Would you build a Vacation Rental from scratch?

Question

I'm in a situation I haven't experienced before and looking for some input.

My father owns 5 undeveloped acres on Long Beach Washington.  He was originally looking to sell it but I approached him with the idea of dropping a house on it and using it as a vacation rental.

He's open to the idea but neither of us have done development of this type before.

I know the questions we need to answer are:

• Financially, Is this is a viable plan?
• If it is possible, what type of building to do (BnB, single family home, multiple small cabins, RV park?) 
• Property Management (He lives in Japan and I'm in Utah)

If anyone here has done this type of development before I would love to hear your input.  Or, if any of you know folks in the Long Beach/Astoria area who you could connect us with I would greatly appreciate it.

Andrew Fielder · Answer

@Micah Starbuck the first thing a developer will do is look at the highest and best use for the site. If it's zoned single family you may want to look into sub-dividing the land into smaller lots. Developers/investors that aren't experienced in the area often get a highest and best use report done to help them determine this as it includes info about the planning controls and what you could build there.

Then you have to look at the returns. If you want something that cash flows that's fine but you may also want to consider selling it and putting the money into the next investment. At the end of the day it's up to you what you want to do. That's the beauty of development, it's all about your total return, so whether that's income return or capital gains or a combination of both you can make good money from it if you do it right.

John Underwood · Answer

I would definately build more than just a SFR. I would do some online research for that area and see what is staying booked and for top dollar. I would check homeaway and VRBO as a starting place to do the research. Maybe check with some Vacation rental Property Managers and RV parks to get there feedback.

What would make the most cash flow now and what will be worth the most 10 years from now?

John

What would make the most cash flow now and what will be worth the most 10 years from now?

John

Andrew Fielder · Answer

@Micah Starbuck if you wanted to get a report done, it's usually best to go with a local company, such as a development management company or urban planning company. Being from California I wouldn't know who's the right people there. Maybe just google it and call 3-5 companies and get a quote for it. I would say realistically it should cost $2-3K but it might cost upwards of $5K depending on how thorough the report is.

You could still look into subdividing. Find out the minimum lot size and divide that by the number of acres. So you could potentially have multiple SFR on separate lots. Just something to think about, also might be smart to try and contact a local independent developer and get their thoughts on the site and potentially bring them in as a partner.

Lynn Burson · Answer

Micah we do build VRs on/near the beach in Destin/SoWal.  My business partner has been doing this for a while but the area will ultimately determine profitability.  We do large homes for several families, events...

Local banks are your best bet via portfolio loans.  Off season is very important as to how well this concept will work... Peak season pays bills,... but the off season determines your profit IMHO.

Micah Starbuck · Answer

@Andrew Fielder Thank you for the information.  I was not aware of Highest and Best Use analysis/reports.  I will have to look into obtaining one (and if you have a recommendation on a provider I would appreciate being pointed in their direction).

The property is zoned RR so that limits what can be done with it.  Only single family dwellings with out buildings are allowed so that could rule out a series of tiny houses.  A B&B style house might be OK though.

There's also agricultural things you can use the land for like timber harvesting, growing fruits/vegetables and livestock grazing so even if a vacation rental wouldn't work it might be possible to rent the land for agricultural use.

Micah Starbuck · Answer

@Roger Vi Sounds like you and I have the same kind of ideas.  The low occupancy time is certainly a concern but people out there manage to do it somehow.  The idea of micro-cabins has certainly crossed my mind.  There's actually a place in Long Beach called Shakti Cove that's exactly like that.  Little studio log cabins people can rent with a kitchen, bedroom, bath and living room.  I stayed there years ago and really liked the idea.  A group of 5 or 6 "tiny houses" could do the exact same thing.

No real premium features to the property other than the proximity to the beach while being very private.  If someone wanted a quiet get-away to the ocean this would be a perfect area for it.  It's close to everything Long Beach has to offer without being directly in the heart of the tourist area.

@Timothy Daniels Regarding the zoning, I don't know the actual zone (will try to find out) but I do know that the parcel can't be subdivided or have a multi-unit home built on it.  Not sure if that excludes a B&B style home since it's just a standard home with more bathrooms than usual.

I do know that the property is not waterfront.  Wish it were but no dice.  The good news is that it is directly adjacent to the state park on the north side of the peninsula.  Also, being Long Beach, you're never more than 5 or 10 minutes from the water so while you can't walk it's not far away.

Timothy Daniels · Answer

Are you waterfront?

Timothy Daniels · Answer

Keep me posted. much of the rural development in our county is R-5...5 acre minimum.  Are you in an Urban Growth Area?  If so, zoning can be improved (for your purposes).

Roger Vi · Answer

I live in Everett and have looked into vacation rentals on Island County for the last 2 years, mainly running numbers and day dreaming.

My main cause for concern is the 180 day low season from October-March. Most vacation homes drop their rates 50%+ during this time and still can't get booked. I book a yearly getaway to a water/beach front Vacation home on Whidbey Island every December for this reason. This makes it so you really have to be on top of your game during the high season to squeeze every dollar out. It can be done, but it is far from a passive dollar.

Upside is the demand is very strong during the high season. I have to add that I only focus on premium properties (water-front, better-than-average design, short drive to store) and have noticed even the "B+" properties don't guarantee everyday gets booked during high season. The premium properties seem to go quick every year. From what I noticed, a couple hundred extra a night is nothing to this market, they come from all over the world and are definitely willing to pay for the experience.

Last thing I will add is I've always dreamed of building a bunch of environmentally friendly micro-homes on a piece of waterfront land around here. I think there is plenty of demand for $100/night huts where people can stay warm, star gaze, hear the water, and start a fire away from the busy city. Search "micro-home" on youtube and you will see plenty of ideas for this sort of thing. People put a living room, an office, a bedroom, and a bathroom in 150 sqft its crazy!

Good luck on your venture and please keep us updated! Also, could you tell us more about your land? Is there any premium amenities/features or attractions nearby?

Micah Starbuck · Answer

@John Underwood Thanks for the recommendation for Homeaway and VRBO.  Other than AirBnB I wasn't aware of other short-term rental listing sites.  I'll have to check them out.

Would you build a Vacation Rental from scratch?

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