5 Acre Short Term Rental Property near Yellowstone

[Colin Burke]

Investment Info:

commercial investment investment.

Purchase price: $420,000
Cash invested: $300,000

I bought the town of Pray, MT which includes a defunct general store/post office, a 2500 sq.ft. house, hookups for 4 trailers, and a functioning post office which pays rent, on 5 acres. It's located minutes from the Yellowstone River, hot springs, and a popular lodge for weddings. It's situated on a very main corridor to Yellowstone National Park, which sees 4 million+ visitors a year- all traveling by car or RV. We've converted house to duplex and are currently building log cabin rentals.

What made you interested in investing in this type of deal?

I originally was interested in house hacking where I lived in Bozeman, MT. However, the town has seen a massive influx of residents, and the market is saturated with overpriced properties. My broker was able to send me some interesting properties, including this one. We saw the potential to build cabins where the trailer homes used to be and hook up to the utilities. Also, this area/county is extremely un-restrictive as far as STR's go. This property had no zoning, no covenants, no rules!

How did you find this deal and how did you negotiate it?

My broker had an eye on it. This property was originally listed 10 years prior for $1M more than the asking price. It made headlines, as the agent was marketing it as "Buy your own town in Montana". We were able to negotiate the price down $30k by pointing out septic issues, and knowing it had been on the market for so long.

How did you finance this deal?

I secured a 2 year short-term loan for $650k and bought the property in cash, with a balloon payment at 2 years. At that point, I'll be refinancing with a commercial bank loan.

As the renovations and cabins have far surpassed what the original estimates were, I have been putting all my expendable personal income into this project. I work in IT as a consultant/project manager.

How did you add value to the deal?

We've converted the single home into duplex, living on one side, and are in the process of adding two log cabins. We will have built three total cabins by the time the commercial loan takes hold, leaving us with 5 total units, one of which we live in. We are forecasting a minimum of $30k/year for each unit. The units are all designed to hold long-term residents as well.

What was the outcome?

The cabins are still being built, but after 2 months on the market our duplex rental consistently books more, gets more views, than any other in our market. We've currently hit the projected goals of $1,500/mo. and will be hitting closer to $2,500 this month, even though this is the most dead time of year. We have several bookings set for now - September.

Lessons learned? Challenges?

Always have your contractors spell out they payment plan, what exact tasks they will be accomplishing, and over-communicate. Never make assumptions that a carpenter or plumber has your plan going through their head. Ask for their advice/recommendations on design, layout, etc.

I also learned, from digging up several old septic tanks, that the ones filled with crap are what you want- the tanks without crap have likely leaked into the ground and need to be replaced.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Mike Rutkowski was my agent/broker for the deal