I have been looking for a nice place to rent here long term, and the place at the top of my list (just waiting for a chance to rent it) looks like it has way more potential than is being utilized...
While Ive been waiting, It’s got me thinking…
...The theory is to buy the property on the shores of lake Atitlan, and convert it into a motorbike friendly hostel/hotel.
PROS and CONS
Positive Aspects:
1) It is located near the end of the main paved street that runs through San Pedro on the waterfront (the tourist strip). This is an excellent business location without being too central and thus noisy or too remote and thus unpopular and undesirable for foot access to other tourist facilities.
2) It is already developed with a large, six bedroom, two bathroom house. The house is of simple concrete block/stucco construction and appears basically sound. It is however also quite run down (20+ years old at a guess) and is currently being rented out to groups of young tourists at a cheap rate.
3) The house is currently generating 3000Q per month in very basic rent. As a hotel, the house could start business immediately with virtually no further investment other than cleaning and probably some painting. (The current rent would be sufficient income to pay for the loan to purchase the place at a 5% interest rate)
4) The house appears suitable for easy additions to add up to four or even six more rooms on the existing deck space. It could be done in stages with controlled costs (would greatly increase revenue generation possibilities).
5) The land is steep and the house has been built in three layers with very large uncovered deck areas facing over 180degree views of the lake. The potential here is wonderful. The decks can all be extended forward and a fourth layer of rooms could also be added if desired.
6) The property is on the waterfront and in the past had a dock. A small spit of rocks is all that is left of it now but with relatively little effort, a new wooden dock could be built for swimming from or boat/kayak activities.
7) The kitchen and common area in the house is large and could probably be used as a cooking facility for a small restaurant/dining area (either guests cook and share the space, or staff use the space for restaurant cooking).
8) In the short term, meals are easily supplied to guests (if food services are needed at all) since there is a restaurant directly opposite the road and Im sure a deal could be worked out to use their menu/kitchen services and only waiting/services need be provided in the new hotel.
9) The road frontage of the property is simply a concrete wall (back wall of the house. The property is fully fenced and quite secure. The existing single steel gate access is right onto the road and is too narrow for easy motorbike entry but this is easily widened and motorbikes can be parked and stored on one section of the main deck.
10) Access to San Pedro from the main PanAmerican highway is fully paved but is not well known to travelers. The only other road access to the town is a very poor quality dirt road to neighboring Santiago (thus no “through” route). However, The main highway through Guatemala is currently being given massive rebuilding and is well on the way to becoming a four lane divided highway of developed world standards. Likewise, the dirt road to Santiago is currently being replaced by a new high quality paved road. In short, the road access and infrastructure for the entire area are mid-way through a major redevelopment and I believe this will lead to a significant increase in tourism and property values in the next five years.
11) In the short term, the building would provide an excellent base for the small motorbike rental business that I am committed to starting. In the longer term, the hotel is again an excellent source of clients for the bike rental business.
12) The location in Guatemala is perfect for trans-America motorbike tourists. It is nominally half way between the North and South extremes of the two continents. There are no existing businesses that cater to this market in the area (I have checked this on the most popular moto-touring websites) and I am sure it would be a very welcome rest stop for riders traveling in either direction. It would be easy to get a web presence and thus rider awareness of the business with a couple of postings on the relevant websites.
Negative Aspects:
The property has the following negative features:
1) The building is a house and was not designed as a hotel. It was also designed and built about twenty years ago and the services installed were very limited at the time. As a result, substantial work would need to be performed to bring the plumbing and electrical services up to current standards. It is also likely impossible to upgrade the old rooms to each have a private bathroom. New rooms could have this feature though.
2) There are legal limitations to foreigners purchasing land in Guatemala as well as for running a hospitality business. There are also different types of land titles that I do not know much about. I will need to locate a trustworthy local lawyer to look into this. I will also need to start a “permanent residency” application as soon as possible. (Actually it turns out that if I am prepared to bring in $US50K – which I would have to buy the property anyway - then the whole residency/business license thing gets “facilitated” by the Guatemalan government).
3) To buy the property will cost in the order of $CDN100,000. I can get this money from my secured line of credit but it will immediately start accruing interest in Canadian dollars (yet it could only earn money in Guatemalan Q) and once committed to the property in Guatemala, it will be very difficult to get it out of the property and the country if I wanted to abandon the project. It is also possible that once I declare my interest in the purchase that the owner may just raise the price out of my reach.
4) It will take time and effort to build the necessary awareness/reputation to bring in money from the enterprise. I would be effectively committing myself to the project for three years or so – Is running a hotel what I really want to do? – Could be good but could also be bad.
5) On one side of the property the adjacent lot is a small coffee plantation that is undeveloped but very nice and green as it is – I don’t think it is likely to be developed soon. On the other side, the block has foundations built for a large structure that if completed would restrict the views. It appears to have been abandoned temporarily but this could easily change. It would be very nice to also purchase one or other of these blocks of land but it is certainly out of my financial reach.
