Once a week, we take a deep dive into an existing short term rental that is listed for sale.
This week we’re taking a deep dive into a property located near Williams, AZ, just outside the Grand Canyon. As with all of our deep dives we find short term rentals with a history of success on AirBnB that are currently for sale and analyze the potential return on investment.
5355 Sublime Dr, Williams, AZ 86046
Summary
This week we have a very interesting property that on the surface doesn’t look like much, but could be a diamond in the rough. The property is a 3BD/2Bath on 36 acres just outside of Williams, Arizona, which is known as the “Gateway to the Grand Canyon”. The location is remote, just under 3 hours from Phoenix, and slightly more than that from Las Vegas. The current owners have rented the property on AirBnB for over a year and have 63 reviews, all 5 stars. According to the listing agent the property does around $7,400 in average monthly revenue.
Economics
Asking Price: $659,000
Cash-on-Cash Return: 15.96%
RevPAN: $243
Monthly Profit: $2,293
Deep Dive
Pros
Unique property with history of success on AirBnB
Close proximity to large tourist attraction
Relatively low seasonality and underpenetrated market
Cons
Cash-on-Cash return is relatively low
Remote location may make for relatively high opex
Property will require significant cosmetic repairs
Areas for Improvement
This property initially drew our interest because of its location near the Grand Canyon. The AirBnB listing photos are poor quality and the furniture and general decor of the property is outdated. However once we took a look at the financials, we were pleasantly surprised. Despite the relatively low quality listing, the property appears to have relatively high occupancy. These qualities are usually mutually exclusive, but when they are not they tend to make for an interesting opportunity. The property can be immediately improved by updating the furniture and also taking professional photographs.
Stress Scenarios
For this analysis we had the benefit of historical P&L for the last year. The financials were relatively straightforward and the expenses were in line with similar comparable properties. Usually remote properties are harder to staff and cleaning crews require a premium given longer travel times, but this property appears to be generally efficient.
While the cash-on-cash return is a bit underwhelming based on historical financials, the above table shows how relatively small increases in either occupancy or ADR can boost returns. Given the low hanging fruit when it comes to listing pictures and furnishings, there may be significant room for improvement. While we typically caution underwriting properties based on an assumed increase in occupancy, the base case here is interesting enough to take a closer look.
Regulation
The state of Arizona has generally favorable regulation when it comes to short term rentals. In 2017, the Arizona State Legislature enacted A.R.S. §9-500.39 which eliminates the ability for local cities and towns to ban short term rentals. Coconino county, where this property is located requires properties to register with the county and carry a business license.
Conclusion
This property has a lot of things to like, and it’s one we think could really outperform. The location is unique and has a history of success on AirBNB despite some cosmetic deficiencies. Overall this could potentially be a diamond in the rough for an investor with a great design vision.