Smoky Mountain Slow Down?

[John Carbone]

The last 3 weekends the traffic on the parkway from Sevierville through gatlinburg has been pretty much a ghost town on weekend evenings which ordinarily are jammed traffic. The last few years it was wall to wall this time of year. Went to the Alamo steakhouse last night and walked right in. It’s starting to look and feel ominous, I know summer will pick back up around here but this is starting to seem like it might be a 7 month season here now. 

[Jon Martin]

Quote from @John Carbone:

Quote from @Collin H.:

Quote from @Jim Mueller:

We are no experts for sure. We purchased a 2/2 cabin, no great view, 915 SF in PF just off the Parkway and went live Oct 1, 2021. Our Jan 1 - June 30, 2023 is up approximately 5% compared to the same time in 2022. I'm not sure why other than I constantly try to tweak our listing to get bookings daily. This is the only STR we have.

 What does your June look like?

Also, when did you get your June bookings is a big question. My 4 bed has been booked up at high prices for June and July back in February. My prices were “low” at the time. I had a cancellation for first week of June beginning of may. I halved my asking price of what I originally got and it’s still unbooked. 

 Maybe @Jim Mueller place is more likely to book because the nightly rate is more competitive as a 2/2. Doesn't require pooling together 1-2 more couples or another family to make it economical. Seems to be a good downturn or inflation hedge strategy against larger properties that are more leveraged and require higher occupancy and ADR to pay the bills. 

Just a thought, I don't invest in this market so I have no horse in this race. 

[Collin H.]

We manage around 26 properties right now and all but a very few are off last year for June.  That's OK.  June 2022 was part of a bubble year.  Things are normalizing.  

[Chris Seveney]

@Collin H.

The people who bought based on 2022 numbers are going to be the ones who will be feeling the pain, not only in this market but almost any market with short term rentals.

[Collin H.]

Quote from @Chris Seveney:

@Collin H.

The people who bought based on 2022 numbers are going to be the ones who will be feeling the pain, not only in this market but almost any market with short term rentals.

 Yes, but even those investors will be OK if they stick it out.  I bought my first cabin right before the financial crisis, and that made this look like a birthday party.

[Wilson Hunter]

The velocity of my bookings slowed down in May which I can attribute to my higher summer rates, but this summer is currently looking better than last year. Last year it seemed like there was a gas prices dip, whereas this year feels a bit more “normal.” I was also impacted by Airbnb algorithm update for last summer’s bookings.

[Luka Milicevic]

Slow down compared to what? 

You can't compare it to the covid revenge boom after everyone ran to the first vacation they could take.

It's like comparing zoom usage at the height of the pandemic vs now and saying there's a drop in usage. 

[Dan Gandee]

Slow downs are typical especially before June/July/Aug in this area. BUT...

Make sure to watch the economy closely as this isn't a covid/post covid travel economy. 

When paying cash the GRM (gross rent multiplier) or BEP (break even point) is key here in the short term game. Weather the storm and wait until you can start profiting on your investment, i.e. be patient 7-10 years as this will pay dividends. If you panic in year 2-4, you'll make a little equity and then be forced to 1031.

If you financed the purchase, then cash flow after debt service is going to be key for monitoring in this specific area. I have a few STR's in areas where if the CFADS isn't going up with rental rates, then I'll move those to long term holds with steady tenants.

Just some food for thought as no need to panic, but watch your money people.

[Leora Merrell]

Quote from @Wilson Hunter:

The velocity of my bookings slowed down in May which I can attribute to my higher summer rates, but this summer is currently looking better than last year. Last year it seemed like there was a gas prices dip, whereas this year feels a bit more “normal.” I was also impacted by Airbnb algorithm update for last summer’s bookings.

We’re being impacted this summer. Same with my “neighbor.” Honestly, we’re both getting creamed for June. Both of us have excellent reviews across all of our cabins (10 between the two of us), great pricing, great location…..we’ve dropped off completely. Been working to fix that but it’s much bigger than updating a title and moving pics. Hopefully it changes soon. 

[V.G Jason]

Quote from @Luka Milicevic:

Slow down compared to what? 

You can't compare it to the covid revenge boom after everyone ran to the first vacation they could take.

It's like comparing zoom usage at the height of the pandemic vs now and saying there's a drop in usage. 

 You absolutely can.

And that's because that's what a ton of STR companies were selling. And unfortunately a lot bought into the rally. We heard some obnoxious stuff, not necessarily on these boards but when we were shopping. Though this board did have some pure nonsense-- STRs survive recessions.

Few of our closest got burned on this, we didn't commit. Saw Scottsdale and this just getting too flooded. But the Smokies STR run was one of the biggest bull markets in the COVID real estate boom.

[John Carbone]

Quote from @V.G Jason:

Quote from @Luka Milicevic:

Slow down compared to what? 

