Finally Someone Is Talking Some Sense!

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Finally Someone Is Talking Some Sense!

Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes

I was contacted by a potential investor in the Smoky Mountains asking my opinion on the earnings potential of a cabin.  One of the keys in any investment is "What are your goals?"  I was delighted to hear that this investor said "Break even."  Whoa!  That doesn't sound very appealing, now does it?   Well let's think about that...

Let's say you buy a $500,000 property, put 20% down, and only "break even" in the early years.  You've spent $100K on the deal.  But in a decade, that property is now worth $1 million for your $100K investment, even if you never made a dime on monthly cashflow!  Your money has doubled more than THREE TIMES in 10 years, or about a 24 percent annual return.  And even if you never make a dime and the cabin doesn't go up a dime in value, you still will have a $500,000 asset in 10 years for your $100K investment.  That's still a 14% annual return!  

THAT is the beauty of real estate my friends!  

[email protected]806-672-7102
SMOKY MOUNTAIN FALLS INC.51 Review
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Kevin Sobilo
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
2y

@Collin Hays, that's the beauty of Vegas my friend! lol

You mentioned NOTHING about why or how someone could choose a property they felt confident would appreciate in value at a rate that exceeds inflation.

So, in order to really "invest" in real estate for appreciation without VERY good ways to vet investments for appreciation, you would need to buy LOTS of real estate in different markets and of different types to diversify more like buying a mutual fund of stocks. Otherwise, it sounds more like gambling than investing.

In addition keep in mind there are 3 basic ways you make money with real estate investing:


1) Cashflow : Something you can vet well, work to maximize, and costs nothing to put in your pocket other than taxes and its tax advantaged (depreciation, etc).

2) Mortgage paydown : Something you have some control of because you can shop loans, refinance, etc BUT its expensive to put your hands on through a sale or refinance. It can also disappear if the market softens.

3) Appreciation (forced or market) : With forced appreciation you have some control over the ROI but with market appreciation you have none. The money isn't tax advantaged but you can defer taxes (1031 exchange). The money is expensive to put your hands on and it can disappear if values drop.

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  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    2y

    @Collin Hays, that's the beauty of Vegas my friend! lol

    You mentioned NOTHING about why or how someone could choose a property they felt confident would appreciate in value at a rate that exceeds inflation.

    So, in order to really "invest" in real estate for appreciation without VERY good ways to vet investments for appreciation, you would need to buy LOTS of real estate in different markets and of different types to diversify more like buying a mutual fund of stocks. Otherwise, it sounds more like gambling than investing.

    In addition keep in mind there are 3 basic ways you make money with real estate investing:


    1) Cashflow : Something you can vet well, work to maximize, and costs nothing to put in your pocket other than taxes and its tax advantaged (depreciation, etc).

    2) Mortgage paydown : Something you have some control of because you can shop loans, refinance, etc BUT its expensive to put your hands on through a sale or refinance. It can also disappear if the market softens.

    3) Appreciation (forced or market) : With forced appreciation you have some control over the ROI but with market appreciation you have none. The money isn't tax advantaged but you can defer taxes (1031 exchange). The money is expensive to put your hands on and it can disappear if values drop.

    8Reply
  • Collin HaysBusiness Member
    OP
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    2y

    I've been investing in the Smokies since 2005.  Properties doubling in value every 10 years is pretty much the norm.  I'm not a big gambler.

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    1Reply
  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    2y
    Quote from @Collin Hays:

    I've been investing in the Smokies since 2005.  Properties doubling in value every 10 years is pretty much the norm.  


    EXACTLY my point! Any investor would think BUBBLE hearing that! You still mentioned NOTHING an investor would use to determine the prospect of future gain.

    So, again to me this sounds more like gambling than investing.
    3Reply
  • Collin HaysBusiness Member
    OP
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    2y
    Quote from @Kevin Sobilo:
    Quote from @Collin Hays:

    I've been investing in the Smokies since 2005.  Properties doubling in value every 10 years is pretty much the norm.  


    EXACTLY my point! Any investor would think BUBBLE hearing that! You still mentioned NOTHING an investor would use to determine the prospect of future gain.

    So, again to me this sounds more like gambling than investing.

     helpful info.  thank you!

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    1Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    2y

    I don't disagree @Collin Hays, but I think too many investors justify a poorly performing investment with appreciation.

    Not that it doesn't work, but not every area has a steady growth level.

