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I have a garage connected to my 4-bedroom Airbnb in downtown Nashville that I am considering converting into either a 2-story game room, 2 story bedroom/game room, completely separate 2-story apartment for long term lease rental, or an additional bedroom for the Airbnb guests.
I know I could probably get about $2,000 a month if it was an apartment completely separate from the Airbnb portion of the house, but am wondering if the other ideas would possibly bring in revenue.
Does anyone have any thoughts on this?
Have game rooms typically brought you additional bookings?
My house currently books pretty healthy, so any insight would be appreciated.
I would first check with any established local real estate agent to find out what losing a garage costs in your neighborhood.
Turning a garage into anything other than a garage will inevitably devalue your house when it is sold anywhere in the USA. So what I would do is compare that number with what I could earn doing something else with the land/space, not forgetting the costs of renovation of course.
You need to take the present value of the garage and multiply it by expected yearly appreciation of the property over the time you expect to own it. Appreciation will at least be the value of inflation. If you’re in a popular location then the factor is inflation+something.
The standard number used in these calculations is 3% per year appreciation, compounding.
If you expect 3% appreciation each year over 10 years, and the garage is worth $20,000 today, then the calculation is: (.03x20000)+20000=20600 loss for first year; then (.03x20600)+20600=21218 for year two, etc.
The formula for appreciation is F = P * (1 + i)ⁿ where F is future value of the garage, P is the present value of the garage, i is the appreciation percentage, and the exponent, n, is the number of years you plan to own.
Adding a new rental unit would surely be your best option financially, although I would run the numbers with the garage loss using net rental income, not rent rolls. Everything else you mentioned sounds like a money loser to me.
A 5 bedroom house in a neighborhood of 4 bedrooms doesn’t do much for you at resale time–usually next to nothing, but there are regional variations I realize. And if all the houses around you are 5 bedrooms then that is a thing.
I can’t imagine you really want to rent to groups of 10 people, but maybe you do. Then the question is, can you charge enough extra to make a profit? Or do you have gaps in your schedule that you think will be filled if only you had a game room? That all sounds unlikely.
I fill schedule gaps by lowering my rate temporarily. Works every time.
Another thing I really believe in is more amenities–breakfast foods, sporting equipment, flowers, a good guide book, upgraded furniture and linens–anything I can think of that a hotel might do. Could you go pet friendly, add a pool or splash area or swing set?
Often owners dream of things like a game room just because they’ve always wanted a game room for themselves, and then they’re surprised when they don’t make money.
That’s why real estate investors say, “Don’t fall in love with the bricks.” In other words try to keep your emotions out of the equation.
I think it all depends on how much this project would cost you and if you will get back your investment within a few years. We’re in a recession and many folks are not vacationing much this year. If I were you, I would wait it out.
This would diversify and seems wise. Also housing is tight and this could be a positive thing to contribute to your local economy.
You’re already renting in Party City, USA so you know the drill. Would a game room or 5th bedroom bring even more bookings (can you be more booked?) or more revenue but might it also bring headaches you haven’t had? Would it be the proverbial straw that broke the camel’s back. Many hosts report having dropped their occupancy and getting much better bookings in terms of less pain. So that would be up to your preferences and we don’t know what those are.
Perhaps a separate apartment that can be converted to LTR at a moment’s notice in case you have a problem with STR at any point but which can be linked to your current Airbnb to book to larger parties.