Personal Finance

Old home – Charm or chagrin?

Meera Siva | Updated on November 19, 2019 Published on November 19, 2019

Homeowners are finding ways to generate returns by letting out their ancestral homes as homestays   -  Bijoy Ghosh

Heritage homes can be turned from a money guzzler into a money spinner

Own a pre-independence era home – possibly through inheritance? This can often be a money drain, with outgoes on constant repair and maintenance, yet without any potential upside in value. It may hence be tempting to tear down the home and build something that is hassle-free and in tune with the times.

But there is also charm in heritage homes, and with growing interest in experiential travel and stay, homeowners are finding ways to generate returns by fixing up their ancestral homes and letting them out as homestay.

Why do it

For starters, maintenance costs of large and old homes tend to be high — even over 10 per cent of the property price. So, you need to generate enough revenues from the home to pay at least a part of the upkeep. The bonus is that the property is occupied, reducing the risk of it falling into disrepair or being vandalised.

A key motivation of retaining an old home is to retain the history and tradition of the region and the family. For example, different styles — Chettinad, rajasthani havelis, Goan homes or Kerala-style houses — have unique features. Often, the traditional styles use eco-friendly material that make the homes more comfortable.

Additionally, owners may enjoy meeting new people and sharing the history and tradition with visitors. Also, as tourism generates employment, you can engage with and develop local talent.

Setting up

To get started, you need to ensure that the home meets some minimum requirements. For instance, it must be structurally safe; electrical and other systems must be checked for safety and any rewiring or upgrades must be done to avoid hazards.

You can take up other renovation work based on the property’s nature, location and your expectations on rent. For example, if the house is small — with fewer than, say, six rooms that can be let out — a cozy homestay would be the option. In this case, keeping it basic can serve the purpose.

However, if there are more rooms — such as in a palace or a fort — and the location is such that it will attract premium paying guests, you can consider grander fit-outs. For example, havelis in large cities of Rajasthan appeal to luxury travellers and can fetch premium pricing, upwards of ₹30,000 per night.

When starting a restoration project, be flexible with the budget as finding similar design and vintage materials is not easy and can turn be expensive. Also, work with experts who understand the history and the architectural style and will ensure that additions meld with the original design. For example, extensions such as bathrooms or installing air-conditioners must aesthetically blend with the home.

Running it

You need to pay for staff and for the day-to-day operations. About five helpers may be needed for cleaning, housekeeping and additional staff for handling visitor booking and enquiries. Calculate staff overheads and variable costs based on what you want to offer — for food, other services such as guided tours or cultural activities.

You must use different marketing channels. For example, travel agents — those who deal with local travellers and those who connect with foreign tourists — can be a good resource to recommend the property. Online travel sites such as Booking.com, Yatra, Makemytrip, and goibibo list places of stay. Also, local tourism sites such as Kerala Tourism list choices including homestays. These may be on fixed listing fee basis or a commission of 20-40 per cent to be paid on booking.

You need to ensure that the guest experience is managed well. People look at reviews on sites such as Tripadvisor and repeated negative comments and lower rating will hurt your occupancy and pricing.

Weighing in

The idea of re-doing a heritage home and hoping to get money from tourists sounds great, but practical issues must be tackled. One, if the occupancy will be seasonal — due to hot summer or heavy rains — think about how to manage costs such as staff salary. Make sure you factor in no more than 50 per cent average occupancy during normal season when making revenue projections.

Two, while the house may be a capital that is paid for, other expenses — such as for staff, logistics, sales — must not end up bleeding you. This must be run as a sustainable business, even if you are doing it for passion. Talk with other heritage-home owners to understand the issues and financial aspects.

Three, if you will not be able to stay and manage the operations, think critically about going down this path. Managers add to the cost, create revenue leakages, and open up legal or safety issues.

The author is an independent financial consultant

Published on November 19, 2019
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