    5Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    2y
    Quote from @Collin Hays:

    I was contacted by a potential investor in the Smoky Mountains asking my opinion on the earnings potential of a cabin.  One of the keys in any investment is "What are your goals?"  I was delighted to hear that this investor said "Break even."  Whoa!  That doesn't sound very appealing, now does it?   Well let's think about that...

    Let's say you buy a $500,000 property, put 20% down, and only "break even" in the early years.  You've spent $100K on the deal.  But in a decade, that property is now worth $1 million for your $100K investment, even if you never made a dime on monthly cashflow!  Your money has doubled more than THREE TIMES in 10 years, or about a 24 percent annual return.  And even if you never make a dime and the cabin doesn't go up a dime in value, you still will have a $500,000 asset in 10 years for your $100K investment.  That's still a 14% annual return!  

    THAT is the beauty of real estate my friends!  


     Great points.

    Decrepiation for tax purposes in addition to appreciation of the asset.

    0Reply
  • Jeff Chisum
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    2y

    I’ve had clients have success with the 10% down second home occupancy loan in this space 

    1Reply
  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    2y
    Quote from @Collin Hays:

    I've been investing in the Smokies since 2005.  Properties doubling in value every 10 years is pretty much the norm.  I'm not a big gambler.


     Sounds like a great investment. Do you sell or refi to unlock the equity you gain?

    0Reply
  • Collin HaysBusiness Member
    OP
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    2y
    Quote from @Alex Olson:
    Quote from @Collin Hays:

    I've been investing in the Smokies since 2005.  Properties doubling in value every 10 years is pretty much the norm.  I'm not a big gambler.


     Sounds like a great investment. Do you sell or refi to unlock the equity you gain?


    I am just a "buy and hold" type.  As time goes on and rents rise, the income becomes too good to entertain any disruptions.  

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    3Reply
  • Collin HaysBusiness Member
    OP
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    2y
    Quote from @Michael Baum:

    I don't disagree @Collin Hays, but I think too many investors justify a poorly performing investment with appreciation.

    Not that it doesn't work, but not every area has a steady growth level.


     Yes, I am referring more to the Gatlingburg region.

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    2Reply
  • Nathan M kiefer
    Rental Property Investor · south carolina and michigan · Member since 2023 · 348 posts · 226 votes
    2y

    But what do your numbers do if you go all cash in, talk about insane......that's what those numbers would be and are 😉

    0Reply
  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    2y
    Quote from @Nathan M kiefer:

    But what do your numbers do if you go all cash in, talk about insane......that's what those numbers would be and are 😉

    @Nathan M kiefer, by insane you mean BAD of course, since you would only get 20% of the ROI and lose out on most of the gain. I just wanted to clarify that because I think some people might think you meant that it would be good.

    By putting 20% down on each property with leverage, you own 5 properties instead of 1 and get 5x as much market appreciation for the same money as purchasing 1 deal all cash.

    1Reply
  • Nathan M kiefer
    Rental Property Investor · south carolina and michigan · Member since 2023 · 348 posts · 226 votes
    2y
    Quote from @Kevin Sobilo:
    Quote from @Nathan M kiefer:

    But what do your numbers do if you go all cash in, talk about insane......that's what those numbers would be and are 😉

    @Nathan M kiefer, by insane you mean BAD of course, since you would only get 20% of the ROI and lose out on most of the gain. I just wanted to clarify that because I think some people might think you meant that it would be good.

    By putting 20% down on each property with leverage, you own 5 properties instead of 1 and get 5x as much market appreciation for the same money as purchasing 1 deal all cash.


     Assuming you have enough money to do one deal, no. 

    were leveraged about 18% on $4mm. Banks are useful but coc whatever I'll take massive cash flow and buy more while getting all the write offs I need 

    0Reply
  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    2y
    Quote from @Nathan M kiefer:
    Quote from @Kevin Sobilo:
    Quote from @Nathan M kiefer:

    But what do your numbers do if you go all cash in, talk about insane......that's what those numbers would be and are 😉

    @Nathan M kiefer, by insane you mean BAD of course, since you would only get 20% of the ROI and lose out on most of the gain. I just wanted to clarify that because I think some people might think you meant that it would be good.

    By putting 20% down on each property with leverage, you own 5 properties instead of 1 and get 5x as much market appreciation for the same money as purchasing 1 deal all cash.


