Buying land and adding cabins for rent

[des999]

Hi all,
I was hoping someone could point me to some reading/research I can do before purchasing land in Southern Ohio (Hocking Hills).

This is a very tourist driven part of the Appalachian, and cabins can rent for quite a bit. 

I am interested in land, probably 10-15 acres and building a cabin or two to begin renting out.  I have a few friends that own cabins in the area, and seem to be doing well.

There is an 11 acre property I am looking at this week, septic and electricity (in a barn) are already in place.  There is also a test site for a pond (waiting on approval).

any suggestions, things I should look at/consider? 

I do have some help (contractor) with the cabin, so I think I can do it for a decent price.  I've also thought about throwing up yurts in the beginning and renting those out.  Columbus Ohio is about an hour North, and I know a lot of folks that love to come down and visit and hike in the area, and they would like the yurt concept, but some would also want a hot tub and nice amenities. 

thoughts?

[CowboyAndIndian]

Looks like you are in the early part of thinking through this.

Run the numbers, what does it say?
Some questions you will have to answer to know if its a good deal.

• How much for the land?
• How much for property improvement (pond, hot tub, etc)?
• How much to build the cabins?
• What are the expected property taxes?
• What is the going rate for cabins?
• What is the expected occupancy rates?
• Is this going to be a 4 season rental or do you just rent in summer?
• Do you need any licenses?
• Do you need to hire people to clean and prep for the next guest?

I may have missed a couple of things. All of your problems will be the same as running an Airbnb. Paula Pant had a great article on it (https://affordanything.com/the-airbnb-experiment-42-guests-1-police-visit-and-19000/).

Give more numbers and you will get a lot of advice.

[des999]

thanks you for the response, reading the link now.  I know those questions need to be answered, but I was thinking (maybe incorrectly) that I would decide on the land first, and then determine how best to capitalize on it.

If I look at it like that, just the land, how do you factor in whether it's a good deal.  Things like appreciation, opportunity for income (cabins, etc..), anything else?

The land is $99,000, so it would not be a big dent in my current situation, but I also don't want to throw money away.  I thought having the electricity and the septic would save a bit of money if/when we decide to build on it.

any other things I need to look at, or should I only be looking at this deal, if I can make the business of running rental cabins work??

[CowboyAndIndian]

thanks you for the response, reading the link now.  I know those questions need to be answered, but I was thinking (maybe incorrectly) that I would decide on the land first, and then determine how best to capitalize on it.

If you want to buy the land for yourself in FIRE, but you would like to monetize it before you FIRE when you cannot use it. Then it would make sense to pick the land as per your FIRE and personal requirements.

If you are looking for just monetizing it upfront(i.e as an investment), then you need to answer a lot of questions to make sure that it is a good investment opportunity.

You need to figure out which of the two above scenarios apply to you. I get the feeling that this opportunity has come your way and are trying to convince yourself that you can monetize it. Your gut is telling you it is a good deal but please run the numbers.

If I look at it like that, just the land, how do you factor in whether it's a good deal.  Things like appreciation, opportunity for income (cabins, etc..), anything else?

Find out the cost. $99k + closing costs + development costs (road, parking) + cabins. All costs for the business.
Next, find out what you can rent it. Get a number for the whole year.
Now, does it meet the 1% or 2% rule?

Now, this is in Appalachia. Not really sure that there is going to be any appreciation, but I could be wrong. Look at other properties and see how they behaved. Is the population increasing, are there any industries or jobs coming there?
Try and find a mentor who knows this business and can help you think thru the problem.

The land is $99,000, so it would not be a big dent in my current situation, but I also don't want to throw money away.  I thought having the electricity and the septic would save a bit of money if/when we decide to build on it.

any other things I need to look at, or should I only be looking at this deal, if I can make the business of running rental cabins work??

This statement makes me think that you have found the property and are now trying to convince yourself that it is a great deal if you monetize it. Again, it may be a great deal, but you need to run the numbers.

A good real estate investor is always looking for ideas. Read a few blogs. I think there are spreadsheet templates available to check if this is a good deal. The bigger pockets forum (biggerpockets.com) has a lot of activity. Read the articles and get involved in the community. After some time, you should be able to immediately find out whether it is a great deal or not.

On this sub-forum, there are a few stickied articles. Read those. One of them is https://forum.mrmoneymustache.com/real-estate-and-landlording/evaluating-a-rental-property/ which should give you an idea on how to get started.

