A Short-Term Rental Option that Won't Break the Bank AND Earns Higher Returns

Welcome to Short Term Rental Riches. We'll discuss investing in real estate, but with a specific focus on short term rentals. Quick actionable items to acquire, manage and scale your portfolio. I'm your host, Tim Hubbard.

Welcome back to the Short Term Rental Riches podcast. With all the doom and gloom out there, I know it's hard to see the bright side sometimes. But believe me, there are always new opportunities, especially in the short term rental space because it' changing faster than the traditional real estate industry. And today I have a really exciting topic, something that I'm very interested in and I want to find out more information about it. I have two great guests on today, Leon and Dave Zook. They are building this opportunity, literally building. So just to give you a sneak peek, this is a property that you can buy, be eligible for bonus depreciation and at the time of this recording, that's 80% in year one. Be eligible for financing. It's a brand new property, it comes furnished, it's at an entry level price that a lot of us can afford, even us just getting into short term rentals and you don't even have to pay property tax on it. I know that sounds way too good to be true, but the truth is it's not actually considered a property property. So today we're going to be talking about park homes. And to start things off, I want to introduce my friend Dave Zuck, who's been a big inspiration to me. He's invested hundreds of millions of dollars in multiple asset classes. Him and his family have been in the cabin building business for quite a long time and they're now dipping their toes in the short term rental industry. And so to hear a little bit more about that, I want to welcome Leon to the show and Dave Zook. How are you guys? And Dave, let's just a quick background from you.

Yeah, so a little bit on the background we I was born into the modular building business. My dad bought a modular building business the year I was born. So I, I grew up in this business and I was in sort of all facets of the business in the shop and then as part of a delivery team and had my own trucks and delivered buildings. And then I worked my way into the office and eventually as an owner became a partner and an owner with my dad and my brothers now. And so then I sort of veered off and did a lot of investing outside of our modular building business and started buying multifamily apartments and.

Accumulated three to 4,000 doors coming out of the Great Recession 2012 and 2012 to 2018.

Since then, I've done a lot of self storage.

We're also one of the top four ATM operators in the country. So I've done a lot of investing outside of the modular business, but I've never really strayed too far away. And I, you know, I've lived here in Lancaster county all my life, Lancaster County, Pennsylvania. And so I still work here, right here. I have an office right here in our Modzilo building facility. And so never, never strayed too far away from that. And now got a great team. Leon's big part of the team and we're just excited to be here, talk about what we've created and what we're building and what the opportunity is for investors in this space. Because when I look across all of the different facets of the modular building business and we, you know, we build several different buildings from chicken coops to modular dog kennels, the modular horse barns to modular cabins, the modular park models. And when I see the opportunity in this park model space and recognize what's been happening over the last couple years, especially since, you know, spring of 2020, you know, we've saw this boom and you know, the RV park, the travel, you know, travel outside of your normal, you know, conventional hotel stays, and saw this short term rental thing blossom. And now being, being able to be a part of this with a product that we're building, it's pretty exciting time.

Yeah, it definitely is. I'm, I'm every week, I mean, every day I'm excited about short term rentals because there's just so much opportunity with it and the way way people are living is, has changed. And for any of those that have listened to the show for a while, we know that there's a lot of different ways we can run a short term rental business. There's a lot of different types of short term rental properties. So just to go back a quick step here and talk about what exactly a park model home is, because this is what we're talking about here. This is the opportunity that has the tax benefits, it's got entry level pricing, it can come furnished, there's a whole bunch of different configurations. But let's just jump back for those that don't quite know what that is, because I got to admit, I didn't really know what a park model home was when I first started chatting with you guys either. So, Leon, could you just give us a little bit more detail on exactly what, what a park model home is.

So everyone knows what a tiny home is. Right. So when you. When you hear a tiny home, you think of this little home built on a trailer. So a park model is similar to that concept. However, a park model is made to meet the RV code. So we build our park models on a trailer. Maximum of 400 square feet to stay under the RV code. They're built to meet the RV codes. They come with a title, they come with a vin. They stay on a trailer. But the nice thing about it is not a permanent structure. It's incredible.