     Assuming you have enough money to do one deal, no. 

    were leveraged about 18% on $4mm. Banks are useful but coc whatever I'll take massive cash flow and buy more while getting all the write offs I need 


    Ok, but this post was talking market appreciation which is MUCH MUCH MUCH less with all cash purchases.

    0Reply
  • Nathan M kiefer
    Rental Property Investor · south carolina and michigan · Member since 2023 · 348 posts · 226 votes
    2y
    Quote from @Kevin Sobilo:
    Quote from @Nathan M kiefer:
    Quote from @Kevin Sobilo:
    Quote from @Nathan M kiefer:

    But what do your numbers do if you go all cash in, talk about insane......that's what those numbers would be and are 😉

    @Nathan M kiefer, by insane you mean BAD of course, since you would only get 20% of the ROI and lose out on most of the gain. I just wanted to clarify that because I think some people might think you meant that it would be good.

    By putting 20% down on each property with leverage, you own 5 properties instead of 1 and get 5x as much market appreciation for the same money as purchasing 1 deal all cash.


     Assuming you have enough money to do one deal, no. 

    were leveraged about 18% on $4mm. Banks are useful but coc whatever I'll take massive cash flow and buy more while getting all the write offs I need 


    Ok, but this post was talking market appreciation which is MUCH MUCH MUCH less with all cash purchases.

    Yep, lot of opinions, to each their own.
    0Reply
  • Collin HaysBusiness Member
    OP
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    2y

    Long term, I'll bet on the Smokies every time.  I bought in 2005, 2010, 2013, 2015, 2019, 2021, and 2022.  and have done well on all of them except the one I bought in 2022, that I broke even on.  I decided to dump it and do something else.  

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    0Reply
  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    2y
    Quote from @Nathan M kiefer:
    Quote from @Kevin Sobilo:
    Quote from @Nathan M kiefer:
    Quote from @Kevin Sobilo:
    Quote from @Nathan M kiefer:

    But what do your numbers do if you go all cash in, talk about insane......that's what those numbers would be and are 😉

    @Nathan M kiefer, by insane you mean BAD of course, since you would only get 20% of the ROI and lose out on most of the gain. I just wanted to clarify that because I think some people might think you meant that it would be good.

    By putting 20% down on each property with leverage, you own 5 properties instead of 1 and get 5x as much market appreciation for the same money as purchasing 1 deal all cash.


     Assuming you have enough money to do one deal, no. 

    were leveraged about 18% on $4mm. Banks are useful but coc whatever I'll take massive cash flow and buy more while getting all the write offs I need 


    Ok, but this post was talking market appreciation which is MUCH MUCH MUCH less with all cash purchases.

    Yep, lot of opinions, to each their own.

    Its math!!! 2+2=4 is NOT an opinion.
    2Reply
  • Nathan M kiefer
    Rental Property Investor · south carolina and michigan · Member since 2023 · 348 posts · 226 votes
    2y
    Quote from @Kevin Sobilo:
    Quote from @Nathan M kiefer:
    Quote from @Kevin Sobilo:
    Quote from @Nathan M kiefer:
    Quote from @Kevin Sobilo:
    Quote from @Nathan M kiefer:

    But what do your numbers do if you go all cash in, talk about insane......that's what those numbers would be and are 😉

    @Nathan M kiefer, by insane you mean BAD of course, since you would only get 20% of the ROI and lose out on most of the gain. I just wanted to clarify that because I think some people might think you meant that it would be good.

    By putting 20% down on each property with leverage, you own 5 properties instead of 1 and get 5x as much market appreciation for the same money as purchasing 1 deal all cash.


     Assuming you have enough money to do one deal, no. 

    were leveraged about 18% on $4mm. Banks are useful but coc whatever I'll take massive cash flow and buy more while getting all the write offs I need 


    Ok, but this post was talking market appreciation which is MUCH MUCH MUCH less with all cash purchases.

    Yep, lot of opinions, to each their own.

    Its math!!! 2+2=4 is NOT an opinion.

     Lol👍

    0Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y
    Quote from @Collin Hays:

    I was contacted by a potential investor in the Smoky Mountains asking my opinion on the earnings potential of a cabin.  One of the keys in any investment is "What are your goals?"  I was delighted to hear that this investor said "Break even."  Whoa!  That doesn't sound very appealing, now does it?   Well let's think about that...

