I am considering adding a $65,000 pool to my Airbnb which hosts 12 guests and is usually people that are coming to Nashville to party and have a good time. I am wondering if anyone has experience with how much this might help to increase occupancy rates and whether it will be worth the risk of someone potentially drowning due to being intoxicated or any other risks you may forsee?
My first question would be whether you can make back the initial investment in a maximum of three years. So the extra amount of money you earn from your AirBnB would need to be at the very minimum $22k per annum. Added to that you have increased running costs which are probably in the region of $4k a year. Plus I would factor in another $1k per year for additional insurance. As you say, if someone drowns or gets insured, you make yourself very vulnerable as a host. So figuring out the appropriate insurance before you install the pool might be worthwhile.
So that’s $22k plus $4k plus $1k, or nearly $30 per year that you need to make in addition to what you are already doing. Unless you are already making in the region of $150k a year just from that one listing (which is entirely possible), I probably wouldn’t do it.
Thanks for the detailed response. May I ask, where did you get the 3 year figure from?
I agree that step one is getting a quote on your insurance. Also checking all your city regulations about Airbnb. Cities are cracking down on this sort of party house rental.
Drunks and a pool sound like a nightmare to me but I’m sure lots of hosts do it.
Three years is a standard number used by the UK Treasury to assess ROIs Return on Investments. Of course you can also use 5, 10, 20 30 years etc. But the longer you wait for the ROI, the less it actually qualifies as an investment.
in the U.S. the entire amount can likely be deducted as a business expense in year one, rather than amortized as depreciation, under several provisions to accelerate expenses. Though investment decisions should not be made solely per tax implications, it is a consideration.
I agree insurance coverage for pool liability is a must.
Also what are the steps being taken in order to avoid a crackdown by Airbnb (or neighbors, or local government) as a “party house”?
I don’t understand this calculation, nobody purchasing an investment property expects to make their money back in 3 years. You would need a cap rate of 33%. In the United States an investment property will sell for around a 6% cap rate.
I would talk to a realtor. Figure out what value if any the pool would add to your property if not sold as in investment property. You could figure out what your current yield is NOI/Property Value. See what the yield is on the pool, Extra NOI / Pool Cost. If the pool yield is higher then you are currently making it could make sense. You would need to factor in if you are losing money on the investment on resale.
Great response and I appreciate you taking the time to do it. Luckily, in my neighborhood, party houses are welcome
Entirely different. The pool is a possible improvement/renovation to an existing investment property.
A cap rate of 6% is a waste of time. Anyone would be better off simply buying the Vanguard Index fund, with a mgmt fee of 0.1 %.
$65 K is a sizable chunk of change. Agree with @Suntory - an effective ROI is unlikely. Party houses can be shut down and this is at risk after the events of this past year.
Nashville has been on the rise for a long time and is a very hot market. The effective pool season is pretty short. With a nice stay, you should be killing it, regardless. Why complicate it? If you were in Florida - different story.
You’d need to find somebody in Nashville with experience renting similar houses with and without pools to know if it will increase your occupancy and/or your nightly rate.
However, I can guarantee that it will never pay for itself when you sell your property, and you will find there are a lot more expenses than the pool companies tell you about. I’ve owned pools for 30 years and if you haven’t and if you are going to be paying somebody else to do all maintenance, repair, winterizing, opening, etc., then you might be in for a bit of a shock.
You might have a difficult time getting short term rental insurance with a pool. You should first call your insurance company. Have you considered a hot tub instead, it would be cheaper and less maintenance but just as enjoyable.
@Ritz3 may be a genius. This seems like a great idea. A year-round asset that may help to set you apart and drive demand. Well worth investigating what your competition is doing. Perhaps, you would be one of very few. If you go this route, please consider providing appropriate “glassware” for that area for them to enjoy their wine, beer, etc. There are also choices for chemicals that are more gentle - and less people would be sensitive than chlorine.
I just want to thank everyone here that took the time out of their day and responded with great answers. Thanks again, everyone!
I would like to add “the neighbor factor”. Having a pool draws groups to out of control pool parties. Nashville already has issues with bachelor parties and weddings. Are you prepared to monitor all the groups and restrict events, or deal with the issues that comes along with a large house plus a pool? You will get a different group inquiring to stay. My house is probably the closest comparision to what you suggest, and I can advise as to the extra work that comes with a pool. Are you living closeby to deal with pool breakdowns? Fills? Will you hire a pool company to clean and maintain? What will you do to reimburse your guests in case of a non use situation? We live 3 blocks away and oversee and maintain that pool all the time and monitor all groups closely.
As others have said, the first thing to do is check with the company that provides your STR insurance.
I know that I wouldn’t do it simply because of the additional work involved. (Yet I’m in a year-round area for pools). I’m pretty sure that my insurance company wouldn’t like it either. Or at least, hike up the premiums a lot.
I would also get legal advice and the legal requirements of the local authorities.
All very good points. Not getting the pool! That is for sure
Of course the rental yield is higher with a pool. Why wouldn’t it? The question is by how much higher. 6% is really pocket change and I would consider it much too risky. What if it costs more to build the pool than planed? What if insurance costs increase? Damage? Maintenance? Soon your 6% turns into 5%, 4%, 3% and then below inflation rate. ROI within 3 years is really quite modest considering the large amount of risk involved.
@Ritz3 is the smart one who came up with this brilliant idea. I merely know a good one when I hear it
One thing I would like to add though. I do have 3 additional, comparable houses to compete with on my street that I did not have to compete with before. Now that we are still having to deal with Covid with a very high likelihood of a big ramp up coming soon due to opening up some of the bars close by with absolutely 0 social distancing and massive groups of people, I envision that we will be shutting down the bars and restaurants again for dine in service soon which will cause a lot of my existing reservations to most likely cancel on me.
This, in my opinion, may be the only way I continue to get big groups to stay (house fits 12 people). There is only one comparable house in downtown, right down the street from me, which charges 80% of my average WEEKEND rates for EVERY night. They have 90% occupancy already for the next 3 months.