# The Vacation Rental Project

## By Mr. Money Mustache

## Wed, 28 Nov 2012 13:00:09 +0000

So, here I am on a tropical island. It’s 4:06am local time. The only light is that of the moon peeking through the canopy of Monkey Pod trees that covers the entire property and the only sound is the rustling of leaves in the night wind. Temperature is in the bare feet with t-shirt range and all windows and doors are open to the ocean breeze. And I’m wide awake and ready to start the day because my body still thinks it is in Colorado, where I’d normally be eating breakfast right now.

This town in which I’m staying, Kailua, Hawaii, is an interesting place. In fact, the whole island of O’ahu is.

First of all, it’s still 1960 here. When you get out of the plane, you walk in to a terminal from a decidedly different era. It’s a modest building with the classic Government Decor that is rarely seen these days even in government facilities. Oldschool brown wood paneling, fluorescent ceiling lights, and wall power outlets so old and worn that your phone charger falls out if you don’t hold it in place when trying to pick up a few joules of energy to refuel from the 7-hour flight.

This 1960 vibe continues as you cross the island, driving on an old road with no sidewalks or bike lanes, and passing one-story wood houses with low overhanging roofs set far back into rainforest surroundings. This place was a military outpost long before it was a tourist destination, and the original architecture reflects basic shelter from the rain, rather than any sort of creative inspiration or luxury.

Of course, the economic reality is catching up with the physical these days, as money continues to flood in from the US mainland and other wealthy locales. A limited supply of land and strict regulations here has clashed with the unlimited income of people like Silicon Valley company owners, driving up local prices to the point that those old low-roof houses now start at around $700,000. Meanwhile, newer estates are occasionally built with prices in the tens of millions. The incredible beauty of the island itself, combined with limited availability of places to stay, makes it an ideal place to have a vacation rental business. Many residents of Hawaii run them, whether officially or unofficially, to offset the high cost of housing here.

The only problem is, the local regulations try to prevent you from doing this. It’s difficult to get a building permit to make a guest suite in your house, and even if you do qualify, you must promise that you will not use it as a rental for at least one year. Because of this, most construction and rental activity happens on the sly. My hosts have decided to take an alternative route, jumping the full series of loopholes to score a permit, and then using the suite for visiting family and friends for the required time before turning it over to become an income-producing space. I’ve titled this article (and others that may follow in the series) “The Vacation Rental Project” because it sounds cool, but really it should be referred to as “The Guest Suite Project” for now, to keep the authorities happy.

Once it is rented, however, the picture will be very bright. If advertised correctly, you can rent out even a small apartment for over $2000 per month here, which is equal to the interest cost on borrowing $685,000 at 3.5%. In other words, renting out part of your expensive house can make it feel not so expensive at all. Construction costs for a unit like this, if you were to hire it out to a regular contractor instead of bribing Mr. Money Mustache with food and couch accomodation to build it for you, should come in under $20,000, with materials being between 25 and 50% of the cost. Many of the materials in this case were procured with innovative discounts or through Craigslist, yielding a cost well below average, just as you’d expect from an MMM-approved project.

The same technique of renting out extra space could be used by homeowners in many of the world’s expensive cities, since high prices and high rental demand often go together – which is of course why I’m featuring the project on this blog.

So we’ve got a bunch of work ahead of us. I’ve arrived at the project site and stationed myself in the back corner of the house where the unit is to be built. I’ve got an extremely comfortable couch to sleep on for now, and at my back is an open space where we’ll be tearing down some walls and starting to build new ones, as soon as the sun comes up. Wondering what we’re building? Here’s a peek at the floorplan:

End of Day Update: Many hours later, I have removed the sliding door as planned, to make room for the intersecting soundproof wall, which is now partially built up against the sloped ceiling. The sound wall is a pair of 2×6 top and bottom plates screwed to ceiling and floor, with staggered 2×4 studs spaced along their lengths. Insulation batts will then be woven between studs, and double layers of drywall added to each side. The end result is almost complete sound privacy for both sides of the wall. There will also be a heavy exterior-grade door framed into the wall, to keep the apartment compliant with the “no detached living units” rule.

Here’s a view of some of the space that will become the studio, before and after some destruction and construction occurred. The bathroom and kitchen sections will be just beyond that wall on the right, after part of it gets cut away:

A portion of the space that will become the new guest suite/apartment

Here’s the same space, viewed from opposite direction, with sliding door removed and soundproof wall partially built.

Work has obviously barely begun here. When finished, the suite will have nice travertine tile floors instead of carpet, plus a very fancy bathroom with shower, kitchenette with fridge, nice fixtures and colors throughout, and a glass door to the side of the house that functions as a private entrance. So far, however, this trip is proving to be everything one could hope for in a Carpentourism vacation. This sure beats Disneyland!

Another fine day at The Office