How much you can actually get inside a park model. Right. Anything from two bedrooms to a nice living room. Add a loft, add a porch. So if you look at park models, if you think of what a park model is, envision that being similar to a tiny home. You know, the bathrooms are bigger, hallways are bigger. When people think tiny homes, they think tiny, like, really compact, like, tiny bathrooms. You're sleeping on a sofa, that type of thing, you know, Our park models range anywhere from 14 by 30, all the way up to 12 by 44 in size. You can buy anything from something that's modern, trendy to anything that's rustic or log. We do meet a lot of different things, themes. Hopefully that answers your question, Tim. You know, most importantly, it's a vehicle.

Yeah. And I think that helps sort of explain some of these excellent opportunities we have too. Like, for example, a lot of Dave's investments and things he got started with and. And just grew. These huge, huge funds were. Had a bit of a tax initiative to them. Is that right, Dave? And can you talk about why investing in a park model home has some excellent tax benefits?

Yeah. So one of the things that Leon mentioned and I wanted to come back to was that idea that, you know, it's run under that RV license, and that's important because now it's not considered real property, Unlike a home that gets fastened to a footer and, you know, maybe has a basement under it. You know, it's very different from this type of an asset because this type of asset is more along the lines of equipment. You can write it off. You can take the depreciation much more aggressively like you could a piece of equipment. So for the last five years, we had 100% bonus depreciation in year one. Now, obviously, this year, we're at 80% bonus depreciation in year one. So it's very aggressive on the tax side. So you get to write 80% of your investment off in year one. And that when you pair that to some income that's not protected on an. From an Investment perspective, you can quickly get some momentum because many times as an investor, your tax savings, you know, when you pair that up to the income, that's where the magic happens.

Yeah, absolutely. I mean, if we make a million dollars a year and we pay a million dollars in taxes, we're not doing too well, are we? It's so. It is a real big piece of the picture, and one of the things that I think is really exciting about it. We've talked about bonus depreciation before on this channel. For anyone listening out there, if you don't quite know what that is, go back and check. Episode with. With Tom Wheelwright, we broke that all down. But it is really an important piece of the picture and for our returns. Another thing that really helps our returns, though, is financing. Right. And taking advantage of financing options. And so from what I understand, there is also potentially some financing options available.

Yeah.

Is that right?

We're almost there. We're doing a pilot run right now just to test it. We hope to have everything live. It'll probably be live by the time the podcast airs, which we're really excited about. And I wanted. I missed one thing talking about what a park model is. So a lot of tiny homes, they'll hook it up to their Jeep and they'll go from different site to site. Right. That's not what a park model is built to do. The park model, we. When we deliver, we typically deliver with a semi. They're oversized loads, so you need special permits to take them across the country. The advantages are. Is what Dave just talked about with, you know, it's not. It's not a permanent structure.

It's not to go from. Not to treat it as a camper to go from campground to campground.

Right.

It's mainly made to have the tax benefits of what they just talked about.

Right.

And I think a lot of people are probably thinking out there, they're probably like envisioning a mobile home. Had I never seen one, which I did get the opportunity to go out and actually visit you guys and see the factory, part of the factory, and walk through some of these, and I thought they were amazing. Like, you would not picture a mobile home. And most people. You can expand on this, Leon, but a lot of the ways that I have seen is someone's actually building this in the ground. You can't. It looks like a tiny home, but it's got all these opportunities on the back end. From the tax perspective.

Yeah. It's not a mobile home. That's a tiny home. Mobile home and a Park model, three separate things. So when you, when you think of mobile home, you think of a mobile home park. Right. When you think of park models, you can, you can think more of. A lot of people do get them confused with the different certifications, but you can't put, you know, park models and substitute them for a mobile home. That is two different things.

Yeah, you guys have some excellent models. I think it's really exciting space and also because a lot of times when we talk about short term rentals, someone pictures, you know, the 20 bedroom villa on the side of the Ocean that costs 3 million DOL. These park homes are affordable for a lot of people out there and a great way to get started with short term rentals. I know the prices vary quite a lot and we'll make sure that everyone can get in touch with you guys and find out everything they need to know. But can you give us just an idea of what one might potentially cost?

