Hi everyone, so glad to have discovered this forum. I'm looking to get some feedback on my plan and potentially make a start into the world of real estate.
I am looking to build my first vacation property which I will use partly as a home for 3-6 months of the year, and the other 6-9 months hopefully rent out on AirBnb.
I will build a two bedroom property so that even during periods that I am using it, I can still rent out a room to cover my running costs. Also, when it's listed on Airbnb full time I have the option to offer 2 private rooms and a sofa bed if renting the entire place doesn't work out.
The house will be in Pai, Northern Thailand. I'm going to build something like this. Including land, my architect says it can be done for $100-$120k cash.
My concern, however, is the market.
The whole of pai is largely a market of low-budget backpackers paying $6-10 per night to stay in ****** hostels. There is also a small but very well catered for luxury market of 5* hotels. Overall, I'd say 90% of the total visitors to Pai are tourists, with the other 10% expats and locals from the nearby city of Chiangmai taking weekend trips.
I will be building this property with the majority of my available cash, so I want to make sure I can earn at least $1,000/month profit when I'm not using it ($2k+ would be the goal). (I recently sold a business and now I'm in the icky middle phase where I have to figure out how to make money again)
So I've been weighing up the pros and cons:
- I love Pai. I love spending time there. Living in Pai for 3-6 months of the year without needing to pay rent is a massive thumbs up (especially when I'm not earning an income right now)
- Currently Pai tourists are catered for by either cheap hostels or high end hotels. There is no inbetween modern short term rental properties with nice kitchens, living rooms etc. I feel that if I build it, they will come (or, they're already there with nowhere to book). Personally one of the reasons I've decided I want to build a house there is because I'm tired of having nowhere I can rent short term that's high enough quality.
- At the very worst, if I had to rent the property out full time it should be able to rent to someone for $1,000/monthly
- If I can offer accommodation for 6 people (2 double beds and a sofa bed), at $100/night that's still only $16 per person which would almost compete with hostel prices to groups of travellers.
- Pai is a huge tourist destination and it is only growing. The local government are working on upgrading the airport so larger planes can land (currently only 12 seater single engines can) and the 3-hour road from the next major city has recently been upgraded. There's certainly no shortage of travellers to attract.
- There are so many cheap hostels and cheap hotels here the government recently stopped giving planning permission to hotels until further notice. There is a lot of competition on the low end and the high end.
- As a foreigner I can't actually own the land my house is built on. (it's in my missis' name and leased to me for 30 years but still a risk worth mentioning)
- If my gut is wrong and there isn't room for a middle-market short term rental, I'm down a serious chunk of cash.
- Pai is reliant on tourism. If tourism drops for whatever reason (military coups, bird flu, earthquakes, typhoons etc) I'm screwed.
The one overriding factor in this debate for myself is that I love Pai. However the investor inside me wants to minimise risk. But I also see this as an open market. The nearest AirBnb in quality (imo) charges $25/n and is booked out constantly. I've stayed there myself and it looks good but it's only acceptable for a night or two. It's not a home.
I have a feeling that once I commit and do this, I'll be so booked out that I'll think "why did I ever worry?". But feedback from professionals like you folks is always a smart idea too.
Maybe you can share your worries when you started out? Where they ill founded or not? Or maybe you can simply poke some real good holes in my plan.
Just because you have 6 beds in the house doesn't mean you are going to get 6 paying warm bodies in the house. I know this first-hand. I have 82 beds in 22 STRs. When rented, 90% of the time I have 1 or 2 people staying in a 2 bedroom house with 3 beds. When rented, 90% of the time I have 2 or 3 people staying in a 3 bedroom house with 4 beds. When rented, 90% of the time I have 3 or 4 people in a 4 bedroom house with 6-9 beds.
I'm guessing with the demographics of your tourists, you will be renting it out to 2 people at a time most of the time. 2 friends or a couple. In this scenario you will get around $25/night. Maybe $40.
$25 x 30 = $750/month before utilities before utilities and expenses.
$40 x 30 = $1200/month before utilities and expenses.
Knock a few hundred off those numbers for vacant nights, so you are looking at between $500 to $1000 a month.