You can't compare it to the covid revenge boom after everyone ran to the first vacation they could take.

It's like comparing zoom usage at the height of the pandemic vs now and saying there's a drop in usage. 

 You absolutely can.

And that's because that's what a ton of STR companies were selling. And unfortunately a lot bought into the rally. We heard some obnoxious stuff, not necessarily on these boards but when we were shopping. Though this board did have some pure nonsense-- STRs survive recessions.

Few of our closest got burned on this, we didn't commit. Saw Scottsdale and this just getting too flooded. But the Smokies STR run was one of the biggest bull markets in the COVID real estate boom.

 Agree with this. Now those same people who pumped the smokies during Covid are now saying “it doesn’t matter what you paid for it” since it was in the past and you can’t change it. While this is a true statement, there needs to be some accountability here from the pumpers who say “rents always go up”

the smokies are now a 7-8 month season. Even the pumpers now have to admit that may and September are bad months now post Covid. This alone is a 20 percent haircut on revenues. 

[Ken Boone]

The Smokies have always been an 8 month season place.  Jan-Feb were always low months, May and September were always lull between the peaks but not as low as Jan-Feb, and the rest is slam on.   The secret to the smokies has always been buying right - just like anywhere else.  

Unfortunately for a lot of people that jumped in this market in the last 2 years, they just didn't buy right.  That is what it boils down to.  Not saying that is true for everyone who bought int he last 2 years, but for a lot of folks it most definitely is true.

Covid created an anomoly and if folks didn't do their due diligence with how they spent their money (lots of money) that is just on them.  There were a number of folks on here who gave warnings such as @Collin H. for quite a long time so if someone were watching BP to make their decision to buy during COVID and read the posts from pumpers, they would have had to have read many of Collin's warnings as well with other's who backed that up.

To those that have been around it's not a 20% haircut - that 20% to us was a huge bonus - now we are back to norm.

But I hear ya, speaking of pumpers, I just got an email last week from one of my old realtors in that market, asking me if I wanted to buy anymore, because there are "still many great deals to be had!!!".  

@John Carbone I am not trying to come down on you at all John if that is how this sounds I don't mean it that way, its just that you are never going to get accountability for what people post on the internet.  It's just the way it is.  These days there is no accountability anywhere, the media, the government, but especially what is posted online.

[John Carbone]

Quote from @Ken Boone:

The Smokies have always been an 8 month season place.  Jan-Feb were always low months, May and September were always lull between the peaks but not as low as Jan-Feb, and the rest is slam on.   The secret to the smokies has always been buying right - just like anywhere else.  

Unfortunately for a lot of people that jumped in this market in the last 2 years, they just didn't buy right.  That is what it boils down to.  Not saying that is true for everyone who bought int he last 2 years, but for a lot of folks it most definitely is true.

Covid created an anomoly and if folks didn't do their due diligence with how they spent their money (lots of money) that is just on them.  There were a number of folks on here who gave warnings such as @Collin H. for quite a long time so if someone were watching BP to make their decision to buy during COVID and read the posts from pumpers, they would have had to have read many of Collin's warnings as well with other's who backed that up.

To those that have been around it's not a 20% haircut - that 20% to us was a huge bonus - now we are back to norm.

But I hear ya, speaking of pumpers, I just got an email last week from one of my old realtors in that market, asking me if I wanted to buy anymore, because there are "still many great deals to be had!!!".  

@John Carbone I am not trying to come down on you at all John if that is how this sounds I don't mean it that way, its just that you are never going to get accountability for what people post on the internet.  It's just the way it is.  These days there is no accountability anywhere, the media, the government, but especially what is posted online.

Definitely not feeling like your coming down on me. And I’m also not in a situation where I’m upside down on a bad investment here, although it may seem that way from my post. I’m just playing devils advocate of what 90 percent of posts on bigger pockets have been over the last few years saying it’s a 10 month season etc etc. my post is simply to give a real time update on the ground here in the smokies for awareness to everyone. Colin H has definitely been making posts about this the last few years about how unsustainable the Covid boom was. I’ve been in agreeance with him the whole time. A lot of people got sucked in though and to this day as you say realtors are still trying to get people to buy right now before the trap door gets opened up. 

 To give an example of how bad the underwriting was on deals here….majority of people were using airdna and not factoring in that the revenue included cleaning fee in projection. It also used Covid numbers 20 percent higher. To top this off rates went from 3 to 7 percent….real estate values can drop 50 percent here and that would be well within a standard deviation of 1

[Collin H.]

I think the biggest economic lesson in all of this is, a 10 percent drop in demand doesn't necessarily equate to a 10 percent drop in rental revenue.  The two are not linear.  I don't know how many times I heard folks say something like "Oh well, even if visitors to the Smokies drops 10 percent, I can live with a 10 percent cut."  

