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Thread: Self Catering Business.

  1. #1
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    Self Catering Business.

    My house property stretches road to road (quite thin) and at the back is my garage of around 85m2. The idea is that I use the garage to produce something to sell to make holiday cash. But haven't really done much - so it's a bit of a waste. The idea that I do what I do currently (very little) - but add in a few hours cleaning a week is fairly appealing.

    Have been toying with the idea of turning most of the space into 2 self catering apartments. Would still like a small spot for some tools - drill press, wood lathe, table saw and band saw - even if it's a case of wheeling them out to use them - and a place to store my m/bike. So around 35m2 x 2 and 15m2 for the workshop would probably do.

    My problem is trying to get my head around the number:

    Ball parking the set up costs:

    New roof, ceiling and internal walls, doors ect R100K

    Electrics, plumbing, kitchens, bathrooms R100K

    Beds, linen, sofa beds, towels R50K

    So roughly R250K costs - lets call it R300K to be safer

    @ R500 per night per unit and rented every weekend x 2 nights = R100K per year less some costs (extra elec/rates/other) say R90K. I do realise that they will not be occupied every weekend/ but I also will get business guys in during the week.


    So it will take over 3 years to pay back the capital - plus the opportunity cost lost had the R300K been sitting in the stock market. Lets call it 4 years. Of course, I would get some back when it comes to selling the house.

    Does not look very appealing.

    These would be small one bed units with a sleep couch in the lounge

    Might be better with 3 x studio units @ R400 p/night. Realistically, I live in a small town that does not get much holiday trade - but I would expect a fair amount of my customers to be business people.

    I do not want to make breakfast every day - so self catering is a must. Not that keen on the long tern rental game - having a non paying tenant would make me loose it.

    Just looking for outside opinions and thoughts. Maybe I am just looking at this wrong. Maybe I should be looking at a better case scenario - like 50% occupancy, paid of in under 2 years.

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    Diamond Member adrianh's Avatar
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    Would one not have to get business rights for the property? I'm sure that your neighbours could kick up a fuss over it.
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    True - will need to check. But would not have thought that would be too hard to get.

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    Diamond Member adrianh's Avatar
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    Neighbours can be real bastards sometimes.
    How easily someone is offended is directly proportional to how stupid they are.
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    Especially, like me, you said that they could not build on the boundary line.....

    karma - she's one bitch

    (to be fair, the property slopes up, so there extension would have been 1,5 stories above us. I also did say that if they used a flat roof they could come to 1m of the line - but will they remember that? )

    Was also thinking i could look at it this way.

    My return at the moment on R300K - R15,000 - dividends @ 5%. Vs. a fairly doable R80K plus. Over the period I want to still live in this house - share capital roughly doubling every 5 years. House price doubling in the same. Treating increase as equal.

    Shares R1,2mil plus R150k income = R1.35
    Home R600K plus 800K income = R1.4

    That doesn't really help much! Although in the real world, I probably would save some of the extra yearly income - but at the same time, dividends would in increase quicker than the income from the flats....

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    Diamond Member wynn's Avatar
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    would it not be simpler to put permanent tenants into the flat or flats? check the granny/garden flat section of 'gumtree' to get an idea of rentals.
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    Diamond Member AndyD's Avatar
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    You've also got to factor in how much value the upgrades will add to your property price. Depending on the area you might end up over capitalizing.
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    Wynn - true, probably less overall hassle, but less chance of making really good money. These would be quite small (around 32m2) 1 bedroom. Could get around R2000 - R2500 p/m for month to month. Potentially there is 31 x R500 per month in self catering. I am also a bit weary of guys moving in and not paying and needing lawyers to get them out - much easier to do (as I understand) on holiday terms - from what I understand. That said, if it did not work or I get tired of it, could always resort to monthly letting.

    It would be over capitalised andy - it its already the most expensive house on our stretch of the street. But I am sure many would like the idea of the flats helping to pay the mortgage - as said, their location on the property is ideal with their own street access.

    Anyway, will be holding of on making any decisions for at least a year. Will at least try produce some items from my garage for market. I think I would prefer making things to cleaning rooms! Might play around in sketchup though and get a firm idea of cost involved in the conversion.

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    Diamond Member AndyD's Avatar
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    Quote Originally Posted by Pap_sak View Post
    ......It would be over capitalised andy - it its already the most expensive house on our stretch of the street. But I am sure many would like the idea of the flats helping to pay the mortgage - as said, their location on the property is ideal with their own street access.....
    If you're thinking about extending the mortgage to build the flats and then you're not adding much if anything to your property price because you're overcapitalising it might not be the best way of doing it. Could you not buy a separate property and sub-divided it into flats or bedsits, at least you still have the asset value of the property as an exit if the business side doesn't pan out as planned.
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    No mortgage and would pay cash for the conversion. I once did do spread sheet comparing realistic gains on the rental flat vs listed property - at the time, it only became worth while if I could get a bank reposed flat at around 30% off. But that was just my area, not all I guess. This was always compared to cash - I do not have a job therefore mortgage/loans are out of the question.

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