Managing Your Boarding House Business
As more Filipinos flock to cities to be closer to work, school, or find opportunities, demand for decent and affordable dwelling places has also grown.
That demand has become the reason why the establishment of boarding houses has proliferated across strategic areas. This includes locations close to schools and universities, large construction sites, public transport hubs, and high-density commercial districts of the city.
Owners of properties whose location is close to the areas described above can strongly consider a dormitory business to be a profitable and sustainable model to adopt. Catering to clients who prefer the low-cost, low-maintenance property with basic amenities, a boarding house business doesn’t need investment as huge as a rental apartment property.
But equally important to that enviable location is the selection of appropriate tenant. Ideal they are ones who receive regular income and responsible enough to look after the property’s upkeep and well-being. On-time rental payment is crucial not only to sustain profits but also to cover expenses such as property taxes and maintenance costs.
Why a boarding house is a great investment
As mentioned, the demand for residential units will ensure that there is always someone going to enquire for a room for rent.
1. Leasing your property allows you to receive recurring passive income from tenants who work or study near your location.
It may be a vacant lot next to your house or an extension of your residential unit, a boarding house can be built with less investment than a fully-furnished apartment for a family to rent.
2. The cost of maintenance can be minimal.
With proper care and a regular check for safety and worthiness as a dwelling place, a boarding house’s operating cost can be kept to a minimum. If the property is properly built with quality materials, well-planned design, and employ professional-grade workers, you won’t need to spend money on fixing a leaking roof, energy waste on lack of insulation, or hazards that the electrical inspector could pinpoint.
3. You don’t need capital besides your initial investment.
Unlike the carinderia business that needs capital money to buy ingredients to cook, nor sari-sari store that requires stock replenishing once depleted, a finished boarding house only requires one-off materials such as bed frames, showerheads, light bulbs or airconditioning units. Utility costs such as electricity, gas, and water will be paid for by tenants so you’ll only need to worry about license renewal, property taxes, and ensure your unit follows the city or municipal electrical and safety regulations.
Location, location, location
These are the most important factors in choosing a place to construct your boarding house.
If your location is near shopping malls, transport hubs, or universities, a boarding house becomes a hot prospect as tenants are willing to pay extra for the convenience they’ll enjoy. For every prospect willing to settle on a basic, bare-bone property to offer a good place to stay, some don’t have a problem forking more money so they’ll stay in a place that doesn’t require them to spend money on public transport or deal with the daily grind of traffic congestion.
Who are your target tenants?
1. Students or teachers. If you live close to a school or university, a student or a teacher are likely prospects to be your tenants. Students depend on the financial backing of parents or earn on side income, and teachers draw income from employment, so there is financial stability when you choose them as tenants.
2. Entry-level workers. These workers may include those in seasonal employment such as construction workers, or low-wage employees such as supermarket sales staff. As their income may be relatively low, such tenants may be willing to settle in a room with a few occupants in bunk beds, allowing you as a landlord to maximize your available space.
3. White-collar workers. For those who have more stable jobs and can afford to pay for more privacy and comfort, a decent room with ensuite bathroom, a small bed and cooking facilities may be more suitable.
4. Local tourists and event delegates. They are short-term travelers who wish to visit your area for attractions or events such as seminars or conventions. While not all will consider a boarding house as opposed to standard hotel rooms, budget-conscious ones will easily pick your place over other available accommodation.
Planning your boarding house
Assuming you have a 250 sq meter lot, and enough space to spare for additional dwelling facility, you can spend P1 million to P1.5 million to build a boarding house that features the following:
- 6-10 rooms
- 2-3 bathrooms
- Common area
It will also feature standard requirements for power, water, gas, and fire safety facilities.
The size and amenities of your boarding house will depend on the financial power of your target tenants. Therefore, prior research on a prospect is necessary. For example, if a nearby area has proposed construction of a large hospital building, you’ll consider accommodation for workers who will be employed while construction is ongoing. Once the building construction is finished, a new set of prospects — nursing interns or clinic staff — will take over.
Other associated businesses
A boarding house business can also be complemented with other businesses that tenants could patronize. This includes a cafeteria business that offers catering options, laundry and dry cleaning, and sari-sari business that focuses on needs such as school supplies and Internet cafe.
Risks associated with boarding house business
A boarding house business will engage with people who may have a different upbringing and different ways of thinking. This can be a cause of problems and risks.
Disturbance among young tenants
While students are expected to do well in school to succeed, there also those who could easily get in trouble with the law or perpetuate violence and crime in the vicinity. Such a cause of nuisance may be noise when involved in a drinking spree with friends, or worse involvement in drugs and petty crime. That is why it is very important to set house rules: who are allowed and not allowed in premises, maintaining cleanliness.
Involvement in criminal activity among those with a vague source of income
If you are unable to check the background of certain tenants, you may find out later that they are involved in activities that are against the law. Some folks are willing to pay a premium for privacy so their actions are away from prying eyes of the public. They could be involved in extortion, drug dealing, or robbery, and could disappear suddenly without prior notice.
They may pay their rent regularly but you might be more than willing to give up their spot for more deserving tenants. That is why it pays to do an adequate background check.
Risk of damage or accident
Some tenants have families with members who may damage the property or cause accidents at home. From scribble marks on the wall to risk of fire from unattended candlelight or misuse of a cooking appliance. Without proper guidance and safety measures such as smoke detectors, barriers for children, accidents could happen anytime. Lack of care and general neglect not only causes damage but also puts lives at risk.
Last but not the least are tenants who renege on an agreement to pay their rents regularly. Whether they have a hard time with their financial situation or they simply try to evade paying the rent on time is always a cause of headache landlords.
A boarding house is a business that generates profits with sustained occupancy. But this is also a product of serious attention to detail, market research and forecast, and of course leveraging that great location. While every property can adopt this business, some are more likely to succeed due to location, and a steady pool of tenants.