Increase your homestead’s income by learning how to make money on a vacation rental property. Try these vacation rental tips for owners of rural properties.
As a longtime Mother Earth News reader and homesteading enthusiast, I’ve always enjoyed the articles on homesteading and sustainability. When my wife, Ellen, and I retired from our respective corporate careers, that enthusiasm turned into more than just a passing interest. Since the onset of COVID-19, inflation has continued to rise, sometimes drastically, in every sector, from food and health care to lumber and automobiles. For those of us on a fixed retirement income, maintaining a reasonable monthly budget can be a challenge. Fortunately, there’s also been a rise in new technology-driven revenue opportunities for the entrepreneurial property owner. Many homesteaders capitalize on those opportunities through vacation rentals and agritourism.
How to Make Money on a Vacation Rental Property
Our homestead vacation rental experience started in 2017. Both Ellen and I have always had a strong entrepreneurial spirit, so it was a no-brainer when retirement afforded us the time and the economy provided the motivation to begin planning our new business. We’d recently sold our suburban home and purchased a small 7-acre farm in a rural area among the northern Georgia mountains. The new property connected to our existing 30 acres, where we have a small weekend cabin we’d purchased out of foreclosure and renovated ourselves a few years prior. The farm consisted of our primary home with a horse barn about 100 yards away and a 5-acre fenced pasture. The barn had a three-stall horse stable with a small kitchen and bath on the ground floor. The 1,200-square-foot loft was finished off as a one-bedroom apartment, which was nice but basic in construction and décor.
Having grown up on a small horse farm myself, it seemed only logical to start with a horse-boarding business to bring in some immediate working capital. And thus, Mountain Ranch Stables was born. We placed a few inexpensive online ads on equestrian websites, and soon, we had three horses boarded in our pasture, along with a small monthly income. The next step was a full renovation of the barn loft apartment, which we aptly named Mountain Ranch Retreat.
Fortunately, we completed the barn loft renovation ourselves in just a few months. I worked as a trim carpenter in my youth and have honed my woodworking skills over the years. Ellen is a licensed real estate broker and has a degree in interior design; she’s also renovated several houses. The project consisted of a few necessary repairs and a lot of additional upgrades. We installed rough-sawn wood beams to highlight the upper walls, created custom wood walls and trim, and added higher-end furnishings and equestrian décor for a rustic yet upscale feel. We created many of the furnishings from upcycled flea market finds that we repurposed to fit our needs: A window shutter repurposed as a coffee table with a milk can side table adorn the living room, along with an antique armoire for an entertainment center, and an ox yoke mirror that greets guests as they enter the living space. Carefully selected artwork finished out the interior décor package. A barbecue grill and a couple’s hot tub on the mountain view deck were the finishing touches outside.
Rural Vacation Rental Tips for Owners
We’ve encountered two types of vacation rental guests: those who make frequent day trips to local attractions, and those who remain on the property and simply enjoy the amenities provided. We wanted to make sure we had plenty of on-site amenities for those who fall in the latter category. To fill that need, we added a small fire pit near a picnic table and a small frog pond. We established several walking trails that span our 37 acres, with access to our creek and farm pond. We also added a number of farm animals to the existing three horses, including two Nigerian Dwarf goats, 25 chickens (comprised of 10 different breeds), three ducks, and three guinea fowl.
Along with providing barnyard entertainment, the flock also provides fresh eggs daily for us and our loft guests. Depending on the season, we even have a few deer, as my wife operates a fawn rescue in summer and fall. (All fawns are rehabilitated and released per Georgia Department of Natural Resources guidelines.) While we don’t advertise the rescue operation, we set up a viewing area out of sight of the fawns, yet close enough that our guests can watch as they bottle-feed — a unique experience that many have said was the highlight of their stay.
Is Hosting for You?
Companies such as Vrbo, Airbnb, and countless other commercial and private property-management companies are making the vacation rental business model a viable option for many property owners. Interestingly, the COVID-19 pandemic seems to have had a positive impact on this industry, as vacationers look for more private lodging with varied occupancy options and less public contact than conventional hotels and bed-and-breakfasts. Many vacationers seem to be finding more value in renting a family-friendly cabin with a full kitchen for less than multiple hotel rooms. In a U.S. vacation rental outlook, Statista says, “Revenue in the vacation rentals segment is projected to reach $18.63 billion in 2022. Revenue is expected to show an annual growth rate … of 2.24%, resulting in a projected market volume of $20.36 billion by 2026.”
The decision to start a vacation rental business requires some considerable soul-searching, an initial evaluation of your skill set, and a well-thought-out plan. The first question to ask yourself is, “How committed and involved in the day-to-day operations am I willing to be?” Remodeling, minor repairs, property upkeep, cleaning between guests, marketing, booking, and guest interface are all necessary services that you can hire a third party to complete — at a significant cost. Private vacation rental management companies typically charge anywhere from 10% to 35% of the rental revenue as a “management fee,” which usually only covers marketing, booking, and guest interface. It generally doesn’t include any of the other aforementioned services. An owner who’s able and willing to do their own remodeling, upkeep, and property management will obviously incur fewer expenses and enjoy more monthly profit.
