Building a STR in a Crowded low-budget Backpacker/Tourist Hotspot

[Adam McIntyre]

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:

PROS

1. 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) 
2. 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.
3. 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
4. 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.
5. 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.

CONS

1. 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.
2. 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)
3. 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.
4. 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.

Cheers!