The Tiny Hotel Side Hustle
Joe DiDonato
Entrepreneur & AI Enthusiast | Creator of the Fastest L&D AI Agent and over 100 Chatbots | Passionate About The Customer Experience | Passionate About Art | Veteran Air Force Officer | Many CEO & Board Roles
With a recession on our doorstep, I thought I'd do another side hustle newsletter on an industry that always thrives during tight times. It's the 'alternative,' lower-cost vacation industry. People always need to get away, and that "getting away" even happened during the pandemic, which sent RV sales through the roof across the US.
With that as my opening preamble for selecting this particular side hustle, I said to myself, "How would you do this, if you were going to start it right now, (and you didn't happen to have a best friend who's a developer like me)?"
Who makes these structures?
This was the first question I need to answer, so I began by trying to track down the suppliers of the homes used by Issac French and the Montana home. It looks like Isaac French sourced his units from a company in China called www.MyTotel.com. They have a strange pricing model, which is based on the price per square meter. As the one sold on MyTotel is 22 square meters or approximately 236.8 square feet, the price they quoted me was $13,648 USD, and the house includes a complete bathroom and kitchen.
They said that a 40-foot container can hold 4 houses. The reference price for a 40-foot container is about $9,000. But the actual freight will be charged according to the shipping date. Looking at the rates for April of 2022, it was approximately $18,500 to ship that size container to a west coast port. From there it was 415 miles to my area from San Diego, and the cost ranged from $1 to $4 per mile or approximately $1,660 to complete the journey for a total of approximately $29,000 or $7,250/house. And then it has to be assembled on site. That was estimated at 1-2 days by the manufacturer, but watching their videos, it took 3-4 people and a forklift to complete the package. You'll have to talk to a contractor to narrow that cost down. My guess is you're looking at $15,000 to $20,000 per unit. So, about $35,000 to $40,000/home - all in - unless you have a lot of handy friends and relatives.
When I tracked down the Green Valley, Montana home, I came up with this great company up in Canada that ships them fully assembled and puts them on your lot and foundation. Their name is Drop Structures and their website is www.DropStructures.ca.
Here's a short video of Drop Structures building the units, wrapping them for shipment, loading them on their truck-pulled trailers, and setting them in place at a customer site:
What is glamping and how does that differ from camping?
My next question was about the differences between camping, glamping, and tiny home rentals on Airbnb. As I'm going to show you some different units that can be used for glamping and tiny home rentals, I thought I'd show you the definition of glamping as an opener.
Obviously, glamping is camping plus glamour, or glamorous camping. In other words, the term means upscale camping. While regular camping may be a simple tent and a sleeping bag, glamping typically involves more comfort, amenities, and luxury. Maybe there's a furnished tent available, or maybe it's one of these glamping units that I'll show you below. Sometimes even entertainment options come with the Airbnb rental that goes beyond reading a book by flashlight. Maybe there's Wi-Fi and a wide-screen TV for watching shows under the stars.
What's the Tiny Home/Tiny Hotel concept and how does that differ?
These units have indoor plumbing and a bed. But it's more about where they're located than anything else. These are usually in rustic, out-of-the-way locations where you still get the feel of being out camping, but a step up in accommodations. These tiny homes are usually in a cluster around various amenities like a huge in-ground pool, a waterway that allows you to do some kayaking, or even self-contained with their own hot tubs, decks, lounge chairs, and grills.
What are the occupancy rates and pricing?
When I checked the glamping rates on Airbnb, the ones they showed as top sites ranged from a low of $56/night for what looked like a 25-year-old RV (they called it vintage) to $449/night. Some were very unusual, from little homes built out on a dock in the water, to this very cool-looking dome shape tent that looks like it was shot here in Arizona. It looked very close to this one from Redwood Outdoors that sells for $6,099.
