern and banquet furniture, axminster carpets, tableware, glassware, kitchenware, f&b items, lamps & lighting equipment, etc.

Strong durable furnishings with a guarantee period attached to them. All this type of stuff can be repaired / touched up etc. You ever tried fixing up ikea shit?

Not so daft.
This isn't for the price conscious. There's a lot of hiso Thais but I'm also not targeting the end of the spectrum of the hiso. Let me show you my estimation per month

8 rooms @ 1800 (after commission) = 432,000
2 room @ 2500 = 150,000
@ 100% occupancy= 582k
@ 80% occupancy = 465.6k

Loan : 60k (buffer here cause not sure interest rates for companies)
Utilities: 30k
Workers: 100k (1 manager, 1 cleaner, 1 handyman/gardener, 1 receptionist with 2 others for night shift)
Other supplies: 40,000
Regular fixes: 20,000
Total running cost: 250k

Gross profit at 200k or so. Of course the lever here is the occupancy rates. That will totally kill this venture if it falls below 60%. So yeah, my choice of location will be heavily based on this metric.

Not to mention if this works, the phase 2 is to add more rooms but let's keep that discussion for another day.

I guess I confused everyone with the term guesthouse.
I've written a handful of business cases in my current job for large joint venture and merger and acquisitions. I hope I've got the apt for the projections though I haven't done real survey for prices. I'm more lost in the nitty gritty of how to go about this... I'll take it step by step...

Droozy, what's going to pull in punters at those prices, resorts are a dime a dozen, you need more than a nice room to ask that much.
I looked at building one up my way, have land zoned industrial, no planning permission problems, on a bicycle tourist route, road.
Best prices I would get, 200 Baht short time {Thais] 300 B a night for the bike people.
Add a pool, may get 100 Baht more, location is key, on the beach yes, otherwise no.

Originally Posted by jamescollister

Droozy, what's going to pull in punters at those prices, resorts are a dime a dozen, you need more than a nice room to ask that much.
I looked at building one up my way, have land zoned industrial, no planning permission problems, on a bicycle tourist route, road.
Best prices I would get, 200 Baht short time {Thais] 300 B a night for the bike people.
Add a pool, may get 100 Baht more, location is key, on the beach yes, otherwise no.

What?! 200 bht a night? I've stayed in khao yai for 1700 a night. Location is nice with mountains as backdrop but the room was really below average. Poorly furnished and dated.
They do rent camp sites for 200 bht.

Even my camp site rental comes at 200 bht at khanchanaburi!

Have you included Tax into the mix? Making plans on 100% occupancy at peak season rates? So your not going to discount in raining/hot season to be people in beds? How long can you take a loss for if it takes you 6-12 months to get anywhere near break even at an average of 40% occupancy? Is your salary good enough to carry 250k per month?

A quick look and there are some established boutique resorts there charging more money, some bigger, some smaller, so are they full?

If you are seriously going to do this make sure you have about 1,500,000 baht working capital after you have built and furnished the place - you will not open your doors day one and be 100% full a week later. This will allow you to not care too much about not making a cent for the first 6 months, and then it will be make or break.

Of your expenses, what can you not pay if the place only has 2 people staying there? You have to pay the bank, you need to keep the place up together so you need the staff. consumables might drop a tad. Power etc costs might drop a bit. Who are you not going to pay if you don't have the funds?

If you do not have cash stock piled to see you through the rainy days / weeks / months of no guests, or enough guests to keep your costs up what will happen is that on holidays etc when occupancy will be naturally high, what meager profits you have will be frittered away for those occasions.

Looking on Booking.com there are 72 accommodation options in the price bracket you are looking at charging. They are all on price chop discounts for a date picked in the next 2 weeks. Looking at December, 3/4 of them have Good availability, and of them most are chopping prices.

Good luck if you do it - but seriously.... learn about hospitality management before you do it. Secondly, make sure you have the cash in the bank to see you through the barren months.

pseudolus is a bit heavy in his guidance but although he shows little ' tenderness ' I think he's right .

We looked at doing something along a main highway using those 'teak' pre-constructed units . There are already two people doing this .
And when we analysed the numbers it just terrified me .
Doesn't take much vacancy to find the funds gone in fixed costs and no likelihood of getting further loans.

So although pseudolus seems discouraging I would certainly err in his direction .

Originally Posted by Droozy

Originally Posted by jamescollister

Droozy, what's going to pull in punters at those prices, resorts are a dime a dozen, you need more than a nice room to ask that much.
I looked at building one up my way, have land zoned industrial, no planning permission problems, on a bicycle tourist route, road.
Best prices I would get, 200 Baht short time {Thais] 300 B a night for the bike people.
Add a pool, may get 100 Baht more, location is key, on the beach yes, otherwise no.

What?! 200 bht a night? I've stayed in khao yai for 1700 a night. Location is nice with mountains as backdrop but the room was really below average. Poorly furnished and dated.
They do rent camp sites for 200 bht.

Even my camp site rental comes at 200 bht at khanchanaburi!

Short time, 1 hour, bar girls, guys with girl friends etc.

Don't know land prices where you are looking, but don't think you can buy some farmland and slap up a resort, legally.
Tourist areas with planning permission for resorts, big bucks, if it was easy everyone would do it.

Friend of mind had a similar idea in Krabi, small block of land, 2 roads back from the beach, 5 years ago, 20 mil Baht.

Good luck. Jim

@pseud

Making the plans on 80% occupancy and bare minimum 60%. Anything lower location will change. Khao yai is just first idea. Choice of location is based on average occupancy I can get. As I said- this is key.

And yeah the cash flow is there as mentioned in first post. But of course I don't plan to burn them all for fun ... so location -> occupancy rate will be my key decision point.

Projections on gross profit and we all know gross means before tax...