Online vacation rental services, such as Vrbo and Airbnb, can provide a nice compromise. They offer the online marketing, booking, and customer interface for a relatively nominal annual fee. They also collect all necessary taxes (depending on your state) and credit card fees and apply them accordingly. You have the option of completing the remaining services yourself or hiring a contractor to do one or all of them.
The second question to answer is, “Do I have any skills that would benefit me in this new business venture?” Knowledge of basic carpentry, plumbing, or electric can be useful and cost-effective, but you should also consider customer service, accounting, website design, and social media skills. All of these tasks can represent significant cost savings if you do them yourself. They can also make the difference between hiring a full-service property manager or a limited online service, such as Vrbo, for customer interface and reservations.
The final consideration is the property itself. What qualities does your property (or prospective property) have that’ll attract vacationers and drive return business? Properties located on water can be a popular destination for vacationers — and it doesn’t necessarily have to be a beach house. People will also seek out lake or river cabins, as they provide activities such as fishing, kayaking, and swimming. Even a small stream on your property can be an attraction, especially for families with children. I’m always surprised at how many people will rent a house or cabin just for the view, be it mountains, rivers, forests, or even city skylines. Vacation rentals with a theme or gimmick are also gaining popularity, such as treehouses, houseboats, and tiny houses. In our case, the theme is a couples retreat in a luxury barn loft on a working farm, including a beautiful mountain view.
Perks of Renting Our Property
We’ve realized several benefits from having this vacation rental on our homestead. The first and most obvious is financial gain. We use the horse-boarding revenues to defray the cost of feed, bedding, and upkeep of the other animals, which leaves the Mountain Ranch Retreat revenue unencumbered for regular maintenance, utilities, and replenishment of household supplies. After all is said and done, it covers all of these expenses plus its portion of the mortgage, taxes, and insurance for the farm. (Often, there’s even enough excess monthly revenue to cover the mortgage expense for the remainder of the farm.) In fact, this rental has been so successful that we’ve converted our original cabin on the back of the property to an income-producing rental as well. Although it doesn’t have the farm appeal or a view of the mountains, it’s located in a private, heavily wooded area with direct access to the creek, pond, and walking trails.
The second benefit of a homestead-based vacation rental is the potential increase in property value that could be realized. Generally, three types of real estate valuation methodologies are available when appraising a property for resale, depending on your situation: the sales-comparison approach, the cost approach, and the income-capitalization approach.
The sales-comparison approach involves gathering data from comparable properties that have sold in the area recently. While this is the most-used method of valuation, it doesn’t consider any income-producing aspects of the property.
The cost approach uses the estimated cost to rebuild the structure plus the value of the land to appraise the property. Like the sales-comparison approach, this methodology also doesn’t include any income-producing elements.
The income-capitalization approach uses the income the property generates to estimate fair market value. It’s calculated by dividing the net operating income by the capitalization rate (the estimated percentage rate of return that a property will produce on the owner’s investment) and is probably the most attractive methodology for a homestead with a successful vacation rental. Most mortgage companies prefer to have at least two years of historical rental income before they’ll agree to this approach, but it can be the most sensible to use, especially if you’re targeting other entrepreneurial individuals who are looking for a turnkey, income-producing property.
The third benefit involves income tax liability. As I’ve mentioned, our loft rental pays for its portion of the home mortgage and property tax, but it also provides a significant tax write-off for many items used in the management and upkeep of the property, such as livestock, pasture seeding, depreciation of vehicles, furniture, electronics, farm equipment, and the hot tub. Another potential tax advantage is the ability to do a 1031 exchange on the income-producing portion of the property. This tax benefit allows you to defer paying capital gains taxes when you sell an investment property and reinvest the proceeds from the sale, within certain time limits, in another income-producing property or properties of like kind and equal or greater value. Clearly, you’ll need a good tax accountant to ensure you’re getting the most out of your homestead tax shelter!
Finally, the fourth and most enjoyable benefit of a homestead vacation rental is the number of new friends you’ll make along the way. It’s been our experience that about 95% of our guests want to interact with us in some way, whether it’s a tour of the farm, a guided walk on the trails, or just sitting around the fire pit and enjoying a glass of wine. While it’s not a formal service we offer, we always enjoy it immensely. Some of the friendships we’ve made from the loft rental have become close, long-term relationships that we expect will continue indefinitely.
Dan Smith is a retired sales and marketing executive who, apart from owning and operating a horse-boarding facility and vacation rental company, is also a freelance writer, photographer, and home renovator. His wife, Ellen, is a retired commercial real estate broker who runs the vacation rental customer support operation. She’s also a freelance interior designer with a focus on rural mountain vacation rental properties.