My spouse and I are seriously considering building a rental property on our land. We’re in the process of saving up and hope to buy a manufactured home shell in cash within the next few years. We plan to finish the interior ourselves to save money and list the home on Airbnb once the renovation is complete.
However, I’ve been a little worried that a vacation rental won’t do well in our area. We live in a pretty rural part of Michigan. So I’ve been wondering if we’ll be able to charge a decent nightly rate and keep our vacation rental full. Right now I’m in the research phase and am trying to determine if an Airbnb will be viable in our area. Here are some steps I’m taking to figure out whether or not this is a worthwhile venture.
Research, Research, Research
Before I commit to this business idea and build an Airbnb rental on my land, I want to make sure it will be profitable. So I’m taking my time and doing my research. One of my concerns is that there won’t be enough year-round demand in my area to maintain a high occupancy rate. To figure out if people are routinely staying in this area, I poked around on Airbnb and tried to find similar properties to the cabin my partner and I want to build. We think the cabin will be about 800 square feet and have two bedrooms and one bathroom, so I searched for comparable rentals in our area.
To get a rough idea of each property’s vacancy rate, I looked at past reviews. About 78% of Airbnb guests leave a review, so I used that figure to guesstimate how many guests each property has had. That enabled me to calculate a rough vacancy rate estimate. I also checked the booking calendar for the next few months to make sure demand has been consistent and hasn’t dropped off.
Use Airbnb Data Tools
I’ve also been using tools Airbnb data tools like AirDNA to gain more insight about the local short-term rental market. AirDNA shows you how many vacation rentals are in your area and what their average occupancy rate, nightly fee, and monthly revenue is. It also provides an estimate of rental demand in your town, which you can compare to other cities to see how your location stacks up. This can help you get a feel for whether or not your area is a tourist hotspot.
To my surprise, rental demand in my area is pretty strong. Although I live in a quiet, sleepy town, there are numerous year-round tourist attractions within a 30 minute drive. Many guests commented that Airbnbs in my area were centrally located in their reviews. I’ve also asked around and heard from several real estate agents and short-term rental owners that demand in this area is high and increasing every year. These are all promising signs that my area is a good place to own a vacation rental.
Get Proof of Concept
Because I’m not 100% sure if my Airbnb will be profitable, I want to get some proof of concept and figure out whether or not short-term vacation rentals work in my area. To test out this business idea, I’m planning to list one of the bedrooms in my house on Airbnb. This will give me some data about vacancy rates and demand throughout the year. I’ll be able to talk to guests and get feedback on the location before I build a rental home on my property. I can also ask them what they’d be willing to pay for an entire cabin on our land rather than just a room. This will help me estimate what I might be able to charge.
Keep Costs Down
If I decide to build an Airbnb, I’m also planning to keep my overhead down to increase my chances of profitability. I don’t want to buy a $200,000 lakeside cabin retreat and juggle a big mortgage while I’m building an Airbnb business. Dealing with the stress of having high overhead and a large amount of money invested into the venture would be too stressful. I want to lower my risk and overhead by building a small mortgage-free cabin on my property for under $50,000.
Additionally, I would manage the rental myself to lower my overhead. I don’t want to decrease my profits by paying a landscaper, cleaner, and property manager. I’m willing to put some sweat equity into the business and handle all these things myself so I can lower my costs and keep more of the profits.
Have you ever thought of running an Airbnb? Do you think an Airbnb would be profitable in your area? Let me know in the comments section below!
Vicky Monroe is a freelance personal finance and lifestyle writer. When she’s not busy writing about her favorite money saving hacks or tinkering with her budget spreadsheets, she likes to travel, garden, and cook healthy vegetarian meals.