Guesthouse Ownership, Do's and Don'ts
It seems like there are three businesses that every hopeful expat considers when they dream of sustaining themselves in the Kingdom: Beer bar, guest house and beer bar cum guest house. There’s a lot to these businesses: Success means there’s nothing to stop you from finding a opening several more in new locations. There are established business models that you can subscribe to, plenty of distribution for the necessary supplies and seemingly endless demand. Furthermore, finding skilled personnel won’t be a huge problem.
There are also plenty of hardships that owners of both businesses have to endure. From ruthless and unethical competition to hotheaded, lazy, irresponsible staff... and the special sort of craziness you see in Pattaya when you mix men, women, alcohol and beds. Keeping that in mind, let’s focus on the one business of these two that seems to have a more stable demand to supply ratio: Operating a guest house.
While anyone can slap down a wad of baht on the barrelhead and purchase any of the numerous beer bars that the previous sucker is more than ready to bail on, guest houses require a bit more investment and business savvy. The supply, therefore, doesn’t seem set to outstrip the demand anytime soon. Couple that with the greater land demand of an inn and you can see why beer bars are in so much abundance, compared to guest houses.
So, how do you go about acquiring a guest house?
BUY, RENT, BUILD
There are three avenues by which you can approach guest house ownership. In case you can’t read section headers, those are: Buying an existing building, renting a operating guest house, or building your own guest house on your own land.
To the uninitiated, buying an existing building sounds like the most straightforward method. Were it not for a couple of frustrating laws, it would be. The net effect of these laws are that you, as a foreigner, cannot technically own real estate in Thailand. Of course, as with everything else, “Nothing is permitted but everything is possible.” With a bit of legal maneuvering you can purchase a building.
By starting a company for the purpose of running a business that requires a building, you can de facto own the land. It is the business that legally owns the land and, if you are not an American, any company you start in Thailand must be majority owned by Thai nationals. There are some incorporation stipulations you can employ to ensure that your Thai partners cannot borrow against the company and leave you with the debt, or pull the rug out from under your feet, but we will have to leave that for a future article. So, it is possible to start John’s Guesthouses LLC., buy a guest house and run it. This is widely acknowledged as the safest method of acquiring a building... provided you can trust your Thai partners.
The best way of knowing your Thai partner is trustworthy is to bind his hands with an iron-clad legal contract. In other words, get your own lawyer. ‘nuff said. Having a company to buy the real estate offers you some advantages. Firstly, it gives you room to expand. One company can own any number of buildings. Secondly, it creates a legal entity that protects you from some liability. Thirdly, business ownership fulfills one of the key requirements for a self-employed person to obtain a business visa allowing them to stay in Thailand. In other words, you’ll be able to live here without having to hold down a full time job for someone else and simultaneously try to run a guest house.
It has been common practice among foreigners in Thailand to start shell companies for the purpose of residential home ownership. This is not strictly legal and has resulted in some foreclosures. You may be tempted to purchase a home through your guest house company - consult your lawyer first. Your lawyer
Renting an existing building is another viable option, and there is nothing stopping you from signing a short term lease on a particularly attractive property in order to freeze out other potential buyers while you consider incorporation and purchase. Renting a guest house isn’t a bad option at all. It requires less initial investment, less paper wrangling and a shorter ramping-up period. The cons, however, are that without a really great lease agreement it is very easy to get screwed. It is far from unheard of for a landlord to up the rent when they see you’re doing a bustling business. It’s also not uncommon for the rent to fluctuate dramatically based on season. Thai landlords are notoriously uncompromising with their lease agreements, so if you’re looking for a reasonable, long-term rate with an overlapping renewal option period you will probably be looking for a long time. Landlords will only offer reasonable deals when they (a) see that you are not going to be taken for a sucker and (b) all the other suckers are already taken or (c) they are desperate. If the answer is (c), ask yourself why - owners of quality buildings in prime locations don’t usually fall into that category, especially in a city as popular as Pattaya. Remember, Pattaya has been purpose built to separate white foreigners from their money. Walking into a business negotiation as a white man in Pattaya is not unlike waving a porkchop at a pride of skinny lions.
Remember, Pattaya has been purpose built to separate white foreigners from their money.
