I ran into my friend Tom at the local coffee shop. He is a new retiree so I was interested to hear what he has been up to. Among other things, Tom mentioned he was considering converting his two neighboring single-family rentals into a youth hostel. His goal is to create Sacramento’s version of the Hawthorne House a sustainable hostel in Portland, Oregon.
Youth hostels are places that offer friendly, inexpensive accommodations to young travelers. They are meant to be hip hotels where young explorers of different cultures meet up, share rooms and common living areas.
After looking into the idea, I think it’s really good. I’m adding it to our $100 Idea Matrix under the “Active Landlord – Active Tenant” category. Click here to see an updated $100 Idea Challenge Matrix.
What’s the benefit of creating a youth hostel?
Currently, a 2 bedroom 1 bath house in Tom’s area rents for around $895 per month according to padmapper.com. That’s roughly $1,800 monthly gross for the two homes.
If Tom converted his rental homes into a youth hostel and placed two bunk beds in each room, he would have a total of eight beds. Now, if he was able to rent each bed for $25 per night and had a 50% occupancy rate, he would gross $3,000 a month.
That’s a $1,200 difference! In fact, operating as a youth hostel beats the traditional house rental business as long as Tom had three customers each night. Hostels have established networks and numerous referral websites for Tom to join, so filling three out of eight beds each night seems doable.
The transformation from single-family homes to hostel is also an equity boosting play. When he wants to sell, he should be able to sell for three times his annual business gross PLUS the value of each home. Now that’s wealth creation at its best!
How about you? Could you associate a business with your rental and double your income? Leave a comment and share your innovative idea.