Homestay business is being chosen and developed by many people in tourist areas, tourist spots. However, many people think that just opening a homestay will attract guests or that running a homestay is very profitable, but in reality, you are mistaken. Especially when supply exceeds demand, even if you offer cheap room rates, it’s not easy to attract guests. The result of a failed homestay business is closing down, even accumulating debts. Let’s explore the “profitable” homestay business secrets together.
Understanding the homestay business
Homestay business is not just for fun.
Although homestay is essentially a local accommodation service. Or simply put, staying at a local’s house. However, with the development of tourism, homestay is not just about offering 1 or 2 empty rooms in your house or laying out mats for guests to sleep on. Nowadays, many homestays are opened with various large and small rooms to serve different tourists. However, the essence of homestay remains unchanged. Homestay still brings a more intimate and friendly atmosphere than staying in a guesthouse or hotel.
Many homestay business owners here are being significantly affected by the current situation (Corona): mass cancellations, no new bookings, serious revenue decline, long-term risk of losses in the coming months, etc. And the question arises: Should we CONTINUE or STOP? Should we RENT or RETURN the house?
To make a decision, we will have to consider many things. So first of all, let’s take a look and evaluate “THE DECIDING FACTORS FOR THE SUCCESS OF THE HOMESTAY BUSINESS MODEL – APARTMENT – VILLA-HOTEL” to see if we have these factors or not. Answering these questions will somewhat determine whether we should continue or stop, whether this is the direction we will pursue or not!
5 conditions needed for effective homestay business
In order for a business model to have a high chance of success, it is a combination of many factors. Here, I divide these factors into Necessary Conditions and Sufficient Conditions. Readers, please self-assess and evaluate your own company to see if you have these factors to determine the direction.
Necessary Conditions: Money + Time + Experience + Creating a unique feature + Service criteria
Sufficient Conditions: 1. Reasonable investment costs + 2. Appropriate selling price and good room sales channel + 3. Smart operation
>>>>> See more: the difference between homestay and hotel
1. Budget
The first condition I mention is money. You will need a certain amount of money to start and maintain your business operations. In general, when starting a business, you will need money for the following expenses:
- Survey money + design plan
- Renovation money + Equipment purchase
- Rental deposit + Prepayment for 3-6 months or 1 year
- Registering necessary permits
- Budget for unexpected investment costs (10%)
- Budget for operating and marketing expenses
The amount of money needed for each model and segment will vary, I will analyze it in another article. I will provide the budget for building a Homestay as follows:
Whole house with 2 bedrooms: 70m2. Rent: 10 million/month. Unfurnished. Payment every 6 months, 1-month deposit. Survey and design plan money: 150k/m2
- Survey and design plan money: 150*70 = 10.5 million
- Renovation money + Equipment purchase + Photography: 100 million
- Rental deposit + Prepayment for rent: 70 million
- Registering necessary permits: 5 million
- Budget for unexpected investment costs (10%): 10 million
- Budget for operating and marketing expenses: 10 million
Total cost to open a homestay: 205.5 million.
So that means you need at least 205.5 million VND to start a business. However, 205.5 million VND is in the case where your business is doing well, making a profit, and having a steady cash flow from renting. And you will use the cash flow from renting to set aside to pay the rent for the next 6 months. If you don’t have enough, you will have to find another source to make up for the rent for the next 6 months. So, you should prepare more than 205.5 million VND.
>>>> See more: experience in booking homestay rooms
If you open a homestay at the wrong time
In a stable market situation and profitable business, you will use the monthly income to maintain business operations and set aside for the next rent payment. When the revenue drops significantly or even faces the risk of no revenue in the coming months, and the rent payment is approaching, it will be a big issue for you. You will be faced with two choices, either stop the business, only losing the deposit without having to find another source, or borrow money to make up for that part. Or you decide to continue and use another source of money to sustain it.
So clearly, if you still want to continue, then you will need more than the initial amount you planned, right? Therefore, newcomers are now saying that only those with strong financial resources can withstand it.
If you don’t have enough money, you can invite others to join you to share the workload as well as the financial pressure.
2. Time
The next factor I want to mention is Time. You will have to dedicate a certain amount of time each day to take care of and operate it. It may seem like the operation is very simple, but there will be many tasks you will have to do such as: welcoming guests, check-in, check-out, cleaning and inspecting rooms before guests check-in, taking care of guests during their stay, handling incidents, room sales, optimizing OTA channels, etc.
