Introducing the Hostel Agau – an idea for a group of hostels in Central America

I’ve been traveling in Central America for over a year now, always thinking of how one could open a business, make money, help the local economy and people.

I see Wal-Mart, Payless Shoe Stores, Dominoes, McDonald’s, Wendy’s and many others with free-standing restaurants or in the malls in the major towns.

Always in the back of my mind – what could one do to make money, that wouldn’t cost a lot to start-up and would benefit the town where the business was?

As I was driving back from the end of the Pan-American Highway, thinking about some of the places I had stayed on the way down to the end, the thought came to me – start-up a nice, decent hostel.

Clean bathrooms (Which is what McDonald’s was famous for when they first opened up – they always had clean bathrooms), a good staff that catered to the needs of the budget traveler, an inexpensive restaurant and always with a WIFI computer internet room. 20 bunk beds, a common area and the place would be ready to go.

Central America is experiencing the same problems as the USA – business is slowing down for anything being shipped to the USA or Europe and less money is available to buy land, so prices are down.

Yet in some towns, the hostels are full – for weeks!

The Concept:

A group of hostels in Central America named Hostel Agau. (ah-gow – sounds like aah-cow)

Provide investors with a 20% + return on a small investment growth opportunities – Central America is experiencing the calmest political climate in decades.

Discussion/Business Model:

Hostels originally started in Europe, catering to students who were traveling.

Usually, the accommodations were bunk beds, with minimal comforts of home.

Traveling students needed cheap yet comfortable accommodations that allowed them to see the sights and immerse themselves in the culture. Traditional hotels drained the budget and were a contraction to the student mind-set.

Hostels are more popular than ever today, especially in third world and developing countries. The key components of hostels:

a) Clean, simple, basic and inexpensive accommodations; a bed to sleep on, showers and bathrooms.

b) Clients today are students, teachers, location-independent bloggers and writers, retirees, business people on the road, people taking a break from their peace corps or NGO work – in short, anyone looking for basic inexpensive accommodations.

c) Hostels today are found throughout the world – North, Central and South America, Africa, Europe and Asia.

d) There are websites that cater just to the traveler interested in hostel locations – hostelbookers.com, hostelworld.com, airbandb.com, hostels247.com., etc.

Three reasons why it is a good idea.

1) A very good return on a small investment.

2) Stakes out a competitive niche that is now unserved

3) A “get out of Dodge” place if world events turn violent.

Competitive Advantage:

The key problems with hostels in Central America is cleanliness and accommodating the needs of travelers.

What’s considered a luxury in Central America is considered basic needs for travelers from North America, Europe and Asia.

Cleanliness of the hostel, clean and sanitary bathrooms, internet connection, affordable restaurants, will set Hostel Agau apart from other hostels in Central America.

The culture of Central America is not accustomed to providing the needs that western people consider basic.

Hostel Agau would offer these services and keep the costs to the traveler consistent with what the market is already charging.

Hostel Agua would satisfy, on a consistent basis, those needs that the budget traveler desires.

To summarize: Cultural attitudes in Central America mitigate against clean facilities, comfort, and convenience. The writer believes that a higher-class product can be offered for the same price and costs as a lesser product, with a resulting excellent return on investment.

In short, offer a European-class hostel experience in Central America.

Profit Opportunity: achieve a 20% return on the investment.

I will use the hotel I am staying in as an example of costs.

The hotel includes a restaurant, WIFI internet café and 12 rooms with private baths.

The monthly costs to run the hotel are $1,300 per month – this includes electricity, water and wages for the staff.

I think a reasonable example of the costs of operating a 20 bunk bed hostel with 2 “deluxe” units is $1,300 per month.

The WIFI computer area would be run by a local, splitting the profits – 50% for the local, and 50% for the owners of the hostel.

The restaurant would be a small, basic operation. (in many parts of Latin America restaurants are an open street affair – with the stove and seats brought in nightly to accommodate clients) Rent out an area for $100 to $200 per month, depending on how busy the restaurant is.

I am searching for 25 people who would invest $2,000 each in this idea.

I want to offer investors with a 20% return on their investment.

The hostel would have to generate ($400 per year x 25 investors) $10,000 per year in profits.

I will use 20 bunk beds as the smallest for accommodations.

At 50% occupancy and $13.00 per bed, this would be 10 beds at $13.00 = $130 per day.

30 days in each month.

30 days x $130 = $3,900 per month.

$3,900 per month – costs of $1,300 per month = $2,600 per month profit.

