The Math Works: Investing in a HUT

If you’re reading this, you’ve probably seen our HUTS Standards catalog, and are imagining a life where you have a modern cabin retreat of your own in the country. If you’re reading this, you’re probably also a fan of the HUTS Standards aesthetic and design approach (thank you!), but you have some questions, notably: is this a good investment? 

 In short, yes. Here’s the math behind why:

Some Assumptions:

  • You want a HUTS Standard 2-bedroom, with a loft.
  • You bought a 4-acre parcel of land for $60k.
  • You have solid credit and will qualify for financing options near prime

Equity Creation:

When you buy an existing house, you are buying it at or around “market.” What that means is that your property is worth about what you paid for it. In all likelihood, the $500k house you just bought today will be worth $500k tomorrow. If you want to increase the home’s value, you either need to invest in improvements or wait a number of years for the home’s value to increase through appreciation (hopefully). 

With a HUTS modern cabin, the math is a little better. We designed our Standards to be built – ground-up – for around $250 per square foot (with some variation by town, site condition, material choices, and contractor partners). 

That target figure doesn’t come from nowhere. We want our clients to realize significant equity gains in their investment shortly after engaging with us. We’ve found that the competitive set for similarly well-constructed and beautifully-detailed modern cabins in the Hudson Valley command between $350 – $500+ / square foot (assuming equal acreage). 
Your HUTS two-bedroom standard plus loft may have cost +/- $300k, but will command upwards of +/- $450k+ on resale. On day one. If return on your capital’s your game, make building a HUTS Standard your aim.

Carrying Costs / Rental Rate:

Don’t have $300k cash? Not a problem – covering acquisition and construction costs with cash isn’t really how new homes are built or real estate is purchased.

We’re experiencing historically-low mortgage rates, and as such the cost of capital is extremely affordable. First time home buyers can find rates as low as 2.9%. and second home buyers can find mortgages around 3.5% for 30 year fixed-rate products.

What’s that mean? 

Let’s assume you find land for $60k and design a two-bedroom property with HUTS that will cost $240k to construct. Putting aside design fees, the total cost to create your new property will be about $300k.

What these current interest rates relate to is this: you’ll likely put 20% of the $300k – or $60k- up to finance your property. The remaining $240k will be financed through a construction loan that is then converted to a standard 30-year mortgage. The monthly cost to carry the $240k loan at 2.9% would be about $1000. The cost to carry the 3.5% loan would be about $1,100. Additional monthly costs to include are your utilities and property taxes, which will vary quite a bit by usage and location, but let’s use $1600 per month as a reasonable monthly carrying cost for your modern country cabin.

If you choose to leave this as your home without renting it, that’s your monthly expense. 

However, if you’re like most of our clients and choose to subsidize your cost through home-share or vacation, here’s how we think about that.

Let’s assume your property is a relatively low-performing property on Airbnb. It’s a two-bedroom upstate within 3 hours from NYC. Despite the so-so quality of your AirBnB property, it’s safe to assume you will receive 25% year round monthly occupancy at $175 / night. $175 x 8? That’s $1400 / month.

Look at that!

Your mortgage and utilities costs are covered and your upstate place costs you about $200 / month in property taxes to carry. In the meantime, your home value is appreciating and you can use it 22 days / month nearly free of cost to you. Nice.

But here’s the deal. Your property won’t be the worst on Airbnb. It will be the best, most sought after housing type upstate: a newly-constructed modern cabin with freshly installed systems and a considered hospitality approach. So, how’s that perform?

These types of designs are booked months in advance when they’re sited near sought after upstate towns and demand north of $400 / night on weekdays, depending on setting. But let’s be conservative now. You’re going to reserve weekends for yourself, open up 20 days / month to rental, and get 50% occupancy. You have renters for 10 days / month @ $325 per night, generating (again, conservative) $3,250 / month. 

You got a decent mortgage and your loan costs you $1,200 / month. Add in utilities and property taxes, and it’s $1,800. Cleaning services? $2,000. 

Worst case vacation rental scenario? You’re quickly clearing $1,250 month on property that you have $60k into (at $300k total acquisition and construction cost). Additionally, your resale value would net you $150k+ if you chose to sell it. Oh, and in this scenario, you can use your 2nd home every weekend and 1/2 of every week. 

It gets better. With time and appreciation, your resale price will increase.

And, for fun, let’s look at a less conservative rental scenario.  

A rosier expectation would be $400 / night at 15 days occupancy. 400 x 15 = $6,000 / month. At $2,000 / month carrying cost, that’s $4,000 / month clear along with the ability to use the property on your terms 50% of the time. The $48,000 / year in rental profit plus $150k+ in resale profit – both of which will increase with time. All in exchange for a $60k  own payment, trust in design and construction teams, and a few month’s build time.

You can do the math. Let’s chat about your hut.