Important factors to consider while picking your location

• Tourist Attractions & Infrastructure - The best strategy for a beginner would be to start off in a location that sees a steady flow of tourists but where the backpacker market is underserved. In other words, few or no backpacker hostels exist at this location resulting in backpackers being forced to look for alternatives such as hotels, lodges or guest houses. This is the safe way of going about starting your first hostel. Please be extremely wary of opening a hostel in a location that nobody currently knows of or visits. To do so would mean that you’d have to shoulder the challenge of marketing your unknown location as well as your new hostel. Other than the marketing, you’d also have to worry about all other aspects of the tourist food chain such as transport, food, activities, nightlife, etc. This is quite a monumental task and regardless of the beauty and merits of your location, it may take several years until your gamble pays off. So start off in a location that offers you the highest probability of success; launch your hostel there and learn the ropes of the trade without having to worry about all the other peripheral factors.

• Transportation - Backpackers are on a budget. That’s why they’re staying with you. They want to save money on accommodation and transport, instead splurging on food, tours, activities and other local experiences. You can help them with their goal and thus make them very happy by ensuring that your hostel is easily accessible by public transport. Although many backpackers are open to taking an occasional taxi to and from the airport, this is where it ends. Proximity to a key bus stop, local train / metro station should rank very high on your priority list while searching for your property.

• Food - This might sound trivial but it’s easy to overlook. Your guests will be able to fall out of bed and rely on your hostel breakfast in the morning (we’ll go into details in Section 3). They however, will need options for lunch and dinner. The wider the variety of food options in your vicinity, the longer the average duration of stay of your customer. As a hostel owner, it is your goal to enable your guests to exist with the least possible effort. Food is central to this strategy. On the flip side, many long term travellers get bored of being lazy (yes, it happens!) and then make it their mission to cook their own food. For this reason, it would be incredible (but not essential) for your hostel to have a common kitchen as well as be located in close proximity to a supermarket or grocery shop.

• Bars & Nightlife - Backpackers are social beings. Nobody wants to go to bed at 7pm while they’re travelling. This applies to hostels in remote areas as well. Most backpackers like to party every night and all backpackers love to drink. It would be best if your hostel is located walking distance from a place that allows for both of these activities. If not, you can be assured that people will be doing both of these in your common room. This is a great thing if you’re looking to start a party hostel but for all other hostels, this could turn out to be a problem for the guests who want to tap out and get some rest. With a lack of alcohol options, your reviews are also bound to suffer. Plan ahead and ensure that there is at least one watering hole a short distance away from the location that you’ve chosen. If not, then your plan should include procuring an alcohol license and setting up an in-house bar or at minimum a beer fridge.

• Legal - While searching for your hostel building you need to concurrently get informed about the laws regarding hostels in your neighbourhood. You can do this by either hiring a lawyer to walk you through the process or by thoroughly reading through the by-laws of your jurisdiction online on your Government website. You need to consider commercial zoning laws, health standards, waste disposal regulations and fire safety stipulations among other factors. For instance, if the local laws require a separate fire exit for the second floor of your property, this is vital information to discuss during the contract negotiations with the property owner.

• Rent - There’s a complicated relationship that exists between rent, location and occupancy. The better the location, the higher the rent and the higher the occupancy. Depending on the amount of spare cash you have available, you have to find a location with a rent that you are comfortable with. Assume that in the worst case scenario, you’ll have to pay for 6 months rent out of your own pocket before the business takes off. Are you comfortable with this amount? Please refer to the Business Viability Lecture to download an excel spreadsheet that helps you calculate the profitability of your hostel based on the rental cost of your property.

• Building Infrastructure - Most buildings are unsuitable for hostels because they don’t have a sufficient amount of bathrooms. Constructing bathrooms aren’t very difficult provided the existing infrastructure and building codes allow for such an upgrade. If you aren’t familiar with bathroom construction, please seek out professional help. This is something you want to be 100% sure about because you’ve got a lot of time and money riding on this decision. Aim for a dorm bed to bathroom ratio of 8 beds to 1 bathroom at max. Anything higher would be at the very least uncomfortable. Other than bathrooms, please consider all the structural changes that are necessary at this property in order to convert it into a hostel (common room, kitchen, dorms, etc). If the law or property owner does not agree with these changes, you may as well save your breath and move onto your next potential property.

• Design & Aesthetics - Some buildings are downright ugly or some properties might check off all the boxes but the property might be located right next door to an open sewer. Once you’ve checked off all the previous items, it’s time to activate all your senses. Is the building pleasing on the eyes / can you make it look good? Does something smell funny? Are you located next to a loud busy expressway? If you hit a factor that is out of your control, you will have to balance the pros of the location with the nuisance caused by a factor outside your control. Can you and your customers live with this compromise for the next 10 years?

Buying vs Renting

The buying vs rental dilemma is possibly one of the most discussed topics out there when it comes to location. Personally I feel that you should not consider purchasing a property until you have been in the business for a sufficient amount of time to decide that you are ready to commit a larger amount of capital and time to your project. You would also have the added benefit of knowing that your business is profitable (and hence your risk exposure would be lower while deciding to purchase the property). If you still decide to purchase a property to start a hostel because of a fire sale or an undervalued market or whatever other reason, then this real estate investment would be out of the scope of our discussion.

If you happen to already own a property that meets all the requirements listed above and you’re thinking about converting this into a backpacker hostel, I would suggest dividing your business into two halves - the real estate business and the hostel business. The real estate business would rent the property to the hostel business at the existing market rental rate of the property. You would then have to maintain two sets of accounts to independently judge the performance of both your businesses. In case your property is located in a prime location, it is possible that the real estate rental profit (no expenses other than property tax because maintenance and licenses are the hostel’s problem) could be higher than your hostel profit. This is the best way to clearly understand whether your hostel or your property is doing all the heavy lifting.