How to Start a Hostel

Finding The Right Location For Your Hostel​

How to Start a Hostel Series

If you are thinking about starting a hostel then this series was written specifically for you. In this series of articles we are going to attempt to take a budding hostel owner from bewilderment to clarity.

In the beginning of any big project there is always a phase where you know nothing about the path ahead of you and therefore have no idea where to take the first step.

The purpose of this series of articles is to elucidate a clear path from initial idea to opening and running. This is why we have broken the series into four sections:

  • Finding The Right Location For Your Hostel
  • Financing Your Hostel Business
  • Designing and Creating Your Hostel Experience
  • Hostel Operations

Once you have finished this series you will know exactly where to start on your journey and what the phases are along the way.

This first installment of this series is:

Finding The Right Location For Your Hostel

There are clearly many issues in when choosing the location of your hostel business but most of the issues can be split into two clear parts:
The location and the building itself.

Actual Location

Location, Location, Location… There is no single factor that determines the success of your hostel business more than its location.

The important thing to understand about location is that it depends on the location…. Ok, so what does that mean?

If you are in a small town then you need to be close to all of the attractions because people will not want to commute. If however you are in a very big and expensive city such as Hong Kong or San Francisco property prices will be so expensive that many budget hostels will be situated out of town so that backpackers can afford to stay there. As most big cities have good transport networks it will not be a problem for your guests to commute.

Here are a few essentials to consider:


Bars, Restaurants, things to do and see. If you are not close to these things your guests need to be able to get to them easily. Which leads on to the next point.

Transport Links

This is absolutely vital! The vast majority of your guests will not have their own transport and will be completely dependent on public transport, so you must be close to transport links. 

It isn’t however just about your current guests being able to travel, it is also about acquiring new guests. Some travelers will simply arrive at a bus terminal in the middle of town and just walk around until they find a place. Not only this but people will also look for a place “for the first night” that is close to where they will arrive (bus / airport terminal). Once they are settled in to your hostel they are not so likely to up sticks and move unless its necessary.


Backpackers hostels tend to be in inexpensive parts of town to keep costs down, however you can not operate a hostel in a dangerous part of town. Any foreigners are always a target but with a hostel you are especially exposed as there are new people coming and going all of the time and people can quite easily enter your hostel and take your guests belongings. Unfortunately this is quite common and is the reason why the majority of hostels do not let non guests into the hostel.

Many backpackers will be coming home late and often drunk, so if you are located in a dangerous area you will have continual problems and subsequently bad reviews.


This is a very general point but also very important. Hong Kong may be full of tourists but it is also full of hostels. It may seem counter intuitive to start a hostel in a place where there are not that many people but if there are no other hostels either you could be looking at a great opportunity. A good example of this is starting a hostel just outside of a national park or somewhere else that is out of the way yet very popular. In this way people will come and stay at your hostel the day before and/or after their trip.

You may only be catching 5% of the tourists passing through but if its a popular park and you are the only hostel this could easily be enough to keep your hostel full most of the time. Just be aware of seasonal changes, if the attraction is open all year etc.

A good way to quickly see your competition is look at all of the hostel websites in your area. Anyone who does not have a website will probably not be much competition.

The Acid Test

If you are not already familiar with the city, town, beach where your hostel is located then it may be a good idea to take the location acid test. This may sound like a long winded exercise but it will be fun and give you a profound insight that you could not get otherwise.

The acid test is to show up in the place where you plan to establish your hostel as a tourist. Arrive from outside on a bus or train just as a tourist would, and spend 2-3 days doing exactly what a tourist or backpacker would do.

This will give you a good idea of how the city looks to a tourist, which places “feel” like the hot spots and where you personally would like to stay if you were visiting. It gives you an idea of transport links, main attractions and where the nightlife happens.

Staying in a hostel you will meet other travelers and go where they go. You may find that the place that you originally thought was the place to be at night is not actually where travelers go.

The Building Itself

There are generally three ways to acquire a space for your business:

  • Rent a property
  • Buy a property
  • Build from scratch

We are not going to go into financing your business in this article as we will deal with that in the next section of the series “How to finance your hostel business”.