So like I mentioned earlier, you have anywhere from modern to rustic. So price point 80 to 100k, maybe 120 depending on, you know, the higher end. More modern with a little bit more glass. But yeah, you can get a very nice park model for under 100k delivered to your door.

Yeah, that's awesome. Because one exciting thing about short term rentals is that what I found with my own personal portfolio is it doesn't necessarily depend on the size of the property. That doesn't necessarily determine how much revenue you're going to make. I can tell you that I have properties, apartments that are smaller than your park, mobile homes that do better than some of my two two bedroom larger units. So it's not always the size of the property that matters. In fact, a lot of times when people look on Airbnb, they don't even see the size, they just look at a bedroom count. So I love that. And that really helps the return side of it. So Dave, I know I've heard you talk about your example of an investment return comparing this to a more expensive property. Can you give us just a little more insight on that?

Yeah. So first off, I'm a big fan of short term rental from a user perspective and then also from an owner, owner's perspective. I personally own short term rentals in eight different states now. So I'll give you an example. We have this farm in south central Pennsylvania that's got a cabin on it that sleeps about 20. The replacement cost on that cabin's probably around a million bucks. That cabin nets us on a monthly basis. That cabin nets us around eight to nine thousand dollars. Across the farm. Same farm, same property. It's pretty good sized piece of property, 300 acres about a half a mile away. On the other end of the farm we have a park model and it's kind of a unique stay. It's got a, you know, it's set up on stilts, it's kind of, we call it the treehouse and it's got a nice little deck out the front. But it's a, it's a 400 square foot unit all in cost of that is around 100 grand. So on a monthly basis we net between 4550, $500 a month. So almost right about half the amount of net revenue coming from a product that costs about a tenth amount as much money as the cabin across the other side of the farm. So when you look at a return, cash on cash return basis, these things can make a lot of sense. And really the other thing that we found, the price ranges that Leon talked about going from you know, 80 to 120 grand, you know as well as anybody does, Tim, that unique stays over the last couple years has been all the rage and you know, short term rentals. And so we've tried to really create something special. I mean we're talking not only your typical rustic log sided park model with your typical two bedroom, one bath and a loft, but we tried to really get creative with our design and make it as unique as we possibly could. We add a lot of glass and, and really some different designs that kind of cater to that unique stay crowd. And so we've been having a lot of luck with that and it's just been a lot of fun to see that materialize.

You're absolutely right. I mean the design you guys did with some of these units is amazing. The returns can be amazing. People are looking for unique stays and we know that people don't need a lot of space. I mean, I talk a lot on this channel about how my smallest investments a lot of times return much more than my larger ones for lots of reasons, including utility costs, for example. But that brings up another question, and Leon, maybe you can help us with this one, is how does the utilities work and what's required to actually install one of these park homes?

Sure. So since, you know, going back to the RV certification, these are compatible with RV hookups. So for your water it's a hundred. I'm sorry. For your water it's a garden hose. For your electric, it's 100amp hardwired into the Panel box. And then for your sewer, you have a 3 inch PVC pipe stubbed out. So you can either do a holding tank or tap into an existing sewer. You know, the beauty of the park model is it comes, I'm sitting in one right now. It comes with your mini split heating cooling units, your hot water heater, your microwave, refrigerator, cooktop, all the lighting fixtures, I mean they're plug and play. After you get it delivered to the site, you should have it up and running within the next 24 hours. If you have a crew there waiting to get everything set up.

Yeah, that's awesome. It brings up, you know, a lot of people are staying longer in short term rentals now too. Do they have the option to add laundry in there? That's something I haven't asked before.

So some of our models, we do offer the laundry dryer or laundry, you know, washer dryer hookup. So that is possible. And most of our models actually, but it is an add on that we can do for the.

Well, that's awesome because yeah, a lot of people, you know, 400 square feet is enough space for people to rent for months. And we're just seeing that all across the world. Especially if you happen to have a chunk of land that's nice and secluded and someone can get away. I mean, we saw a ton of that after Covid, of course, when people were leaving cities. But it stuck around. I mean it's, it's. And it's going to stick around and people just appreciate some of these new spaces. So I know Leon, you work with lots and lots of different investors and you've guys, you guys have built a ton of these things and you've sold a ton of these. What does a typical investor look like that comes to you guys?

