Build vs Buy in Broken Bow?

5/8/2023

First, we want to say thanks to the enormous outpouring of support for the first post of the newsletter. We had a ton of encouragement from our readers and hundreds signed up in the first few weeks.

This post we are focusing on the current state of building versus buying a turnkey completed cabin in the Broken Bow market. Current trends in cabin building, high level inventory update, and other qualitative trends in the market for building new homes.

Our group has experience buying finished cabins as well as building our own cabins.

Below we will break down the various considerations by going either way on procuring your next investment rental property in Broken Bow.

As always, please note that nothing in this newsletter is investment advice. We recommend consulting with a registered financial adviser and licensed real estate agent before making any investment decisions.

While we believe the information contained in this newsletter is correct, we do not represent or warrant any of the information provided, and the information is presented as our opinions, not as fact.

Buying a Finished Cabin

Buying a finished and ready to rent cabin is the quickest and easiest path to becoming an investor in the Broken Bow market. Our first cabin we bought was a finished cabin and had already been on the rental pool for a year. See below for some of the high level pros and cons with buying a finished cabin.

Pros:

• Buying a completed cabin you already have the full picture of what you are purchasing and understand exactly what you are getting from day one

• Finished cabins usually come furnished and turnkey ready to rent

• Finished cabins often have a rental history which is helpful in understanding the economics behind your investment

• Buying an existing cabin is often the only way to get access to premium lots in a development, as these premium lots are usually the first ones purchased when a development goes live, and it can be hard to get access to premium locations later on in a development’s life cycle

• Cabins in the renal pool have an existing history on AirBnb and VRBO, as well as reviews on property management websites (if using one). This is helpful because it takes time to ramp up the awareness of your property using AirBnb and VRBO. It also allows you to scan for bad reviews to see if there are any problems that might not be apparent from touring the property.

Cons:

• Buying a finished cabin often comes with paying a premium. Given the dramatic increase in cabin prices over the last two years many buyers looking for a completed property are likely paying well above the replacement cost of building the same cabin in today’s environment.

• Buying an existing cabin that is already using a property management company often means your future bookings are “stuck” with this company if you are looking to make a switch. Switching a property management provider can be time consuming and costly. Some of these groups own the rights to your cabin’s photography (if they paid for it) and the information of the guests on future bookings.

• Buying existing cabins often comes with “wear and tear” from already being in the rental market. Furniture has to be periodically replaced with these properties and when we bought our first cabin there were a number of items that we had to replace in the first 6 months, resulting in unplanned operating expenses.

• Appraisals can also be a challenge for new cabins given the previously mentioned home price appreciation. In the first cabin we sold it did not appraise and the buyer had to come out of pocket with extra cash at closing to buy the property.

Building a New Cabin

We have a lot of experience building new cabins and are currently in construction on a number of them, as well as pricing out many new builds for recent buyers in our Mountain Fork Resort development. Building is incredibly rewarding and cost effective for those willing to put in the time and effort but comes with a new set of challenges to manage.

Pros

• Build costs can be significantly less than buying a finished cabin in this market, and we are seeing those costs coming down further this year on the materials and the labor side of the equation.

• New builds can be as much as 20% - 40% cheaper than buying a finished cabin. This is massive. The equity creation on a new build in the Broken Bow market can be hundreds of thousands of dollars, depending on the size of the cabin.

• Building a new cabin allows for customization of design and choosing a lot in a development you love. Many of the cabin designs in Broken Bow are (in our opinion) overused and inefficient. It is not uncommon to see the same cabin design used multiple times on the same street in these established neighborhoods. By building you can create a unique property and maximize the value and usable space per square foot.

• Building allows you to quality control the property during the build process and fix issues before the cabin is online and furnished.

Cons

• Build times are long in this market. Expect 10 months at a minimum for a one-bedroom cabin. For larger cabins the build time can range from 12 - 24 months. We would plan for an optimistic 15 months for a new large cabin (bigger than 3,000 sqft).

• Many of the builders in Broken Bow have been stretched thin due to the volume of new cabins they have in progress. Some of these builders have been letting the quality of their cabins slip because they can’t get good subcontractors to complete the work.