Here we will simply outline the pro’s and con’s of each option.

As a general rule if this is your first venture then you should definitely think about renting your first premises. The reason for this is twofold.

Firstly the odds that your business will succeed will not be stacked in your favor. Although this is often considered a negative attitude it is also a very realistic one. There is no point being stuck in a business, working all day just to lose money while you wait for someone to take the failing business off your hands. Many people have been trapped in this situation in all types of industries – don’t be one of them.

The second reason is that many people will go into a hostel thinking that they may have a similar lifestyle as they did when they stayed in a hostel as a guest. As many hostel owners will tell you this is often not the case.

It would be highly discouraged to start any lifestyle business before one has actually worked in that industry for someone else. With a hostel this is even more so the case as a lot of hostel owners/managers will live in the hostel and it is often a way of life rather than just a job.


Renting a property is a great way to get your feet wet in the hostel industry as it is the least commitment. It is however still a big commitment and unless you are renting an existing hostel business will require a fair amount of capital to set up.

As you will need to invest a reasonable amount of money in the business you must ensure that you have at a minimum a 10 year lease with the option of a five year extension. If your landlord kicks you out after five years you will struggle to make back your initial investments.

Having a short term lease also leaves you very exposed in terms of negotiating rent in the future.

Ideally you should have a fixed rate agreement so that you agree to a rate for the whole term of the agreement. Eventually this will run out so its always good to keep the lease agreement at least five years ahead at all times.

If the landlord can see the business is successful they may be tempted to raise the rent as they will have the bargaining power of taking the property back off you.

Obviously you will have to get a lawyer to write up a professional contract between you and your landlord. Do not involve yourself with any property without a good lawyer who is from the country the property is in.


All of the characteristics that a hostel needs will be outlined in the following section so we wont go into that here. Suffice to say that you will need to look for a building that has those characteristics or one that can be remodeled easily.

It is often the case that people will find a historic building full of character that appears perfect for a hostel business. The problem with old buildings however is that regulations can seriously restrict what can be done or make it very expensive.

Old buildings have the added dis-advantage of being difficult to remodel or change. The interior walls will be solid brick walls not partitions and the plumbing and electrics will be outdated and usually hard to get to making it incredibly expensive or nearly impossible to upgrade.

Building From Scratch

This is a great option if you have already owned a hostel business before and have the capital to make this a worthwhile investment.

The benefit of creating your hostel from scratch is that you can tailor it perfectly to the needs of a hostel. Very few buildings will come with the layout and facilities that a hostel needs.

Many reasonable sized rooms for the dorms and big open rooms for communal spaces is ideal. Bathrooms are rarely set up for hostels as the most efficient design is to separate toilets, sinks and showers whereas normally there will be a bathroom that contains all three.

Here is an interesting interview with a hostel owner in Kyoto, Japan. He started with a parking lot and created a 132 bed hostel. Interview with Nobu Tabata.

Characteristics A Hostel Will Need

  •  Dorms, preferably with en suite or at least a toilet and sink
  •  Open communal spaces where guests can mingle
  •  Big kitchen
  •  Dining area
  •  Reception area
  •  Outdoor space

A Note On Utilities:

The water pressure and electricity supply will need to be at a commercial level as you will have many people using the water at more or less the same time.
Many people now expect to have a power supply and light of their own next to their bunk. Due to this it is essential to plan the rooms out before you install the electrics.

There are many ways of organizing the bathrooms but an optimal arrangement is to have a toilet and sink in each room (shower if possible). Then have a communal set of showers, toilets and sinks.
If you have big bathrooms that contain all three someone could be taking up the toilet and the shower just to clean their teeth or shave. When people have access to a big bathroom they are likely to see it as a luxury and spend far more time than they would if the facilities were separated.


There are many things to think about when choosing a location and a premises for your hostel. We hope to have elucidated most of that here, for additional information there is nothing like meeting with a successful, established hostel owner at their hostel to discuss the daily workings and necessities of their business.

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