So it ranges anywhere from a beginner investor buying one of them. And you know, let's say mom and dad own a farm where they can put one in the corner of the property. You know, startup investor, first time, all the way up to, you know, people like Dave and a lot of other customers are in RV parks and they just, they buy them every year just for tax write offs. So it's not just the beginners, it's also the pro investors that are buying a ton of these units. So it's, it's a broad range. And you know, we talked about financing earlier. The financing program that we're looking to run, you put $10,000 down with your credit card and then you'd finance a balance over 15 to 20 years, which, which is Quite impressive because it's very little, very little investment out of pocket. And should cash flow pretty well?

No, that's amazing. I mean, especially in the way in the current state of the economy, where we still have really highly inflated prices, but now we also have really high interest rates. So there are just not, unfortunately, a lot of good real estate deals now. Every market's different. There's always opportunities, but it is much harder to find a property that actually cash flows. So the lower our purchase price can be, the lower acquisition prices and the lower amount of capital that we can put in if we can still earn those nightly rates at consistent rate. I think it's a home run. A home run for a lot of people. I'm excited about it.

Dave's story is one of many. I mean, so many of my customers have the same story that Dave does. We shipped the one out in Utah last year. They have about 100k in on that one as well. And their goal is to pay it off under a year, and it's going very well for them. So, you know, Dave's story, you know, that's. That's a personal testimony, but I hear that all the time from our customers. And so we have a lot of people, you know, start with one or two, and then we have some RV parks that are doing multiples, but they keep coming back and they keep adding on. So that tells you it's working.

It's awesome. Well, I know that there's also always two sides to every story, right. And so what might be a potential concern that someone might have getting into a park home? Appreciation, for example, because it's not necessarily property, right? Well, I guess it is property, but it's not technically real estate. So what do you think in terms of appreciation on a park home, Dave?

I'll let you answer that one.

Yeah. So, you know, one of the things we've noticed coming out of spring, summer of 2020, with the supply chain disruption, with the, you know, just the demand, cash in the system and demand for a consumer to go out and spend that cash, it became one of those things where not only can I get it, period, but like, how quickly can I get it? And, you know, are the companies even able to deliver if I give them my order, you know, because of all those, you know, challenges in the marketplace? So it depends. It depends. I mean, it's. It's supply. Demand can be one of them. But you know, with asset classes, you know, some of these asset classes, if you can show the income associated with that asset class, right. There's a ton of value. So really for an investor, it can be net operating income. They can look at that asset and say, okay, what's that asset bringing in on an annual basis? And then okay, can I justify spending X amount of dollars on that value because of the income that it brings? So I would say from an appreciation perspective, it would probably be built around the noi and what that property is delivering as far as the unit itself. You know, we talked about 80% bonus depreciation in year one. This asset is going to depreciate over the next, you know, 6, 8, 10, 12, 15 years, 20 years, you know, and it's going to reflect a lower value probably in a decade or ten years from now than is today in the asset.

Its.

But if you can build that business around it and numbers justify, if you go to sell that, that's where your real value is.

Yeah, I think you're totally right. I mean maybe, maybe five years ago if you were trying to sell a short term rental asset to someone, that it might be a little less certain.

Right.

But now I think enough people, I mean millions, millions of people all over the world are completely familiar with short term rentals. They're living in them and they understand that this is not going away and so that net operating income I think becomes a huge piece. So I would agree. So, okay. In terms of the actual depreciation though, you know, with a normal single family home, for example, we need to replace the roof occasionally, maybe every 30 years or so. How does the maintenance on a park home kind of stand up?

Well, it's built with, you know, from scratch with, you know, two by four construction. Some of our models are made with real stackable locks. I know when people hear the word RV they think, you know, lightweight and expensive. That way it's easy on gas mileage. Wire units weigh 15 to 20,000 pounds because they're all made with real wood. You know, they have closed cell spray foam. So the quality compared to a park model from, from an RV or a camper, you can't compare that. You can poke your finger through a wall of a, of a camper. But if you try to do that here with a park model, it's going to be a bad day because they're so well built. The only difference is from a structure that is placed on a foundation is that this one's built on a trailer. Yes. We build these to meet the RV code. Right. So it's not to your local residential code. You know, for your, you know, if you're in Florida for a hurricane, you know, for things like that. But they all meet RV code. So it's built on a trailer. That's how it's an rv. But it's not that we use RV materials to build them because these are some of the things we, we build these without using, you know, in any other property or any other home.