    Let's say you buy a $500,000 property, put 20% down, and only "break even" in the early years.  You've spent $100K on the deal.  But in a decade, that property is now worth $1 million for your $100K investment, even if you never made a dime on monthly cashflow!  Your money has doubled more than THREE TIMES in 10 years, or about a 24 percent annual return.  And even if you never make a dime and the cabin doesn't go up a dime in value, you still will have a $500,000 asset in 10 years for your $100K investment.  That's still a 14% annual return!  

    THAT is the beauty of real estate my friends!  


     Yes, that investor is quite smart. Very smart actually. They knew the angle to come in at. I highly recommend you take care of that investor very well. ;) 

    0Reply
  • Collin HaysBusiness Member
    OP
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    2y

     Yes, that investor is quite smart. Very smart actually. They knew the angle to come in at. I highly recommend you take care of that investor very well. ;) 


     I recommended that he self-manage.  I only like to help folks that don't have the time, interest, or energy in self-managing.

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    0Reply
  • Jeremy Horton
    Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes
    2y

    @Collin H.

    Wow 10x in 10 years

    Maybe a little optimistic there

    1Reply
  • Collin HaysBusiness Member
    OP
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    2y
    Quote from @Jeremy Horton:

    @Collin H.

    Wow 10x in 10 years

    Maybe a little optimistic there

    Point is, even if the property doesn't go up in value one dime, you are still at 14% annual return, with zero monthly cash flow.   And that's pretty pessimistic!

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    2y
    Quote from @Collin Hays:

    I was contacted by a potential investor in the Smoky Mountains asking my opinion on the earnings potential of a cabin.  One of the keys in any investment is "What are your goals?"  I was delighted to hear that this investor said "Break even."  Whoa!  That doesn't sound very appealing, now does it?   Well let's think about that...

    Let's say you buy a $500,000 property, put 20% down, and only "break even" in the early years.  You've spent $100K on the deal.  But in a decade, that property is now worth $1 million for your $100K investment, even if you never made a dime on monthly cashflow!  Your money has doubled more than THREE TIMES in 10 years, or about a 24 percent annual return.  And even if you never make a dime and the cabin doesn't go up a dime in value, you still will have a $500,000 asset in 10 years for your $100K investment.  That's still a 14% annual return!  

    THAT is the beauty of real estate my friends!  


     Is your loan a 10 year loan? If 30 year financing, at year 10 you have a lot less than $500k equity if there is no appreciation. You also have achieved a return far lower than 14%. 

    Those that refer to investing with expectation of appreciation not being investing are using a non-common definition.  The most common definition has an expectation of return.  Using their non-common definition, placing money in stocks expecting their value to increase is not investing.  I am not a fan of people (including Robert K) making up their own definitions for words.   Robert K famously states your home is not an investment.   By definition if you expect the home to produce a return your home is an investment.  

    0Reply
  • Jon Martin
    Member since 2022 · 1k+ posts · 1k+ votes
    2y
    Quote from @Kevin Sobilo:

    @Collin Hays, that's the beauty of Vegas my friend! lol

    So, in order to really "invest" in real estate for appreciation without VERY good ways to vet investments for appreciation, you would need to buy LOTS of real estate in different markets and of different types to diversify more like buying a mutual fund of stocks. Otherwise, it sounds more like gambling than investing.

    I strongly disagree with this. It's not rocket surgery to pay attention to demographic trends, economic signals, and basic human behavior to figure out what areas are a safer bet for investing. 

    Areas close to coastlines, universities, rivers, major highways, large employers, hospitals, airports etc are likely to keep growing. Especially if there is already a decent sized population center. Areas in the middle of nowhere that lack opportunities tend to stay that way. 

    With a bit more research you can really dial in areas that are likely to do better than others. That is hardly "gambling" where you at best have a 48-50% chance of winning.

    3Reply
  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    2y

    @Jon Martin, you didn't disagree with me! I didn't say those things didn't exist but the poster was completely unaware of them. So, apparently IT IS "rocket surgery" as you say.

    I said that without knowledge on where to "invest" one would need to more blindly diversify like one would with something like stocks.

    I didn't say that someone could not with knowledge invest for market appreciation but I made it 100% clear it is not as easy as you suggest since the poster had no idea. How the investment plays out is also outside your control once you purchase and getting your proceeds is expensive and not tax advantaged.

    In addition, if you want to do some more "rocket surgery" you have to figure the time-value of money. Cash-flow is in your pocket as time goes while you may not realize marker appreciation for 10-20 years. Money today is worth well more than money 10-20 years from now!

    0Reply
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