What It Takes To Open A Homestay

Dive into the captivating tales of entrepreneurial spirit as individuals transform their homes into thriving homestays. From picturesque getaways in Ravangla to urban havens in Kolkata, discover the secrets behind turning dreams into successful hospitality businesses

Jigmey Dorjee Bhutia, 55, a senior teacher at a government school in Ravangla, South Sikkim, and a trained monk, runs a homestay tucked away in a picturesque spot of the idyllic town that is about 65 km from the state capital of Gangtok.

He first experimented with the idea in 2006, but it didn’t work out then due to lack of proper planning and marketing. In 2018, he restarted the project in a more planned manner. He first revamped a part of his house, which he had to anyway do for its upkeep, and registered the property on some popular travel websites to ensure maximum reach.

This time around, the idea worked. “The income (from the homestay) has been steady, except in phases such as during the Covid period and the Sikkim floods,” says Jigmey.

The income from the homestay adds to his earnings from the farm he owns and his regular teaching job, but money was never the main consideration behind starting a homestay. “The main purpose was to give visibility to the town among national and international people and highlight its history and the old monasteries in the region. I have a farm, and other means of income, besides my government job; I am not fully dependent on the homestay income,” says Jigmey. He adds that one of the aspects he most enjoys about running a homestay is interacting with new people and learning from their varied experiences.

For Jigmey, opening a homestay was not about earnings, but that’s not true for everyone. Many locals from tourist destinations are now open to welcoming guests into their homes to ensure a regular stream of income. Many others are opting to take a step back from their busy urban lives into the serenity of a hill station or beach town and earn a living at the same time. Then, there are those who are investing in holiday homes to generate a second stream of income. We explore what it takes to take such a plunge, the effort it entails and how practical it may be for you.

Taking The Plunge

Most people living in big cities and metros would have thought of buying a small property in a tourist hub and converting it into a homestay at some point or the other.

Leaving a well-settled job in a city and moving to a smaller one to open a business is not easy and needs conviction. It may be a tad easier, though, for those with roots in such places. But in either case, to start such a venture, you must plan well.

Location Matters: If you are planning to open a homestay, the first thing to consider is the location. You will get bookings only if the property is accessible, has adequate infrastructure around or is close to a tourist attraction like a national park or nature trail. Some properties, however, work with the USP of offering a peaceful getaway, but those would have to be marketed accordingly to ensure discoverability. Jigmey’s homestay is a case in point.

Mandira Mitra, 52, a public relations (PR) professional, first thought of opening a homestay in her parental house because her father owned a property at Hazra, a prime location in South Kolkata.

“I told him it would not be a hotel, not a guest house, but a proper homestay. Once my father agreed to the idea, I got in touch with Indian tourism and different portals. I started it with my cousin Basab Bhattacharya, who is now my co-host,” says Mandira, who chose to put the property on Airbnb.

Think Of The Setup: The beauty of running a homestay is that there is no hard and fast rule on what you can or cannot do. There are folks who let out their unused rooms to generate income, while some like Farrah Khan, 72, owner of a homestay in Mussoorie, let out the entire property.

Some offer home-cooked meals, which is included in the tariff, while others provide furnished kitchens for guests to cook their meals, and those like Farrah offer the services of a cook to be paid for separately.

Paying The Price

Cost is clearly a factor. Before starting your homestay of your own, you would need to create two separate funds—one for the business and the other for your own expenses.

Estimate The Business Cost: Once you’ve made up your mind and decided on the location and the setup, estimate the cost. Back in 2017, when Mandira ventured into this space, she had to fully renovate the house as it was fairly old, so she created a plan of action and a budget. She had some savings, and her father added some. “I calculated the funding accordingly and went ahead with the plan,” says Mandira, who spent around Rs 2 lakh to remodel and renovate the house.

While Mandira already had a house, those planning to start from scratch must be ready to invest in a property that is big enough and accessible. These factors would mean you will need a sizeable amount.

That’s not all. There are other additional costs. Most homestays don’t just have furnished bedrooms, but also a functional living space and kitchen. Mandira had to bear this cost, too.

For Farrah, converting her house from a rented accommodation to a homestay in the summer of 2020 wasn’t tough as she had the infrastructure in place.

“Luckily for us, there were not too many costs to start the business with Airbnb as The Retreat (her homestay) had been rented out to a well-known company as their staff holiday home with all facilities along with a fully functional kitchen,” says Farrah.

She estimates that if someone were to start from scratch today, the setting up cost would be anywhere between Rs 3 lakh and Rs 10 lakh, depending on the size of the place and the number of rooms they would like to let out.

