Vacation Rental Investment Deal Memo: We Bought an Earthship!
This summer, in the midsts of a the pandemic, we bought an Earthship in beautiful Taos, New Mexico. Earthships are off-the grid, self-sustaining, architecturally-beautiful structures designed by Michael Reynolds. Their signature look is a glass greenhouse that uses recycled water to grow plants and also helps regulate the temperature. The rear of the home is buried in the earth which also helps with temperature regulation.
A few months prior, I had emailed a few real estate agents in the area asking about the Earthships they had for sale. I wasn’t seriously considering it as a purchase (given the pandemic and resulting recession), but they were intriguing.
However, out the blue one of the agents I had corresponded with wrote me months in July 2020 later about a property that was going to be brought to market. It was an Earthship that was currently an Airbnb with 200+ reviews and a 4.98 overall rating and an 87% occupancy rate. The list price was $279K and we could buy it before it came to market it if we were interested. The property would be “turnkey” in that all the furniture and contents would com with it. The photography on the Airbnb listing was amazing and we could use that as well.
I spent about a week researching the place and decided to put an offer in this, sight unseen! We would be able to check it on in person later of course, but more importantly we had over 200 reviews on Airbnb we could look at. The reviews were uniformly glowing, and that honestly told me more than looking at a house during a 15 minute walk through would have.
I thought I’d create a little deal memo to show how I assessed the property given my financial criteria for evaluating vacation rentals.
Legality. Short term rentals are legal in Taos County with minimal regulation, though are highly regulated in the city of Taos and permits are hard to come by there. This home is in the county, so it’s relatively safe to purchase a home here. While it’s possible that the rules could change, typically legacy rentals that pay their taxes by the books are grandfathered with permits.
Rental Demand. Taos is a strong rental market and the Earthship Biotecture (the area where all the Earthships are located) is a true landmark attracting visitors year round. Additionally, world class skiing in Taos is a great draw in the winter.
Differentiated Property. This was the key thing about the purchase. This is one of the most unique properties in the world. In my wildest dreams, I couldn’t even picture this property existing, let alone me owning it.
Do the numbers work? At the current owners occupancy rates and pricing, we were projecting a 42% cash-on-cash return. Because it’s off the grid there are fewer utility expenses than a typical property. Because it was turnkey we would basically only have to invest the down payment on the property. All our other properties required a large renovation and furniture investment upfront.
Operations and Team. The real estate agent lived across the street and was also the property manager responsible for cleaning and maintaining the property. This mean we had an experience team ready to go on day 1 to deliver an amazing guest experience. On the negative side, we are really reliant on our awesome neighbor/real estate agent / property manager / house cleaner. If she ever moved away or decided she couldn’t handle the property anymore, it would be a tall order to replace all she does!
So that’s roughly how I thought through this transaction. We stayed at the house for 3 weeks this summer and it was absolutely amazing. You can check out our Airbnb listing here and our Vrbo listing here. Once we have more data, I’ll update you how accurately this deal memo reflected reality once we owned the place.