The third option, building your own, is by far the best choice if you have the capital to sustain the construction, business acumen to start a land-purchasing company and design sensibilities to create something special. Why? Because you can make something purpose-built to beat the competition. Guest houses are a very popular business in this beachside resort town we call home and even though occupancy can approach 100% in the high season, there is enough competition that you can still end up with empty rooms. Every single night you have an empty bed during the high season is a day you can’t eat during the low season. When you build a guest house from scratch you can employ some tactics to make yours better than the closest competition. For example, you can make bigger rooms so that, while you have the same number of empty beds, your rooms will always be larger. They can’t very well expand their walls, can they? If they don’t offer a pool, you can. If they don’t have a basement bar, you can. If they don’t have a rooftop lounge, you can. Even insofar as style is concerned, you can beat the other guys: It is often the most unique and interesting place that gets the walk-by bookings that can make or break a little hotel.
WHAT MAKES A SUCCESSFUL GUEST HOUSE
Where you put your guest house is the single most critical factor in its success. An easily accessible location close to popular attractions with a lot of foot traffic and a prominent storefront can mean 100% occupancy in the high season and steadily filled beds in the low season. It will also, obviously, mean a much higher real estate cost, and a whole lot longer looking for a lot. Pick a place close enough to the attractions that your guests will be happy to stay, but also recognize the drawing power of a well-advertised place far enough from the noise that your guests can sleep while you offer them a more reasonable price than the places just off walking street. This will necessitate some good internet marketing, but the good news is that most of your competition fails at that, giving you a pretty good advantage.
Pattaya’s clientele requires modern facilities. This is another reason to build up your guest house from the bare bones, or update an existing building. You must have the western basics of modern plumbing, functioning doors with normal locks, functioning WIFI and reliable electricity. Television, at least in the common area, is also a must. Speaking of common areas, it is this room that most separates a guest house from a motel. Make yours comfortable and social and you’ll find your guests making friends and thinking of your little place as a nice little place they’ll have the loyalty to return to again and again.
You want to offer an attractive price point, and that means value. But your different clients will have a different idea of what a valuable price is, and what comforts they’re willing to sacrifice in the name of economy. Your locals and migrant working folk will often be OK trading air conditioning and a soft mattress for an electric fan, a hard mattress and a 25% or more reduction in rent. But unless you want your tourist clientele to be exclusively low-budget backpackers, and to miss out on quite a bit of potential revenue, you’ll have to cater to the featherbed, sea-view and air conditioning crowd as well. Determining the percentage of rooms you dedicate to budget vs. premium is not something that can be done without research and experimentation, but keep in mind that you want to capture at least a portion of every market.
Despite common appearances, a guest house is far from a set-it-and-forget-it business. Guests, especially the sort you find in a free-spirited resort town like Pattaya, are a messy proposition. If you don’t have the patience for a year or two of preparation you definitely don’t have the patience to deal with Thai licensing officials. You will require a hard working maid, a bill collector, a handyman, someone to answer complaints and liaise with officials in Thai. You’d do well to be able to communicate in Chinese, Japanese and especially Russian, as well. You need to be on top the marketing of your guest house: Posting electronic, publication and printed flyers advertisements; Communicating with travelers online, on the phone, and in person; Answering inquiries and dealing with complaints. You need to keep an eye on security and on your staff to make sure that you aren’t robbed blind. At the end of the day a guest house is a BUSINESS. It’s a vocation, NOT a vacation, and it’s up to you to make it work.
Last But Not Least - Marketing
I’ve mentioned this more than once in this article already, but it bears repeating in its own section: Marketing your product in such a crowded marketplace is absolutely essential to success. Your Thai competition is slowly awakening to the fact that reaching their potential customers before they see the competition’s signage is like dragging a net upriver of the competition’s fishing poles. If you understand online marketing and branding you’ve got an advantage - use it before it recedes further.
If you’ve got guest house dreams, don’t stop dreaming. You can, indeed, make it happen. Don’t rush in. Take your time, make your plans and be flexible. At the end of the day a guest house is a business. It’s a vocation, not a vacation, and it’s up to you to make it work. The great news is that if you have any business sense whatsoever you’re already ahead of the pack.