6) The water and sewerage services for the property (and for that matter for every town on the lake) start and end in the lake! This is bad for the lake and bad for the people and clients. Substantial work would be required to filter/purify the property water supply, as well as to create an effective and environmentally friendly waste water system. – This would be a long term project and not possible in the first couple of years.
7) I have yet to actually set foot on the property as it is currently being rented by other people. Therefore, I do not really know how suitable the house is for conversion to a hotel or how much work is needed to upgrade the plumbing and electrical services and I thus could have made some incorrect assumptions – Clearly I need to inspect the property before going too far down the purchase path – should happen in a week or so.
PROFIT and LOSS
Well, Im not actually aiming for the hotel idea to make me lots of money. I really am happy just subsisting here. That said, I simply do not have the resources to be able to try to start this sort of a venture and invest this anount of capital and then have it run at a loss...
So, the obvious question is would this business make enough money to pay for the loan required to make it happen?? My “gut instinct” is that yes, it would be able to do this when up and running…quite easily I think! (perhaps a year after starting the business). Trying to justify that “gut instinct” is much harder since there are so many unknowns…and I actually have no relevant experience to justify why my “gut” has this “instinct” in the first place.
Capital Costs
Guess that property can be obtained for $100K CDN
Guess that associated costs for purchase, residency and business license are about $10K – $15K
Assume that improvements in the first two to three years will cost about $20K - $30K
So, total investment of about $CDN 150K.
Customers and Competition?
Hmmm, well, very hard to assess (at least for me) but…. Rooms here in San Pedro rent out between about 35Q per night for very basic rooms with no view, no bathroom, no TV etc. The other end of the scale is “open” but a very nice room with view, bathroom, and TV (but no AC) is 80-100Q per night. Prices come down a bit for stays of a week or a month. I am currently staying in a mid range room for 50Q per night and I would imagine that the rooms on the property in question (in their current state) would be roughly equivalent (no private bathrooms but with decks and views).
There are, as expected, already a broad range of accommodation options available in San Pedro so, would one more hotel be patronized or not?
The place where I am staying is at present regularly turning away people who want to stay simply because they are full, but this is the “high” season.
I am sure the popularity of the lake, and thus the town of San Pedro is increasing – I have noticed at least a half dozen new building projects (in the tourist area) as well as 3-4 new tourist based business frontages, and the civic infrastructure is also being actively improved (streets repaved etc…) since I was here less than a year ago.
I am sure there are NO equivalent “motorbike friendly” hotels in the country let alone the town (though there are of course places that can provide the same services).
There are only 5-6 other hotels in the town with roughly equivalent features and location and half of them are currently adding rooms.
I am sure there is a regular “supply” of motorbike tourers from both the transAmerica route and from the local capital city (the lake makes a very nice weekend trip!). I see one or two different touring bikes here each week – and that’s just the ones I can see that are not parked out of sight or on the many streets that I don’t walk.
Of course, rooms can be rented to anybody, not just those with motorbikes – The motorbike slant is aimed at capturing a specific market segment that is not currently catered to.
Operating Costs
Gas, Electricity, Internet, Business License (“wild assed” guess at 30-50Q per day)
Single cleaning staff (20 - 30Q per day when occupied – 2-4 hours work?)
Usage Rate???
Well, in its current state there are 6 rooms and if I live there then there are 5 that can be rented out at about 40-50Q per night.
If I guess at say 3 rooms rented out for 75% of the time, we get average income of 110Q per day.
Average operating costs look like 50Q-80Q per day. This leaves only about 40Q-60Q per day of income to cover loan payments.
If I use a basic $110K model (This is the house as is with 6 rooms only), the loan costs 5%, that’s $5500 per year, which is 31000Q per year. Which is 2600Q per month or 87Q per day of interest.
If I use the $150K model (This is the improved house and increases available rooms to 10), the loan costs 5%, that’s $7500 per year, which is 42000Q per year. Which is 3500Q per month or 115Q per day of interest.
So, if I use the $110K model, and if I stayed in the house and didn’t contribute to the rental income, then I’d likely have to keep the place more or less fully occupied to make it work (not sure I want to live like that!)
I think I would want to live in the house (for at least the first year or two, so this pushes me toward the $150K model which adds more rooms and better services. This model requires a lower ratio of occupied rooms (60% occupancy) to cover costs but that lower percentage is in fact one extra person than the basic model requires… Not sure which is easier to achieve – larger number of people needed in better quality rooms, or fewer people in lower quality rooms?
Current Outlook
I could of course be way out on any or all of my assumptions!!!
There are so many missing details here that its not funny!
I guess the biggest concern I currently have is “How low is the low season” since Im sure that even the basic model is financially viable in the current high season… I shall have to ask the locals some more questions and spend some more time locking down details…
Probably the best approach here is to rent the place for a few months and get a good “up close and personal” view of what the place is like to live in, and what it would take to do the upgrades I envisage. I can try sub-letting rooms to other tourists and see how hard/easy it is as well as how much I like/dislike the experience. I can also use the time to learn more about the local seasonal tourist variations as well as running a local hotel…..
Hmmm, Seems like this is what I should do…
So, now all I have to do is get the rental contract ... We shall see if I can make that happen :)))