Then, there are various other business-related costs, including staffing, office setup, maintenance, licence fees (if any), etc.

Don’t Forget Your Personal Expenses: Starting your own business can be time-taking and will need the minutest planning, from the décor, facilities and formalities to creating a business fund. In all this, it’s easy to forget about providing for your own expenses. The biggest risk of not doing so is dipping into your business fund and jeopardising its growth or compromising with quality.

“Your regular expenses, insurance premiums, and investments for the next 12-18 months should be taken care of before leaving a permanent source of income,” says Anant Ladha, founder, Invest Aaj For Kal, a financial advisory firm.

You could do this by creating a budget of all the expenses, outflows, committed savings and investments and liabilities. “The present value of these funds should be kept in a short-term fixed deposit or a liquid fund or an arbitrage fund for catering to all expenses,” says Dilshad Billimoria, a Securities and Exchange Board of India-registered investment advisor (Sebi RIA) and managing director and principal officer, Dilzer Consultants, a financial planning firm.

Provide For Initial Cost: You also need a buffer for regular startup expenses for at least a year or more. In the initial months, the flow of money can be slow or erratic and it is essential to have a buffer to keep the business running.

“This provision of buffer should be made over and above the ongoing family’s expenses. Basically, you have to allow for total startup expenses, family expenses, and unplanned expenses for a few months to a few years,” says Arijit Sen, a Sebi-registered investment advisor and co-founder of Merry Mind, a Kolkata-based financial advisory firm.

Keep The Cash Flow Going

For Personal Expenses: One needs to understand that, unlike a job, the income in a small business like a homestay can fluctuate depending on the time of the year. In the months when you earn extra, you would need to save money, so that it comes in handy during the leaner months, just like the ant and grasshopper story.

“The income does fluctuate from month to month. For example, one can earn over a lakh in the summer and less than half of that during the off-season. (During) holidays, such as Dussehra and Christmas, things pick up and one can expect better demand,” says Farrah.

Sometimes, it fluctuates from year to year too. In the third year of opening the homestay, Farrah’s revenues were not great. “It was for reasons beyond our control, but 2023 has been better than the previous year in spite of adverse news reports of floods, landslides, and heavy rains in Himachal Pradesh and Uttarakhand,” she says.

For Business Expenses: The property will also need regular expenses, which must also be budgeted for. Mandira budgets for maintenance, breakfast (her homestay runs on the bread-and-breakfast format) and staff costs.

Plus, one also needs to plan for unforeseen emergencies, like Covid-19. Mandira broke even in six months as far as operational costs were concerned, but the business took a hit during the Covid pandemic. The homestay is still reeling under the after-effects. “Earlier, I would always have foreign guests. Now that is not the case. And, hence, the income is not always sustainable. Also, I don’t get as many repeat guests, anymore” says Mandira.

Covering Your Bases

Test The Waters: If you are new at this, it’s better to test the waters first. “It is advisable to try and run the business while in the job to test the business model. That way, one can learn from ups and downs in the business while not having to worry about cash flow from business as the regular income from the job would take care of the expenses,” says Abhishek Kumar, a Sebi RIA, founder, chief investment advisor of SahajMoney, a financial planning firm.

For Jigmey, the transition was easy since he had sources of income. Farrah, too, has other income sources, which kept her going before the homestay turned profitable. “The first year brought in much less than the rental income. But by the end of the second year, we managed to earn much more than the rental,” she says.

Have A Plan B: Like anything in life, your best-laid plans may not bring the expected results, so it is always better to have a plan B in place. “Plan B should always be there as businesses don’t come with the luxury of certainty. Apart from putting a business plan in place, there should be an exit strategy, too, just in case things do not work out,” says Kumar.

A homestay at Gorkhey village, Singalila forest range, Darjeeling.

Starting a homestay is not simple but sustaining it could take more than you can imagine. When you start a homestay, you become a part of the greater hospitality business, and all the risks that come with the business, too. “Even one bad review can pull your ratings down considerably,” says Farrah. Mandira once let out a room to a person who turned out to be a fraud and she lost a substantial sum of money.

Also, events like Covid or natural calamities could mean that you do not get to host guests for months together, while continuing to maintain the property and paying your staff.

Farrah has a word of advice for those who want to take the plunge, “It’s a good alternative to simply renting out your property but do so if you have the capacity to take a little risk and have an alternate income to back you. Do so if you enjoy being in the hospitality business, have some basic housekeeping skills, and find pleasure and satisfaction in giving your guests a good stay!”  

meghna@outlookindia.com