[des999]

thanks again for the thought out response.  you are correct in that I am trying to 'make' the deal work.  but that is mainly b/c this is land that we would most likely keep in our family for years.  We would use it for recreation (4 wheelers, fishing, hiking, etc) whether we monetize it or not.

but, I still want it to be a good investment.  thanks again, I have some research to do.  let you know how it turns out. 

[Telecaster]

The calculation itself isn't really very hard.   Add up all the costs, and make an estimate for the income.   The inputs can be hard to figure out, though.    You can go on VRBO or whatever and figure out what similar cabins rent for.    You can even look at their calendars and get an idea of the percent occupancy rate.   But keep in mind most people only book a month or two in advance.   I imagine the winter and summer seasons are very different.   You want to get a handle on the yearly income.   

Keep in mind you are buying a job.  Nothing wrong with that, but you have to do all the bookings, set the rates, cleaning, maintenance, all that.  Or hire a management company to do it, but that comes at a cost.   

[harvestbook]

We're thinking something similar lower in the Appalachians (NC/VA), but we're looking at it as more of an eventual "forever home" property that perhaps we can monetize in the meantime. Under this scenario, similar to the one where you say you want to keep it in the family, then pure profit margin is not the driving consideration.

But we're under no illusions that just because we want a remote, natural setting, then others will pay to stay there for visits. We already have a second home we've never bothered to rent out because of the distance and hassles, so suddenly becoming real-estate moguls doesn't seem in the cards, even though I could do a lot of the work myself and my father can operate heavy machinery for infrastructure. Trying to turn a profit on a quarter of a million dollars this way instead of sucking up 5-10 percent a year in stocks seems kind of silly, but then it goes to the emotional attachment to the land. I'd rather own land than any other asset, because you can do stuff on it.

So I'd start with just the land purchase--would you still do it even if the rental idea never came to fruition?

[Car Jack]

My first thing to check would be insurance.  Get with a good agent and go through what you would need and what it would cost.

Next, you talk about hiking and 4 wheeling and such.  Is there state land open for this stuff?  11 acres isn't enough for more than a 10 minute walk or 2 minute lap in a 4 wheeler (I own 13 acres of woods, so can estimate this pretty easily).  If the activities are on private land, there's always the risk that it can be closed off or something built on it, closing it off.

[des999]

We're thinking something similar lower in the Appalachians (NC/VA), but we're looking at it as more of an eventual "forever home" property that perhaps we can monetize in the meantime. Under this scenario, similar to the one where you say you want to keep it in the family, then pure profit margin is not the driving consideration.

But we're under no illusions that just because we want a remote, natural setting, then others will pay to stay there for visits. We already have a second home we've never bothered to rent out because of the distance and hassles, so suddenly becoming real-estate moguls doesn't seem in the cards, even though I could do a lot of the work myself and my father can operate heavy machinery for infrastructure. Trying to turn a profit on a quarter of a million dollars this way instead of sucking up 5-10 percent a year in stocks seems kind of silly, but then it goes to the emotional attachment to the land. I'd rather own land than any other asset, because you can do stuff on it.

So I'd start with just the land purchase--would you still do it even if the rental idea never came to fruition?

This is very similar to our situation.  I guess I can't say for sure I would do it without some way to monetize it.  But, I would be willing to do it, even if it didn't meet the normal 1% rule.

We have thought it would be a good FIRE job, as it's only 20-30 minutes from our current location.  Having never done that kind of work, I can only make assumption on how much I'd enjoy it.  I do know my wife wants to build a home some day, so if we fall in love with the setting, this could be the place. 

[des999]

My first thing to check would be insurance.  Get with a good agent and go through what you would need and what it would cost.

Next, you talk about hiking and 4 wheeling and such.  Is there state land open for this stuff?  11 acres isn't enough for more than a 10 minute walk or 2 minute lap in a 4 wheeler (I own 13 acres of woods, so can estimate this pretty easily).  If the activities are on private land, there's always the risk that it can be closed off or something built on it, closing it off.

good points, I will look into that.  Also, I don't remember seeing a well, just electric and septic.  So that could be 5-10k.

[des999]

Keep in mind you are buying a job.  Nothing wrong with that, but you have to do all the bookings, set the rates, cleaning, maintenance, all that.  Or hire a management company to do it, but that comes at a cost.

this is the real question, I am looking for something to make some money and keep me busy in FIRE, and I am hoping this could be it.  But, I'd like to attempt it first, while making good income and minimizing risk while I decide if it's something I'd enjoy.

DW is excited and said she would rather run a rental business than do her part time job, so there's that. 

If the land itself is a good enough buy, I'd do it.