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On the higher end - meaning the tiny home with indoor plumbing version - is the Duo Plus from Drop Structures which is priced at $119,000. Although that's the one that I've selected to highlight in this analysis, Drop Structures has a range of structures that are priced from $31,000 for a small glamping unit to $145,000 for a 2-bedroom, fully equipped unit. Here are links to their various models and specifications:
Arranging the financing for the Tiny Hotel complex
That's a bit more complicated to answer. Here we're talking about a range of financing possibilities from the financing provided by a company like Drop Structures uses to home equity loans to SBA loans to crowdfunding a village of tiny homes. These all work because the revenue stream coming in from the rentals is going to be more than the cost of the land (or your backyard) plus the unit you install.
For example, take the Isaac French route, where he bought a 5-acre piece of land in Waco, Texas - that's properly zoned. Then buy the 7 units from Drop Structures at $119,000 each, run electricity to the site, take care of water and septic, decks, furnishings, and roads that you're into it for $1,900,000. That's enough to do 7 of the Montana/Duo Plus units. An SBA, 6% loan for 25 years, is going to cost you $12,241.73/month or $146,900.76 per year to cover the financing of $1.9M.
If you rent out each unit 180 times per year, well below Isaac French's occupancy, and you get the $256/night rental of the Montana site, each unit will bring in $46,080/year. All 7 will bring in $322,560/year. That leaves you with a profit of $175,660/year before expenses of 25% of revenues - or in this example about $80,640. That drops your profit to $95,020.
But because these units are equipped with air-conditioning and heaters, you're more likely to experience a 70% occupancy rate - still below the 95%+ rates that Isaac is showing, and the more likely rental rate is $300/night. This means your average number of rentals soars to 255.5/year. And using the new rental rate of $300/night, your revenue jumps to $536,550 per year, leaving you with $389,650 in profits after financing.
After expenses for utilities, labor, repairs, etc. of 25% of gross revenues - $134,125 - your profit is more reasonably $255,125/year after financing. BTW - your valuation of the property with that net income is going to be around $3,650,357 at a 7% cap rate, so that's where your real home run is going to come. If you sell it for that amount, you pay off your $1.9M loan and walk away with a cool $1,750,357 plus the $255,125 in profits from the first year.
How do you improve those numbers?
Of course, this is where your business savvy is going to be needed. Can you handle the difficulties of getting the units from China and then assembling them on-site? Are the amenities and locations going to attract the audience levels you want? Can you get a deal on buying multiple units? Can you lower what price of the land improvements? Do you really need the recreation center and giant community pool?
Here are the assumptions that I made in creating the $1,900,000 number:
As these are very conservative numbers, and I'm providing for 2 major expenditures that Isaac French did not include - the rec center and huge community pool - I'm giving you room for improvement. And more importantly, I'm basing my numbers on a Montana rental. It was clear to me from scanning the numbers on Airbnb that you could probably be in the $350 to $400/night on rental fees - more, if you're in some of the nicer escape places in the south, come wintertime.
But on the other end of these calculations are employees (if you put in the rec center), maintenance, utility costs, and repairs. As shown above, a good rule of thumb is to allow 25% of revenues for these expenses.
Recommendation and summary
This is a great project that can be a lot of fun to build out. My intent with the numbers is to get you to think about how you can change the outcome with more detailed planning. Build out a spreadsheet using my estimates above. Then try different occupancy rates, nightly rates that may account for seasonality, and adding or subtracting amenities, until you feel that the project fits your location.
The numbers I used also showed the most expensive way to start. Maybe add a few glamping sites to the 5 acres (that's a lot of land area to just put 7 tiny homes on!). My guess is that you'll start to approach the number $500,000 to $1,000,000 dollar number that Isaac French was able to achieve. And for those of you blessed with some large property, hopefully, you'll see how easy it would be to add a tiny home or glamping site to your land to begin earning some additional revenue from your existing assets.
PS - I'm in the process of rounding up some of my friends from the venture capitalist & angel investor communities to run a "Side Hustle Accelerator Program." The goal of this virtual program would be to help you create your own six-figure side hustle from ideas like this one. The program would be similar to some of the incubators that I worked with in the past where business plans, pitches, go-to-market strategies, and the rest were worked on with mentors. There would even be some fun - "Shark Tank" - style where you'd present your business idea and strategies to the rest of the participants in the Accelerator. If that sounds like something you'd be interested in, send me a private note.
© 2022, Joe DiDonato, Side Hustles Newsletter #16