But when supply exceeds demand, it's a buyer's market, and the lowest bid gets the booking.  So if a 10 percent drop in demand causes a glut in supply, revenues can drop in half very quickly.  

Tough pill to swallow right now for many.

[John Carbone]

Quote from @Collin H.:

I think the biggest economic lesson in all of this is, a 10 percent drop in demand doesn't necessarily equate to a 10 percent drop in rental revenue.  The two are not linear.  I don't know how many times I heard folks say something like "Oh well, even if visitors to the Smokies drops 10 percent, I can live with a 10 percent cut."  

But when supply exceeds demand, it's a buyer's market, and the lowest bid gets the booking.  So if a 10 percent drop in demand causes a glut in supply, revenues can drop in half very quickly.  

Tough pill to swallow right now for many.

Yes, or the mantra that “people still vacation during recessions”….while that’s true, there is still a double digit decline in demand, and as you say, the drop in rental income is not linear. 

[Leora Merrell]

Quote from @Ken Boone:

But I hear ya, speaking of pumpers, I just got an email last week from one of my old realtors in that market, asking me if I wanted to buy anymore, because there are "still many great deals to be had!!!".  

100%. And those “deals” are a 2 bedroom for $700k. 
I would dare say many are like an mlm.

“Give me your money and trust and I’ll tell you how to do it and then when you do and you don’t succeed, it’s your fault.”

[John Morgan]

They all went to Branson this year.

[Kyle Smith]

I think the key to riding out these storms or recessions is creative marketing and having a unique property.  If your cabin looks like all the rest then your competition is enormous.  May be time to spend some money on making your property themed or special.  Use this opportunity to set yourself apart from the rest.  

[Valerie Budd]

Quote from @John Morgan:

They all went to Branson this year.

 Yes we are a VR PM in the Branson Area since 2005 now managing over 240 properties. We were sold out at least one of the days this weekend for all of our properties.   Branson was very busy this weekend! 

[Ken Boone]

I just got another letter in the mail from a realtor in the area telling me that even though the interest rates are up, the market is steady and it's still a buyer's market!  Wow.

Interestingly enough, another realtor emailed me today a general overview of the market type of email, and that showed that we are seeing the largest difference in the past year of the median list price to the median sold price.  The gap was somewhat tight in Jan, and has been getting larger and larger since.  It looks like the gap between the two for April was almost 250k from the chart she sent me.

[Luke J Nelsen]

Comparing the 2 listings we had active last year:

May 2023 we are up 2.5% gross revenue, ADR dropped 4% and occupancy is up 3% to 56.7% 

June 2023 we are currently down 34% gross revenue, ADR down 9%, occupancy is down 28% to 51%.

Our booking lead time is also down over 10%. So, i am still confident we'll improve the June numbers. However, it is unlikely we'll get anywhere nar last year's numbers.

[John Underwood]

May is almost over and it was in the red a little.

June and the rest of the year look great. We have over $13k in bookings for 1 to 15 June so we have room to improve the June numbers. 

Bookings seem to have slowed down for our PF cabin, but I have been getting steady bookings at our lake house in SC.

[John Carbone]

Many properties in chalet village seem to be doing very poorly this summer. I am seeing properties built in the 70s-80s that have literally 0 bookings for June and July. The question is, what will happen with these chalets/cabins? I know the last few years these were booking out very well especially in the summer. 

There’s a property out in Cosby that sold for around 650k early this year. It sold and closed in under a week for full asking price. It has 0 bookings for all of June and July. This is a really nice cabin too, but when you severely overpay by likely double the actual value, as is the case for many cabins that have traded in the last few years, you get people who can’t lower rents enough to attract demand. Many people are literally losing hundred of thousands on these purchases.

Will we be seeing short sales in the smokies by end of year? 

the mls in sevier county is getting a ton of new listings, way more than normal this past week.

Here are the stats from sevier county (rocket mortgage) for may real estate transactions (updated June 1 snapshot). Inventory is spiking and sales are dropping. There is no denying this is a bear market in the smokies now. I suspect June will look worse next month in terms of more inventory relative to sales. 

[Michael Baum]

Man, that is just too bad for some folks. 

[Collin H.]

Quote from @Michael Baum:

Man, that is just too bad for some folks. 

If I was going to exit the Smokies, I would do so right now.  There’s plenty more downside risk ahead.  

There will be short sales again in the Smokies.  Probably another 6-8 months before you start seeing that, but I have no doubt it’s going to happen.   

[V.G Jason]

Quote from @Collin H.:

Quote from @Michael Baum:

Man, that is just too bad for some folks. 

If I was going to exit the Smokies, I would do so right now.  There’s plenty more downside risk ahead.  

There will be short sales again in the Smokies.  Probably another 6-8 months before you start seeing that, but I have no doubt it’s going to happen.   

 I'm entering the bid side for Smokies here as we get into Q3.