Yeah, that's awesome. Well, gosh, just to summon because I think this is an exciting space, especially in today's economy where you can use financing to put down very, very small amount of money, buy a brand new property that's going to last like a typical property, have the opportunity for bonus depreciation, the opportunity for, for high short, short term rental returns. I mean it's just, it's really exciting for anyone out there that wants to find out more info. Dave and Leon are experts and you can get to them directly by going to Strict.

We'll make sure we have links in the show notes and you can get in touch, find out if there's a good option for you or just find out more info. But until then, is there anything else that you would like to add?

I got one more thing. You know, you don't have to necessarily, necessarily go out and find a piece of property, put one of these on if you already have a short term rental like Dave mentioned on, you know, acreage, there's room for these and they're RVs. So you don't need a foundation. So you don't need to go out and find a piece of property, put one of these on if you already have existing property. It's just, it's another way to get more revenue off of what you already have.

It's awesome. Excellent point.

One of the things too that I wanted to mention, Tim, one of the, one of the challenges for business owners in today's climate, you know, especially with all the uncertainty. You mentioned a couple of them in the top of the show. You know, you're talking interest rates, you know, you're talking banking issues, lending issues and some of those things that are happening in the market. One of the things that a successful business owner's job really is to remove obstacles like how do we make it easier for people to purchase. And so we talked about financing and we talked about land and one of the things we looked at is like you know, many times to get into this space and I'm talking, you know, maybe a younger investor or a first time investor or kind of somebody early in their investing careers, like how do you kind of remove some of Those obstacles. And so we're working on a project. Maybe we'll talk about that next time a little bit more. But we're working on a project right now that could have up to 70 spaces, 70 individual pieces of real estate to send. Set these park models on. It's on a very desirable piece of real estate right on a. Right on a creek. And when you think about it, actually this area just got voted number one vacation destination for northern Pennsylvania. And we happen to be right on a prime stretch right on a creek. Think fly fishing and some of those things. And you're sitting right on the creek. So we're looking at like, how do we remove the obstacles for some of these investors that want to get in on the action haven't been able to before. So if all goes as planned, they'll be able to come in and rent the land sort of like you would in a mobile home park. But this is going to be not even close to a mobile home park. But you, you may be able to rent the piece of land monthly rental. You may be able to get into the park model with 5 or 10% of your own money. This thing will be financed and you'll be able to tap into the systems that we have in place and be up and running. When you take a delivery, you're talking 24 hours later, you may be up and running and ready to do short term rentals with very little money out of your own pocket and be on a very desirable location right on. You know, you're talking waterfront and one of the most desirable tourist destinations in northern Pennsylvania. So we're really excited about that. Hopefully we'll be able to share some more of that when we come on a little bit later on. But it's a project that the whole team is working on. We're excited about it and we're just excited to be able to bring a product with a lot of those obstacles already removed. For an investor wants to come in and tap into this short term rental market.

Absolutely. I mean, there is a reason, Dave, why your investors have successfully invested hundreds of millions of dollars. You guys have figured a lot of things out and this just sounds like another one of those amazing projects. So, Leon and Dave, really excited to have you guys on today. Really excited about this space and we will make sure to have you back on to follow up on this project and to get some more insights.

All right, well, thanks for having us. We look forward to being back here sometime in the near future.

Yep.

We will talk soon.

Thanks for having us, Tim. If any of your audience has any questions, I'd love to schedule a call. And John, jump on a zoom meeting with them and see how we can help. And like Dave said, the project that we're working on, working on is beyond exciting and I think it's going to.

Be very well for a lot of people, really exciting. So for anyone out there, if you're interested, if you want more info, you can get in touch directly with Leon, just go to Strom.

And you guys can set up a zoom meeting. You can see if there's an option that works for you. And I'll make sure to have all the notes in the show notes, all the links in the show notes. So until next time, I hope you have a wonderful day and we'll talk to you soon.

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