Help! Deciding whether to sell or convert to vacation rental

[J.Michael Edwards-Toepel]

Hello All!

I was gearing up to sell a home I own in Minnesota (I live in Arizona now), but after I listened to the most recent BP podcast I am very intrigued by vacation rentals and really thinking that I might be able to do better converting to a vacation rental. My plan was to take my sale proceeds and buy a number of cheaper properties in less competitive markets, but if I could keep the home in MN and make competitive returns it would be a no-brainer to keep it, assuming it doesn't become another full-time job.

My hope is to gain some perspective as to whether this is a good idea or not - and rather than a "yes" or "no", I'd love to hear your perspectives on how to model it out for myself. For example, I've been assuming I could average 20 days occupancy each month, but I really don't know what's "normal" or how to reasonably determine what to expect. I'm definitely taking a risk mitigation lens to this as well, since I have a mortgage to keep up with. In an ideal world I'd beat my revenue expectations for selling and buying in other markets, but I want to use (reasonably) conservative estimates to compare against what I expect to make with the other strategy.

Market analysis:

• Running some searches, I think a conservative estimate for rent would be $120 / night on average, not counting if I can add revenue for large parties
• Single rooms or 2-br bungalows nearby are ranging $70 - $100
• Oddly, I didn't notice a big price dip during the freezing winter months. Either demand stays relatively high, or no one is bothering with their pricing that far out (?)

Property attributes:

• 1862 sq feet
• 4 bedrooms
• 1.75 bathrooms
• 1 HUGE room on the top floor for dining and relaxing, great for big groups
• Another big living room in the basement (could easily put sleeper couches in both living spaces to increase max occupancy)
• Small kitchen - I assume this doesn't matter as much for this type of strategy (which makes it attractive!)
• Newish washer / dryer, both high end
• 3-season porch
• Big deck, nice back yard, fire pit
• Quiet cul-de-sac with a park at the end (very rare for the city it's in)
• Public transportation on the corner to just about anywhere in the metro with transfers
• 2 - 3 minutes from multiple major highways / freeways
• Walking distance (or close to it)to major mall (Southdale) and premium shopping (Galleria in Edina, MN)

Potential marketing points / targets:

• The home is < 2 miles from the Best Buy HQ, and public transport goes straight there
• About 10 minutes from MSP airport
• About 10 - 20 minutes from downtown Minneapolis, Mall of America, and most major concert or event venues in the city, and just a few minutes more from all of the same in Saint Paul
• Easy access to the west suburbs, which means access to things like Hazeltine GC (regular host to major golf tournaments, like the Ryder Cup this past year)
• Minnesota / Twin Cities are home to 17 Fortune 500 companies (http://www.twincities.com/2017/02/06/minnesota-has...)

I totally expect making this a vacation rental to mean it will take more of my time, and not necessarily a trivial amount. I'll definitely take this into account when I'm deciding what to do as well. Also, not being local, I expect to need to work with someone to be a face to my guests. From what I saw it sounds like AirBnB pairs folks like me with a "Co-Host", and I'd love any insight into how this works (or doesn't, or if I'm mistaken in how this might fill this need).

Please let me know if I'm missing any gaping points in my narrative, and I appreciate any and all perspective you can help me with on this! :)

[Peter R.]

In general I'd say 10/month is a good testing amount for when you first start.  With some good 5 star reviews and competitive pricing I think you could get to 15/month but 20+ is really repeat guest territory to get there.

On the cleaning service, the best cleaners I've ever found usually work for themselves or have one or two employees at most, and to be sure this will vary by region, but the big services (Merry Maids, etc) are my backups in an emergency only. 

Because, and this is a big difference, this isn't just a clean, it's a TURN.  Towels, linens, etc need to be washed and restocked/reset, not just cleaned and folded.  Soap needs to be refilled, toilet paper replaced, the refrigerator cleaned out, etc.

I've found word of mouth is the best bet, who do your neighbors use, they can tell you who shows up without fail, does a great job, etc.  

A test clean or two with clear expectations about what you want done, and on what schedule is usually enough to get to know them and try them out for a turn between guests.  I'm totally up front with people who clean, they know it's a short-term and they know ahead of time if there are going to be pets or lots of guests.  I usually send guest count, pet count and turn time at least a week out but usually 2 weeks out to confirm.

They also have their own code on my smart locks and my automation system (SmartThings) can be set to alert me when that code is used to open the lock.  

Worst case if they don't show (and you'll know, you can see lock history in real time) you can call up Merry Maids and give them a single day code to go do an emergency clean.

As to cost @Christopher Meis I'm paying about $25/hour for an average of 2.5 hours a turn on a two bed unit.  A little longer if the guests have pets.  That gets charged up front to the guests as a cleaning fee of about $100.  Between normal wear and tear on furniture, linens and such, I'd say that about evens out over time so that I'm not making anything on the clean, but probably not losing anything either.

Once you've got a cleaner you love things get MUCH easier on your stress level.  I don't even second guess it anymore and that's worth a ton to me.