Details of the tasks to prepare before doing business and effective operation methods will be shared in future articles. But overall, you will need to invest time in the following stages: Idea development stage – Preparation stage – Operation stage
To optimize and reduce operation time, you can hire co-hosts, use technology software to manage such as: btaskee, ezcloud,… However, to achieve a model that brings you passive income and extra time, first of all, you still have to take action and find the most suitable process for yourself.
In the past, when I first opened a Hostel, I operated it in a traditional way, doing everything from A to Z and gradually perfecting the operational processes such as check-in, check-out, cleaning, etc. Then, I started hiring full-time staff and just provided them with the procedures to follow, while managing remotely through a manager. When I switched to running Maia Homestay, which was the first whole-house homestay model on Airbnb that I did, the first two months of operation were quite challenging, but thanks to the experiences gained from working at Starfish, I was able to operate smoothly and efficiently in a short amount of time.
>>>>> Read more: differences between homestay and hotels
So before starting, ask yourself, “Can I dedicate time to this or not?” If you have many other plans, it’s best not to start. To succeed, you need passion and dedication to the profession, rather than giving up after a few months of not meeting expectations.
3. Experience in homestay
The “experience” factor is very important and will help you and your partner achieve success faster, or at least reduce risks. With experience, you will save a lot of time and money, rather than having to research and try from scratch. You will know what to buy and what not to buy, how to handle situations when guests have issues, what price is suitable for a room, and which channel to sell on to attract more guests. Experience is not something everyone has, and if you already have experience in this industry, it is your strength over newcomers.
Of course, when starting something new, no one has all the experience, you have to get involved to gain experience. After reading this article, instead of jumping right in, you can take more time to learn, supplement what you lack, attend workshops, and learn from those who have gone before. It’s never too late to enter the market! You need to be fully equipped with knowledge, armor, and strategy, right? Or you can find an experienced partner and work together to complement each other.
4. Creating a unique identity for homestay
Every business sector needs its own advantages, and each person has their own strengths. Some professions are meant for you, while others are not. For this industry, it could be that you are very refined, have excellent communication skills, and are great at satisfying customers, which will make your guests like you and give you many 5-star reviews. Or you have a great sense of aesthetics, so the decor of your home is beautiful, and you have a private source of guests from South Korea, Japan, or Thailand.
Let’s talk about aesthetic taste. Ask yourself, “Do I have an aesthetic eye?” “Is my aesthetic taste unique and appealing to many people?” This is something not many people think about. It’s not just about putting a bed, a mattress, some flowers, and a painting in a room to sell it.
The 3 factors to sell more rooms are: “BEAUTIFUL ROOM + GOOD LOCATION + REASONABLE PRICE”. A house with high aesthetic value and appealing to many people will attract more guests. Moreover, if you have good taste, you can decorate and come up with ideas for your house yourself, saving costs on hiring designers, as some designers charge tens of millions to hundreds of millions. Or the houses that I make, I decorate and find places to buy, saving a significant amount.
5. Service Criteria
As a service provider, you need to have the mindset and attitude of a service provider. The service industry is a profession that requires adaptability, so when stepping into this industry, you need to be prepared for various situations. Not all guests are nice, friendly, clean, and polite. A good service provider anticipates situations to provide solutions and handles them in a way that keeps both parties happy.
I have met many investors who are very wealthy but lack service-oriented thinking, so they face many difficulties in taking care of guests, resulting in low review scores. What I often do is put myself in the customer’s shoes to think about how to solve problems: “How would the customer feel if I acted this way?”
Stay Calm – Be Patient – Be Tolerant – Be Flexible – Be Firm when necessary
When I first started, I didn’t know much, but luckily, I was guided by those who came before me with Heart and Vision, so I learned a lot about service mindset.
>>>>> See more: the difference between homestay and hotels
Above, I have analyzed 5 necessary conditions for effective homestay business: Money + Time + Experience + Creating a unique identity + Service criteria
But to be more complete and thorough, you need 3 sufficient conditions, which I will analyze in the next article. Please note that you need all these conditions, not just one or some of them. I use the gear theory to illustrate the interconnection between these factors. When all gears turn smoothly, coordinating with each other, the wheel can roll smoothly. If one gear is broken, delayed, or stopped, the wheel will stop or deviate from the track.
3 Sufficient conditions for successful homestay business
In the previous article, I shared the necessary conditions for success in homestay business. Today, I will continue to share and analyze about the sufficient conditions: Reasonable investment costs + Optimal maintenance costs + Smart business strategy.
To evaluate whether a business model is successful or not, I rely on its effectiveness through two main measures: Financial effectiveness (Profit) and Time effectiveness. Everyone in business hopes to make a profit, not just break even. Formula: Profit = Revenue – Costs. To increase profit, you need to “Increase Revenue” + “Reduce Costs.”
