Author Topic: Building a cottage for rental  (Read 3571 times)

catccc

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Building a cottage for rental
« on: May 21, 2015, 02:31:46 PM »
There's a tiny (1/10th of an acre) plot of land in my small town that is listed for $15K.  I kinda want to buy it and put something unconventional on it.  A yurt.  A tiny house.  Or more conventionally, a cottage of sorts.  Probably rent out.  I know nothing about building structures (except maybe magnatiles on the living room floor with my kids).

There are a few bed and breakfasts around and our little town does attract some tourists.

Our 3 br, 1.5 bath, maybe 1100-1500 sqft "twin" rents for $1,200.  (We are the renters)  I think that is kind of a deal in this town.

This is a bit of thinking out loud/random daydreaming.  I guess I don't have any specific questions, but any thoughts?  Good/bad idea?

waltworks

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Re: Building a cottage for rental
« Reply #1 on: May 21, 2015, 02:50:43 PM »
What do construction costs run, how much would you expect to get in rental income, etc?

You can't get any sort of meaningful answer if you have done zero homework on what it would take to do this. In general new construction is too expensive to make SFHs worthwhile as rentals, but it could be that your area/situation is an exception.

-W

There's a tiny (1/10th of an acre) plot of land in my small town that is listed for $15K.  I kinda want to buy it and put something unconventional on it.  A yurt.  A tiny house.  Or more conventionally, a cottage of sorts.  Probably rent out.  I know nothing about building structures (except maybe magnatiles on the living room floor with my kids).

There are a few bed and breakfasts around and our little town does attract some tourists.

Our 3 br, 1.5 bath, maybe 1100-1500 sqft "twin" rents for $1,200.  (We are the renters)  I think that is kind of a deal in this town.

This is a bit of thinking out loud/random daydreaming.  I guess I don't have any specific questions, but any thoughts?  Good/bad idea?

Another Reader

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Re: Building a cottage for rental
« Reply #2 on: May 21, 2015, 03:34:59 PM »
What is your twin house worth?  Or if it's an unsubdivided duplex, what's the duplex worth?  One possible reason the sellers are only asking $15k is the lot is not large enough to be buildable in the eyes of the city or county.  It never hurts to call the number on the sign and ask what uses are allowed on the lot and if anyone has approached the city/county about building something there.

Northerly

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Re: Building a cottage for rental
« Reply #3 on: May 21, 2015, 04:21:27 PM »
Fortunately, you don't have to speculate on much. Research comparable rents, construction costs, debt service, area vacancy rates, utility costs, permitting costs, zoning, etc., run the numbers, add some margin for "shit happens," and you'll know whether it's a go or not.

kib

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Re: Building a cottage for rental
« Reply #4 on: May 21, 2015, 04:24:00 PM »
+1 on zoning.  How big the plot has to be and what you are allowed to put on it are primary questions before you even look into whether it would be possible from a finance or construction standpoint.

wordnerd

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Re: Building a cottage for rental
« Reply #5 on: May 21, 2015, 05:19:17 PM »
Not sure what the landscape is like, but this treehouse rental is very popular in Atlanta: https://www.airbnb.com/rooms/1415908

catccc

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Re: Building a cottage for rental
« Reply #6 on: May 22, 2015, 08:40:14 AM »
Thanks all for your input!

Not sure what the landscape is like, but this treehouse rental is very popular in Atlanta: https://www.airbnb.com/rooms/1415908

Yes!!!  This is the kind of feedback I was looking for, unique ideas.  That is so cool!  Thank you.  Maybe a yurt or a tiny house is the way to go...  It's not quite treehouse cool, but it's different.

You can't get any sort of meaningful answer if you have done zero homework on what it would take to do this. In general new construction is too expensive to make SFHs worthwhile as rentals, but it could be that your area/situation is an exception.

A yurt.  A tiny house.  Or more conventionally, a cottage of sorts.  Probably rent out....

This is a bit of thinking out loud/random daydreaming.  I guess I don't have any specific questions, but any thoughts?  Good/bad idea?

Thanks.  I wasn't really looking for hard numbers as a "meaningful" answer, and was trying to think outside of the box.  Just trying to get some ideas.  I agree that a full-blown SFH wouldn't be a good idea.  If I were to have a go at more conventional landlording, I'd just buy an existing property.

+1 on zoning.  How big the plot has to be and what you are allowed to put on it are primary questions before you even look into whether it would be possible from a finance or construction standpoint.

It is zoned for residential or commercial use, so I expect it would have been approved for some type of structure.  I think we would just pay cash for it?  I know interest rates on land only, and non-primary personal residence, tend to be higher.

What is your twin house worth?  Or if it's an unsubdivided duplex, what's the duplex worth?  One possible reason the sellers are only asking $15k is the lot is not large enough to be buildable in the eyes of the city or county.  It never hurts to call the number on the sign and ask what uses are allowed on the lot and if anyone has approached the city/county about building something there.

I've never bothered looking into the value of the house we rent in the 4 years we've been there.  (I did state in my original post, but not sure if it was noted, that we are the renters, not the owners, of our residence.)  It's a SFH that has been split into two rentals, an unsubdivided duplex, I guess.  Our 3br/1.5 ba on one side, and I think a 2 br/1 ba on the other.  It's zestimate is $230K.  Our side rents for $1,200.  From what I've seen, that is about $200 less than comparable properties rent for.  (Our landlord has not raised our rent since 2011 when we moved.   We are good tenants- always pay timely, rarely ask for anything, and take care of the place and resolve small maintenance problems well on our own.  Pretty sure there is no mortgage on the place as they grew up in this house.)

Fortunately, you don't have to speculate on much. Research comparable rents, construction costs, debt service, area vacancy rates, utility costs, permitting costs, zoning, etc., run the numbers, add some margin for "shit happens," and you'll know whether it's a go or not.

Oh, definitely.  I'm an accountant so I love to run numbers.  Just thinking big picture stuff right now, not details quite yet...

Another Reader

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Re: Building a cottage for rental
« Reply #7 on: May 22, 2015, 09:09:28 AM »
What it is zoned may be irrelevant if the lot is considered unbuildable.  Call the City planning/zoning office and get the information about all the permitted uses plus minimum lot size, setbacks for any structures, off street parking requirements, etc.

Have you looked at any other lots that have sold recently or are for sale?  I would not write any checks until I had a thorough understanding of the permitted uses for this specific lot and an idea of the lot's market value.

helgajones

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Re: Building a cottage for rental
« Reply #8 on: June 03, 2015, 12:20:32 AM »
That seems like a brilliant idea. Upon buying the land, you should put up a cottage house or a simple hotel. You should have it remodeled in the best way travelers will be attracted. You should also have a perfect landscape outside of the house or hotel that you will build. You just have to be creative in order to achieve the best results that you want.

Dicey

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Re: Building a cottage for rental
« Reply #9 on: June 03, 2015, 02:12:14 AM »
That seems like a brilliant idea. Upon buying the land, you should put up a cottage house or a simple hotel. You should have it remodeled in the best way travelers will be attracted. You should also have a perfect landscape outside of the house or hotel that you will build. You just have to be creative in order to achieve the best results that you want.

The land in question is one tenth of an acre. Not likely that any amount of creativity will get you a lushly landscaped, fully permitted hotel, except possibly one for discriminating travelwees.

http://www.thefrugalgirl.com/2015/05/this-is-a-travelwee/

money_bunny

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Re: Building a cottage for rental
« Reply #10 on: June 03, 2015, 04:51:04 AM »
I'm going to be the negative guy here.

What's your exit plan?