My brother in law, Syed Imran Ahmed, is in this business for the last five years. I interviewed him to understand what it takes to run the business.
Q: What’s special about this business?
Lodging is a common business. There’s nothing special about it. But unlike the city, people come to hill stations to enjoy. So they are not price conscious; they want to have a good time. On an average, the occupancy rate is 70%. Whenever there is extended weekend, summer holidays or festivals, the hills fill up. Then there are occasions like honeymoon and tours that bring people to the hills. What I like about this business is that there is not much work involved while earning a decent profit.
Q: How to select a property?
A property which is away from the hustle and bustle of the town while being accessible – not too interior – is sought after by guests. A play area attached to the property is an advantage as up to 60% of our guests come with families. During the peak season, it’s hard to find a parking spot. So properties with parking space command higher prices. A property with a good view of the hills is a deal clincher.
Q: What’s the investment and returns?
Based on the criteria above, you may get properties for 80k-1 Lakh per year for a room. If the property has five rooms, you would be paying 4-5 lakhs per year upfront to the owner. The agent would charge anywhere from 2-5% of the deal value. You would have to pay about 50k as advance. You can employ a person for cleaning and another in the reception. At the end of the year, you can double your money.
Q: Can you explain more about doubling the money?
The room rates vary based on demand. Season rate for the room could be as high as 2000, weekend rates can go up to 1500 Rs. Assuming 70% occupancy rate(21 days) and 1k per booking, you’ll take 21k a month on one room. Multiply it with 12 and you’ll get 2.52 lakhs. If you deduct 50k towards expenses, then you have 2 lakhs at the end of the year.
Q: How do guests come to know about your property?
Up to 50% of our bookings are online. The remaining come from local agents, referrals and known contacts. For online, they take a 20% cut from the deal value.
Q: What are the challenges that you have faced?
Last year many lodges were placed under seal because they were not in the commercial zone. My properties got affected too. This year COVID put a full stop to all vacations. But right now things are picking up. The more the occupancy rates drop, the more our margins suffer.
Q: What are the avenues or opportunities that open up by being in this business?
You can arrange transportation and tours for the guest. Kodaikanal is famous for chocolates and honey. You can tie up with sellers and they’ll give a 20% cut.
Personally, I have a background in construction. I have just completed a project there and one more is in the pipeline. I am about to start another project. I am offering brand new 1BHK villa for about 30 lakhs. You can buy and lease it out for about 2 lakhs a year. Unlike a single room, individual villa can give you twice as much.
[Image: My recently completed project]
Q: In what ways would you assist people who’re interested in this business?
I can put them in touch with agents who can show suitable properties. I will share how and where to market their property and how to set the price. I can even send some referrals their way.
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This article is part of the business owner series. I interview businessmen who’s been there, done that so we can learn the easy way. If you want to get connected to a particular business owner for mentorship or investment, you may request their contact. If you are a business owner and you would like to help others suceed, let me know and we can have a discussion.
