Vacation rental idea

[imustachemystash]

Hi.  I was hoping for some feedback on an idea.  I put an offer on a cabin on an acre of land close to a popular hiking and vacation area.  The mortgage, insurance, and taxes run about $515 per month.  I can get around $125/per night renting it out. 4 months out of the year it will book pretty solidly (at least 20 days/month).  Those months alone will pay for my cabin expenses.   It's 2 hours from my house so we would hire a PM. 

Okay, there is more to my idea, and this is what I need more feedback on... Since there is an acre of land, what if I bought 2 or 3 tiny houses for about $30,000 each and rented them for around $100/night.  If I started with 2, they would pay themselves off in around 4 years.  The pros are that since they are considered  RV's they would not need permitting.  Also, there are a lot of adventurous people that visit this area and I think they would be open to staying in a tiny house. 

It is a bit risky though since there aren't a lot of business models of this sort to study.  That's why I'm seeking your input.

[OneDollarAtATime]

If these 'tiny houses' are RV's, would you even need a property manager? 

I think PM's are required to have realtor licenses.  I'm not sure if / where RV's fall in that category.

[sokoloff]

Someone has to deal with the keys, turnover, cleaning supervision, etc. right?

Two hours away for nightly/short-term rentals. I think OP needs a local PM.

[OneDollarAtATime]

Keys are easy now -- install the ones with numbers on them and give each guest a pass code.  Change the code remotely (so people can't stay extra).

Cleaning...cleaning crew, give them a master code for entry.

I would agree that a licensed PM is best (they'll do a better job managing and marketing the property) but it would also be okay if another trustworthy source (family / friends) in the area managed the property.  I'm just thinking in terms of cutting costs -- my experiences with PM's (for a friend's luxury property that I marketed) is they charge all sorts of 'nickel and dime' fees, mark up cleaning fees, etc. but I guess my experience could be different than most others.

Is this property in the Cle Elum area, by chance? 

[Argyle]

Are the tiny houses going to have plumbing?  Many of the ones you hear about don't have actual bathrooms and toilets with running water.  I think that would detract significantly from their rentability, not to mention that cleaning out the latrines would be deeply unpleasant.  Or does your $30,000 cost including getting running water and a septic system?

And is there really a market for tiny vacation rentals?  I suspect they'd have to have a concomittantly tiny rental price to make them attractive.  I wouldn't pay $100 per night for a tiny house when I could get a regular-sized house for $125.

[imustachemystash]

Thanks for the feedback so far.  The property has a well and a septic.  The septic is only for a 2 bedroom home, so I would either have to build a new septic (in addition to the $30,000 per tiny home), or see how they rent out with a composting toilet of some sort (that might be part of the tiny home experience).  Rental homes in the area are scarce so I think I could get $100 per night.  The property is in a town right outside the entrance to a national park, so there are a lot of people looking for a place to stay.

I was thinking about interviewing a few property manager companies to see what services they provide and how much they charge.  I also have a friend who lives in the area and she cleans other vacation rentals.  Maybe I could ask her to clean mine and I could do the booking and key stuff remotely.  Thanks for the idea with remote key's OneDollar!

[DoubleDown]

I like your thinking. Now, no offense intended, but I think your expected gain is way off. I really recommend doing a lot more research and math. I'm basing this on you mentioning you could get 80 nights of rentals at $100/night each year, and that would pay off your initial investment of $30,000 in 4 years -- I.e., that you will earn $8000/year for four years = $32,000. This is incorrect on many levels:

1. Even if you get your optimistic rate of $100/night, you will not get to keep anywhere close to that. You might be lucky to keep $20/night of that after expenses are considered. RE experts suggest using a "50% rule" for long term rentals -- short term rentals will have much higher costs due to daily cleaning, key turnover, management, excessive wear and tear, advertising, insurance, transient rental taxes, vacancy, etc. Note that this excludes any financing costs (that is, if you have to carry a mortgage, that is even more off your bottom line).

2. If a full house rents for $125/night, I think $100/night for a tiny house is severely over-optimistic. I'd suspect maybe $80/night as the maximum you could get, lower if there are other alternatives for couples or single travelers like hotels and B&Bs.

3. Septic and wells for the additional houses will add a lot more to your initial investment, maybe $10-20k +.

4. You must also consider the opportunity cost of your invested money. If you invested $80k (two tiny houses plus septic/well) in an index fund instead, you might realistically expect a 7% average annual gain. That's around $6k annually with no work at all required. If you can't make more than this in cash flow by doing these short term rentals with higher risk and significant work, it doesn't make sense to even consider.

5. Finally, what happens when you eventually want to sell? Will you find lots of interested buyers to buy this property with several tiny house rentals on it? Presumably no one will want it unless it's a wildly profitable business, but if it's wildly profitable you wouldn't likely sell anyway...

Anyway, good luck, just think carefully about the real numbers involved in the possible venture.

[lakemom]

Aside from the tiny house question you need to rethink your mindset.  You aren't running a hotel with rooms rented by the 'night' you are offering your private cabin for weekly rental during the high season.  Do not get bogged down in the nightly fee but shop your competition and find out how much you can get per week (my family just rented a 2 bed 2 bath house on a reservoir and paid $2,600 for a week, 7 nights).  The last house we rented was a 3/2 where lakefront homes were more abundant and we paid 1750 for the week for that house.  During high season (usually june july august with all or parts of may/sept thrown in depending on the area and local attractions) you ONLY rent by the full week and then decide if you will do nightly in the off season but I'd still recommend a minimum of a 2 night stay to make upkeep/cleaning easier.  Sounds like you are buying the cabin for "you" and the rental will be to offset ownership costs, correct?  I'd be doing some serious research into the local laws regarding renting out the home AND the vacation rental market in the area as well as the vacation rental market in general.

[imustachemystash]

I just wanted to update this post.  I backed out of the contract because the seller was unwilling to negotiate on the inspection red flags.  Thanks for everyone's input.