If you have been dreaming about a guest house business, you may be thinking that it would be an easy way to bring in extra money each month. Although you certainly can make a profit with short term rentals, it’s not always as easy as it seems. With Airbnb and similar platforms continuing to rise, a large number of property owners will consider renting out their space for profit at some point.
Thinking About Starting a Guest House Business?
Much like bed and breakfasts, guest houses are a type of accommodation that is often in a private residence. Many provide breakfast and amenities such as tea and coffee, making them semi-catered. Unlike fully catered accommodation such as hotels, and completely self-catered accommodation such as villas, apartments and aparthotels, guest houses provide a bit of home comfort, while still offering some degree of privacy. Many property owners who think about starting a guest house business have adequate space on their property – often a separate, self-contained suite or cottage that is away from the main house but still accessible.
Below we talk through the 10 needs to knows about opening a guest house in South Africa.
1. What type of permit would I need for opening a guest house in South Africa as a foreigner?
Any foreigner wishing to own and operate a business will be required to obtain a business permit in order to legally do so. A guest house of any size or description is classified as a business and therefore a business permit will be required.
2. What comes first the business or the property?
Often known as the chicken and egg scenario – if you first commit to buying a guest house you then have to concern yourself with obtaining a business permit. If you first obtain the permit what if you cannot find a suitable guest house?
The reality of it is that you risk a significant financial and emotional investment by first purchasing the guest house. The repercussions of actually purchasing and then not getting the business permit can be catastrophic.
There is no requirement for you to first obtain the guest house and the business permit is issued on the pending future purchase. Therefore the correct process will be first to obtain the business permit.
3. What’s the criteria for a business permit?
There are various criteria that must be met including the below:
- A proven available investment amount of must be from funds introduced to South Africa from abroad.
- The employment of 60% South Africans
- A comprehensive business plan
- An appropriate company structure
4. I am coming with my partner / wife can we both work in the guest house
Often one of the reasons for opening a guest house in South Africa is that couples wish to work and spend more time together. Whilst a business permit is issued to a single main applicant there is the ability to add accompanying spouses / partners on to the application. The same applies to dependant children as well. However please note whilst the partner can work in the guest house they can not receive remuneration unless they hold a work permit – but to reiterate they are able to assist the partner holding the business permit.
5. What tips can you give me for locating the right guest house?
When opening a guest house in South Africa, securing the right one in the right location is paramount to its chances of success. Traditionally in South Africa guest houses are marketed by estate agents and seem to fall in between that gap of commercial and residential. Subsequently many agents offering guest houses for sale simply look at the value of the property and even add on to this valuation due to the property being a guest house. This often results in inflated prices that do not reflect the ‘business’ worth.
Depending on your objectives it is more than likely you are looking to buy a business and you should seek appropriate guidance in doing this.
Intergate recommends you use the services of a property buyers consultancy, such as SAHomeBuyers. They do not sell property but act for buyers in sourcing, negotiating and guiding you through the various regulations and potential pitfalls that buying and opening a guest house involves.
6. Where can I can get assistance with a business plan?
At Intergate we have assisted hundreds of overseas clients in securing their business permit. Our service is a turnkey service that provides and covers all aspects of the business permit application for opening a guest house including the business plan.
7. Will I be able to get finance for buying a guest house?
Firstly, as per above you will need to demonstrate and subsequently invest into the business venture. Secondly South Africa has in place exchange control limitations with regards to borrowing and this will restrict you to 50% of the property value.
Banks are somewhat reluctant to lend on guest houses but it is not impossible. again SAHomeBuyers can assist you here by looking at pre approvals.
8. Does it have to be a new guest house?
You are able to either open a new guest house or purchase an existing one.
9. What services does Intergate offer in respect of opening up a guest house in South Africa?
In conjunction with SAHomeBuyers, Intergate Immigration offer the most comprehensive immigration and guest house service for those foreigners seeking to open a guest house:
- Help identifying the correct location for opening a Guest House.
- Helping you to understand and value the licences, ratings and marketing infrastructure that an existing guest house may have
- Assessing the ‘order book’ of an existing Guest House and its monetary worth.
- A show case of examples of South African guest houses for sale.
- A walk through of the additional costs including tax‘s and legal fees that are incurred when buying a Guest House.Industry statistics such as tourism trends.
- Full Guest house search, negotiate and secure service
- Due Diligence on existing Guest Houses for sale.
- Turnkey Business permit service enabling you to own and work in your guest house
10. How do I get further information?
For your free initial consultation you can email us, call us on any of the numbers above or request a call back, or use the instant chat feature on this page.
Are bed and breakfasts profitable?
Any business can be profitable, and of course that’s the ideal goal. Hopefully by providing an exceptional guest experience and becoming popular, your property can achieve profit through the right management and strategies. Before that becomes a reality, you need to establish a steady revenue income. This means attracting regular bookings.
Back to the question: Will you make money running a bed and breakfast?
When you really drill down the numbers, it’s probably unrealistic to expect to earn your entire living off one B&B property. Let’s use an example of a six-room property with pricing at $90 per night:
- With every room filled that’s $540 per night.
- With 365 nights per year there are a total of 2,190 room nights.
- If every room is booked every night, gross annual income will equal $197,100.
- Considering B&B occupancy rates hover around 50% this total will come down to around $98,550.
- Then you have to factor in expenses and taxes, which could be significant, before you have your net income.
The amount of money you can expect to make all depends on the size of your property, the area you’re located in and how luxurious your property is, but at the end of the day running a bed and breakfast is certainly not a get-rich-quick scheme. Or at least, if you treat it like one you’ll be sorely disappointed. Starting a B&B is more of a lifestyle decision rather than a savvy business choice and you’re likely to make any real profit when you sell it.