Is building a home in Brian Head for STR a good idea?

[Paul Sanders]

Years ago, I fell in love with the Brian Head Utah area as it's close to several national parks, skiing in the winter and lots to do in the summer. I tried to buy a place before the pandemic frenzy took off and was outbid on several properties. Instead, I settled on a property (raw land in a subdivision) on which I could build a home with the goal of renting it out and eventually retiring there (~15 years from now). However, the costs of building have also skyrocketed and with rates climbing I feel like I'm being squeezed out again. I've started the process of securing a conventional construction loan, have a builder lined up and am ready to go once the snow melts. I've researched the other STR's in the area using AirDNA and feel like it's a market that's growing but also seeing more competition coming into the area as a result. I've read through many starter blogs on BP, attended several webinars on this website, and tried to do my due diligence. I'd like to cover the mortgage and expenses of the property and use it a few times a year myself but am increasingly worried about the revenue being able to cover the costs due to rising rates and the large upfront investment of building the home. I have the equity in the property to cover the 20% needed for the loan and the DTI, but just barely.

Reading in the forums I don't see many investors following a similar path, typically instead purchasing an existing property.  Looking for some unbiased feedback on whether or not this approach is workable or too difficult for someone new to this whole process.  What advice would you share?

[Michael Baum]

Hey @Paul Sanders, so most of us buy an existing place and spruce it up. Building new is certainly a great way to go as you can design it for your needs, but I would be curious what the timeline to build is.

Some areas of the country have build times in the 18-24 month timeframe (Sedona and surrounding towns for example).

So existing homes in the area (not condos) are selling for a pretty penny. I looked at a 1/1.5 cabin listed at $699k. There is a pretty cool place listed for 1.2m that is $315 a sqft. There is a 4.9m place that is $900 a sqft.

What is the size you are considering building and the cost per square foot?

A quick look on VRBO has nightly rates all over the place, but a 3/3 is around $180 a night. You are also competing with the condos which can be had for much less. There is a 3/2 that sleeps 10 for $89 a night. Overall occupancy is around 60% for all units.