Who is going to clean the place between stays? Is there local competition that can undercut your prices. Is it possible that govt regulations may interfere with your plan? If the government doesn't give you problems, how are you going to deal with the local organized crime if you are stepping into their territory?
If it was me, I would not venture into this venture. I would do this in a market where a few other people are doing it successfully and it is a proven method or strategy. It is unproven in your situation. Perhaps if you did additional research you can find someone else doing what you intend to do and you can take a general model of their plan and add your refinements.
Paul, thanks for the reply. Definitely some food for thought.
"..Just because you have 6 beds in the house doesn't mean you are going to get 6 paying warm bodies in the house.... with the demographics of your tourists, you will be renting it out to 2 people at a time most of the time. 2 friends or a couple. In this scenario you will get around $25/night. Maybe $40."
My target is to the rent the whole place, not individually. I'm just saying that if I had to go per-person for whatever reason, I have that as backup. Ideally I'd rent out for at least $100/night, which would still be cheaper than the local high-end hotels and just a bit more per-person than a shared hostel.
You're right to call out the current market demographics though - currently it is just cheap backpackers or luxury high-end travellers. I want to target the demographic in the middle, which I feel isn't currently catered for. To me a gap in the market is good, but I've never played with real estate before.
"Who is going to clean the place between stays?" I have some friends with local staff who can cover cleaning / maintenance.
"Is there local competition that can undercut your prices." Ideally I don't want to undercut people. I'd prefer to provide higher quality accommodation for slightly more/the same price as competitors over entering a race to the bottom.
"Is it possible that govt regulations may interfere with your plan? If the government doesn't give you problems, how are you going to deal with the local organized crime if you are stepping into their territory?"
Nationwide government changes could cause a stir, but nothing locally. In fact Thai authorities in one province did come out and say any foreigners renting their condos need to acquire a work permit. I think this'll go nationwide soon.
One way I'd like to try and counter attitude changes against Airbnb / STR is by branding my property, creating a website and marketing it independently. Then if Airbnb is banned, I still have some goodwill. I will also run my rentals as a local company too so if I need a hotel license I will do that too.
I have a lot of experience with AirBnB, so I'll try to offer some insight. In my market (college town, population 250k, not much draw besides the university/college football games) we manage to stay pretty booked up on AirBnB. Our occupancy rate can range anywhere from 60-85%. That's definitely a big swing, but we just acquired a new AirBnB property that we began renting this month, so we're still working on adjusting rates properly. Anyway, one rental is a single room in our house, that rents for about $40/night or $75/night on weekends. It's a nice space with private outside access, private bathroom, and fridge/microwave. We have had many people stay here for weeks or months at a time. The other rental is an entire home, a 2/1 that rents for $65/night or $90/night on weekends.
Most people traveling on AirBnB are thrifty, so I don't know that $100/night would work with so much competition around. If you did separate rentals at $50/room, that might work and appeal to mid market people. This still gives you the $100/night that you want, but is much more reasonable to thrifty travelers. Most people there are probably there for at least a week so $100/night is a bit much. If each bedroom would have access to their own bathroom, this would probably work really well. If it is a shared bath, your rate may need to be a little lower. You can put a statement on your listing that the full place is available as well, and groups may send an inquiry for booking.
I am extremely frugal but would still definitely be willing to pay $50/night for a nice, comfortable place over a hostel. You'll probably see a lot of people in their 30s-40s who do not want to stay in a hostel, but are also unwilling to pay high resort rates.
I think this could work for you, especially if in an area frequented by travelers/tourists. Also, one trick to add a little cash cushion in case of low bookings - add a cleaning fee of $10-$20 (this is total, not per night). This works well because if someone is staying more than a couple nights, that's not much additional money on a per night calculation. Also the cleaning fee can detract short term (1 day) bookings, meaning you get longer reservations, and spend less time with turnover (laundry/trash/dishes, etc). AirBnB doesn't include the cleaning fee when initially viewing rates so it will just show $50/night and people will think it's a great deal, then after they get started with the booking, they will see the cleaning fee. I know I have found places before and got my heart set on them before seeing the cleaning fee, so usually I just accept it. $10-$20 total isn't much to add to a booking.