$2,600 per month profit x 12 months = $31,200 per year profit at 50% occupancy.

At 25% occupancy it would be $15,600 per year profits – easily surpassing a 20% return for investors.

This is just renting beds – this does not include any profits from the WIFI computer area nor the rent for the restaurant.

It does not it take into account any usage of the 2 “deluxe” rooms that would be available to rent.

Opportunity for future growth:

For the investor, a decent return on a small investment.

Th future purchases of property would be funded by the profits of the first hostel.

The advantage to the investor, besides a solid return, would be:

1) The 2 “deluxe” rooms to be used by investors free for 2 weeks out of the year. If not interested, the hostel would rent the rooms.

2) A ready escape place if world events turn violent and one wants to leave their country of residence.

Local land with a house can be purchased for about .50 per square foot with a house on the property.

Examples:

I was talking to a Frenchman who has been here for 15 years and he told me about a property nearby.

It is over 900,000 sq. ft. of land with a house on the property that is now occupied. (This is good, as it would not take much to open the house to receive clients)

The house, with the property, may be purchased for $35,000 (possibly $30,000)

This is way too much land and I have not seen the size of the house.

A fellow a met when I first arrived in Nicaragua purchased small piece of land for $13,000. I walked it off, and it is 4,500 sq. ft. of land, but has no house on the property.

The first hostel would be in Nicaragua – locations that are of interest are Matagalpa, Esteli, Grenada and Leon. All have a large influx of tourists year round.

Future Growth:

Guatemala, Belize, Honduras, El Salvador and Panama would be places of interest, I think, based on the number of people I saw frequenting multiple hostels.

The market for budget travelers is growing – just look at the websites catering to the budget traveler.

a) According to http://www.urlappraisal.net, an online appraisal site:

1) http://www.lonelyplanet.com gets over 1 million hits per day – this is a company that puts out many “How to travel on the cheap” books. By far the most dominant “inexpensive” travel website.

2) http://www.airbnb.com – a relatively new budget reservation company for hotels, hostels and rooms receives close to 500,000 hits per day

3) http://www.virtualtourist.com – this site receives over 1 million hits per day.

What’s in it for me?

I am a graduate of Michigan State University in Hotel and Restaurant Management.

In my early career I worked at in the hotel and food service industry.

I have experience in starting up and running this type of operation.

In order for me to do the leg work to get this off the ground, I would need a small salary of $750 per month.

I would use one of the “deluxe” rooms as my residence if there were no investors using the room – if there were, I have experience sleeping in bunk beds!

I would also issue shares to myself in the partnership – so I would benefit from the profits of the operation.

If I can find a suitable property for less than the $30,000 property mentioned as an example, it would only increase the return to the investors.

The reason for this post is to get feedback – suggestions, questions, other ideas or to tell me I am as crazy as a loon!

It is an idea that I think is simple, low risk and has the potential over the years to be a very good business plan for investors, myself and the local communities that we may become involved with.

My email address is thebigmozey@gmail.com

If you would like to discuss this, we can do so over Skype, iChat or Yahoo messenger.

Thanks ahead of time for any and all comments.

Cheers for now.

About John Wilson

Traveler, writer and photographer. No home now, just traveling the world in search of the lost chord.
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5 Responses to Introducing the Hostel Agau – an idea for a group of hostels in Central America

  1. Pingback: Poster's Paradise » A successful hostel in Esteli, Nicaragua that gets it

  2. Silverboom says:

    Good idea, John. Low risk, solid return in a short period of time, and someone reliable to keep the thing running. Prove out one before expanding, then apply all the learning to the next one, rinse and repeat. Good thing you have that background in hotel/restaurant management – it could finally pay off for you, and a handful of investors.

  3. John Wilson says:

    Thanks for the positive feedback, 1yearago2day,
    Just need 25 people who think along the same lines as you.
    20% return on a $2,000 investment – tough to find, if not impossible,
    Plus gives a place to vacation too for 2 weeks out of the year!
    Thanks for taking the time to leave a comment.
    Cheers,
    John D. Wilson

  4. Bruce says:

    That is very right, I have joined your rss feed and look forward to looking for more of your wonderful post. Additionally,

    I’ve shared your web site in budget accommodation in Beijing

  5. John Wilson says:

    Hi Bruce,
    Thanks for stopping by and leaving a comment.
    I appreciate you sharing my blog at budget accommodation in Beijing, love referrals.
    If you can think of something I missed in my idea for the hostel chain, please feel free to let me know.
    Hope things are well at the Happy Dragon!
    Cheers,
    John D. Wilson

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