“Investment costs” will affect “Return on Investment time,” while “Selling price and room sales channel” will impact “Revenue,” and similarly, “Operational approach” will reflect “Costs.”
So, if you want to quickly recover your investment, sell more rooms, and make a profit, you need to achieve the following: Reasonable investment costs + Optimal maintenance costs + Smart business strategy. These factors have multidimensional relationships and influence each other.
>>>> See more : tips for booking homestay rooms
1. Reasonable investment costs
Reasonable investment costs will give you a suitable selling price. A reasonable initial investment will provide you with flexible and manageable room sales plans.If you have a very successful business with high profits but you have invested too much money, making it impossible to recover your investment and make a profit within the ideal time frame. Even if you continue for 5-10 years, you may not recover all the capital, making such a business model ineffective in terms of investment, even though you are currently profitable.
Homestay: Investing a lot, selling at a high price doesn’t guarantee profit
Let me give you a real example from a friend of mine. My friend runs a chain of luxury apartments in Da Nang with prices ranging from 1.5-2 million VND per night for a 2-bedroom apartment. The occupancy rate is very high, always 25-28 days per month. During peak months, it’s 29-30 days. The revenue ranges from 38-55 million VND per month. After deducting all expenses, the profit is about 15-30 million VND per apartment per month.
However, when renting this apartment, you almost have to completely renovate it, with an investment cost of approximately 600 million Vietnamese dong (I’m not sure why it’s so expensive). Therefore, it will take about 2.5 – 3 years to recover the investment and start making a profit. Whereas for this model, you should calculate to recover the investment after 8 months – 1.5 years, which is acceptable.
Or in case you invest a lot, with expensive and beautiful equipment hoping to sell at a high price. However, due to lack of market research and unfavorable location, you may not be able to sell at the expected high price. You may have to sell at a lower price to fill the rooms. In this case, your revenue will not meet your investment expectations.
For those of you who want to enter the market, don’t just calculate based on room rates and revenue. Or see other businesses crowded with customers and then rush to follow suit. You need to look beyond that revenue, behind those customer numbers, how much you will have to invest and what costs you will have to bear.
I have met many people who dive into buying décor items, beds, wardrobes, beddings without knowing how much they will sell the room for, where they will sell the rooms, and who their target customers are.
>>>> See more: experience in finding homestay rooms
Experience in opening a homestay
To overcome this point, you can follow the method I often use as follows. This method I also applied when I ran a Hostel.Before renovating or decorating the house, I will determine what my advantages are? Who is the target customer? Which model and segment to choose? => From there, make a decision to choose a suitable model.
Then determine the desired selling price and what amenities to offer? Search for addresses and contact competitive suppliers, … and then come up with a reasonable renovation and decoration plan.
2. Optimal Maintenance Costs
Optimal maintenance costs, efficient operation, and good sales channels will bring you appropriate pricing and discounts for customers.If your pricing is reasonable and sales channels such as OTAs, or Facebook, Google, website, through partners are all good, you will have high revenue, thus faster return on investment.
Assuming your investment costs are reasonable, rooms are beautiful, prices are reasonable but you don’t have good room sales channels, don’t do good online marketing, customers don’t know, don’t run OTA channels, then customers won’t know about your homestay to book a room.
Channels for selling homestay rooms you can consider:
- OTAs (airbnb, booking, agoda, traveloka, luxstay for Vietnamese guests or Expedia for Korean guests, Ctrip for Chinese guests, etc.)
- Offline: Selling through partners, salespeople, travel companies
- Other social channels: Facebook (Implement viral marketing campaigns, etc.), Google ads, publish articles in newspapers, post in travel community groups (Check-in Vietnam, etc.) or buy articles: top 5 top 10 homestays or apartments you must stay in when visiting Da Nang, etc.
3. Smart Homestay Business Strategy
In the next scenario, if you have reasonable investment costs, appropriate pricing, and good room sales channels, then homestay revenue will be high. However, if you lack experience in operating a homestay, don’t know how to control costs, then despite high revenue, if costs are high, you will still incur losses or very little profit.
For operating a homestay, you should research and seek advice from those who have gone before. Or you can work at other homestays, apartments. Or start as a co-host before investing your own money.
So you can see, you need to have knowledge and control all those factors well to achieve “Reasonable investment costs, Suitable selling price and Good room sales channel, Smart operation” or in other words “Reasonable Return on Investment Time – Increase Revenue – Control Costs”, then your business will be successful.
Above are all the knowledge and successful homestay business experiences. Wish you have a crowded homestay and importantly, profitable. And even further, get rich from homestay.
