Building STR in Duluth / Two Harbors

[Micah Haworth]

Greetings Minnesota BP,

I am currently looking at options for starting some small STR in Duluth/Two Harbors area. My wife and I visit there often and always find that the Airbnb's are always booked, so it smells like opportunity! We would love to purchase a parcel of land up there and build a small cabin/home and see how it goes. The idea would be to buy 10+ acres so that if it does well we could build more and save on some of the utility costs. I would love to get some advice in the area of new construction and developing raw land in the Duluth/Two Harbors area from those who may have done it before or something like it. If you are located in the greater TC area I would love to even take you out to dinner to hear more of your story.

Many Thanks in advance!

[Bradley Eischens]

Hi Micah,

There are lots of variables here but this is what I know. I have lived in Duluth since 2014 and have seen quite a bit of change over short term rentals. The City of Duluth just approved of a new STR ordinance in October 2021 which is now more in your favor but that ordinance is for within city limits and it would be hard to find 10 acres that would make the financial numbers work there for a small house/cabin. Unfortunately you're a little late to get in on it, but Duluth did break ground on a tiny house development project in the summer of 2021 that awarded free lots to contractors to build the structures on and they might do it again in the future, so might be something to watch out for.

If you're looking outside of the city and up the shore where most of the tourism occurs, you might be able to find something more "affordable". When you get out there though you will have to look at county/township ordinances and codes. Which sometimes can be more stringent than Duluth, as in the case of Midway township where I live. See this map to find out who you'd be dealing with and look up their ordinance for info. If you get further up the shore into Lake County, they recently went to classifying STRs as commercial properties which make things a bit more convoluted. 

As for building costs, it is hard to say what materials would cost and are going to cost in the future plus all the variables of DIY vs hiring everything out. I can say from experience in rural St. Louis County you can expect a mound septic system (mounds are required) to be about $20k for a 3 bed house (just did one last month) and a well to be at least $10k depending on how deep you need to go, soil types, etc. Then I'd add $7-10/per foot (typ. around here) for any underground electrical/internet cables, if you run them in the same trench, otherwise overhead is cheaper. Then you'd be getting a rough idea of how much the property would cost before you even broke ground on the structure. If you planned to expand on the lot and build more than one structure it'd be you might have to build another system to support it. To save on costs until you know if your STR would be viable is to install a holding tank with a pumping contract and then convert it into a septic later.

All in all, I do feel the area offers great potential for STRs and I plan to rent out the tiny house (not on wheels) I built and currently live in when I move. The hardest part will be figuring out what you can and can't do on your property, which if you are familiar with construction, is nothing new. As with anything, I'd recommend watching the area for a while until you find a good deal before jumping in. I have seen some very over priced properties with acreage in the area over the past few years but every once in a while you will find a gem. One good option to save on acreage purchase I have seen around here is tax forfeited vacant land, they can be found on the county websites. 

Hope this information is helpful. Good luck to you.

-Brad