I've heard many untrue things about Short Term Rentals (STRs). "They are terrible." "They are easy passive income." "They aren't worth it." "You can't lose!"
Truth: having owned several short and long-term rentals, the truth is in between those statements, but I fall toward the side of short-term, ie. airbnb/vrbo. The money is better, it's easier on your property, and when done with a bunkie, it's cheap to start and the ROI is very high.
Do bunkies make good short-term rentals?
My particular method has been to build bunkies on land that I already own and live on, which happens to be over 50 acres in a very rural area. It's easier to finance a primary residence and add bunkies than to secure funding for an investment property.
There are two other advantages to this method. Firstly, the land itself is a sunk cost that I’m already paying for with a 30 year fixed rate mortgage, thus my return on investment is higher than it would be if I had to purchase land elsewhere. Now I get paid to live on my own property.
I've gotten about $25,000 per year so far (two years in) on an investment of about $40,000, at today’s prices. That is a very good annual return. Granted, some of that money takes a little bit of effort, like cleaning in between guests, but even if I pay someone else to clean and manage, I’m still something like a 40% annual rate of return, even after utilities.
Secondly, I can attend to any emergencies which might happen. I don’t pay a manager either, which means more money in my pocket. Of course if you don't want that headache, you can get it managed for about 15-30%. I personally like the money and don't mind. I like having work for my kids to do and getting hands dirty.
A Bigger Idea
But I also don’t want to see the STR’s from my house. If I built more, they would start to encroach on the family space, which I want to avoid. Thus I am also actively seeking the opportunity to build a bunkie resort somewhere else. Having run the numbers in great detail, I think three bunkies is the minimum I would want to start with, and preferably four.
That resort, which in my head is called “Bunkie Station,” will feature a mix of Hideaway 199’s with full lofts, a Rockwood 199 with a half loft, and a Sprucewood Lodge. If I did as much of work myself as possible, contracting out foundations, a well, septic, roofing, electrical, plumbing, etc., I should still be over 30% annual ROI in the first year, even with the purchase of the land.
Let’s say I was to hold onto that resort for two years, building up a client base and increasing booking rates, I could then turn around and sell that property to an investor, advertising a turnkey STR compound with a 20% rate of return, and a selling price that would be very profitable for me, and still attractive to the buyer.
Location, Location, Location
Of course, when you move from the rural context to the city, things change. Governments are very good at making things expensive, and by the time you get done satisfying their requirements, the bunkie might not make sense. But if you had an urban or suburban environment which was very friendly in terms of permitting and code compliance for small structures (ADUs), it might be the most lucrative thing you could do: a low cost of entry STR in the city.
Personal Advice
If you are interested in doing something like this yourself and want to talk to someone who has been at it for a while, definitely book a call. I would be more than happy to help you hope you game out the best scenario for yourself.
Keith
Appointments can be booked online here.