• Getting a construction loan on a new build requires you pay interest on the debt during the construction phase. Some construction loans allow for “interest only” payment for up to 18-24 months. Buyers that are planning to build need to factor in these costs. That being said, building can still be very cost effective, but you need to be prepared to pay the interest costs out of pocket during the build phase before rental revenue starts coming in.

Summary of Build vs Buy

Finished cabins are quick and easy to buy, and come with an existing rental history, but even with interest rates rising, the costs of buying finished cabins have not come down to the replacement cost of building a new property. If you are buying new you are likely going to pay a premium, but you will have a turnkey investment that is generating cashflow much quicker than building.

Building is a process, it takes patience and effort but the financial reward for undertaking this process can be huge due to the savings on building a new home in today’s market. Further, building can allow for the investor to design a much more efficient space for vacation rentals and pick out a premium lot in one of the newer developments. A lot of the existing cabin designs have dead space that could be used more efficiently to maximize the value of the investment.

Ultimately, the decision to build or buy depends on your individual goals, preferences, and investment strategy. Consider factors such as your budget, timeline, desired level of involvement, and risk tolerance when making your decision.

Additional Market Commentary

Builders

We have informally surveyed a number of builders in the market and inventory of new builds is running much lower than it was a year ago. Most of the builders we talked to are currently building less than 50% of what they were last year.

To be clear we didn’t talk with every builder, so there may be some that are just as busy as previous years, but the overall feedback we received was that new builds are trending down significantly. This is probably a good thing in our opinion.

First, we should see the backlog of new builds that are not yet on the rental pool start to clear up later this year which should relieve some of the oversupply pressure we mentioned in the last newsletter.

Second, this will give individuals more pricing power with these builders and should hopefully result in better build quality on new cabins.

We are also hearing that there have been some higher quality subcontractors coming into the market. This is great news for new builds. We hope the days of subpar build quality are coming to an end as investors get more sophisticated on choosing a builder and looking at the quality of their previous builds.

We have relationships with many builders in the area but if you have a quality builder we would love to meet them and add them to our list.

Buyers

Next newsletter we are working with some of our favorite real estate agents to help craft a newsletter focused on the current market for finished cabins that are for sale. We have seen a decrease in cabins listed for sale on Zillow from over 200 in the Broken Bow area, down to 169 as of the writing of this newsletter.

It does appear that new inventory is slowing but we want to get a more accurate representation of what inventory and pricing is doing for our next piece. Stay tuned!

Newsletter Updates

Podcast

We are going to be releasing a podcast soon! We have been in talks with a number of prominent players in the Broken Bow / Hochatown area and plan to start releasing podcast episodes with each newsletter release.

We are going to release this content for free to start, but will be adding a premium tier in the future for paid subscribers to get access to exclusive content and analysis on the Broken Bow rental market.

Collaboration

If you or anyone you know is interested in helping with the newsletter please reach out! We would love more community involvement and hope to start engaging regularly with the readers to get feedback and ideas for future articles.

Advertisement

We have had a few interested parties reach out about sponsorship for the newsletter and think it could be a great fit for those people or businesses that want a way to directly reach hundreds of investors and cabin owners in the area. If you are interested in sponsorship opportunities please send us a note using Substack or you can send an email to contact@mountainforkresort.com.

We hope this post has been informative and helpful in your decision-making process. Thank you for reading, and we look forward to sharing more insights and updates in future newsletters!

Are you interested in buying or building?

We have got you covered! We currently have 8 cabins available for sale, 6 of which have swimming pools. Sizes range from 1 bedroom up to 6 bedroom cabins. We can set up a tour to see one of our existing properties next time you are in the Broken Bow area.

We also have a new gated waterfront development called Mountain Fork Resort, and we would love to show you around! Website here: www.MountainForkResort.com. Lot sizing and pricing is available on the interactive map on the home page. Also check out the About page and FAQ page on the website for more info.

If you are interested in buying one of our existing cabins or purchasing a lot in MFR send us an email at contact@mountainforkresort.com.