STR in Smokey’s / 1031- too risky?

34 Replies

Hi everyone.

I've been researching STRs in the Smokey's for a solid 8 months now. I owned a small business and sold it in March of this year leaving me with some cash to reinvest into something else. We own a few SFH LTRs and after a visit to Gatlinburg three years ago became sold on the area and doing a STR.

I couldn’t compete with the cash offers sellers were getting the same day their cabin was listed within my price range (up to $250k). So I’ve stepped back from making offers the last while and have come up with a new plan.

I have a SFH in Utah that I have tenants moving out of in January. My plan is to list it for sale after they move. This area is growing like crazy and homes do not sit on the market longer than a week if priced correctly. I believe I will walk away with $150k (on the low end). My plan is to 1031 that money (most but not all) and bump my shopping budget in the Smokey's to $450-$550k. However, I am limiting myself to the properties that come up for sale in those 45 days after I close on my Utah home. I'm hoping I find a property shortly before we list the Utah home and be under contract contingent on when the Utah home sells. I don't know if that will fly either. Competition is fierce.

I’m all for risk but am wondering if this is too risky. I’ve run the numbers so many times on STRs that I have them memorized so I would know when to jump on one quickly. But what if nothing good comes up in that short window? Am I overthinking this?

I own 5 here and I have had at least 20 clients 1031 into Smokies properties this year. It can be a bit of a hustle to ensure you snag a good one within the time frame, but it’s easily doable! If you have never 1031’d before I can definitely understand the nervousness, but exchanging into a cash flowing property in this market is an easily attainable goal.

@Leora Merrell

Totally doable. In fact I would have tried a bit harder when you were looking for 250k cabins because they’ve gone up to 275-300 now.

450-550 is currently the sweet spot in my opinion. We’re seeing great returns on properties in that price range. I was just talking to a noob this morning that is doing so well with her 4 bedroom that she’s about to close on another one with an indoor pool. She contacted me with an issue, which is pretty much the only reason contact me. We resolved the issue promptly.

I think it is important to point out that any property that is priced right, in any market in the world, in any financial climate -will sell quickly.

What's the catch in the Smokys if cash flow is available? Well frankly STR is not for everyone. You do have to answer questions and get reviewed.

Jump in! Feel free to ask any more questions. With 2000 reviews I’ve got the answers and been through it all. 

“Poor people analyze risk, rich people analyze reward” T. Harv Ecker.

typed on an iPhone 

@Lucas Carl

Thanks so much for the reply. I appreciate it. 

I agree with you on all points. It was so hard shopping in my price range the last several months. For an example, I made a full price offer, close in 21 days on a $210k cabin the day it was listed. The same day it received 3 cash offers, two of which were 10% OVER the asking price. It was killing me.

Anyway, I think I’m going to go for it. My biggest concern is what pops up for sale in my short time frame. I’ll keep my fingers crossed and possibly switch to a more aggressive realtor. Thankfully it seems the $450-550k cabins sit on the market a bit longer than the lower priced ones. 

@Avery Carl

That’s awesome! I love hearing success stories. Yes, it’s my first 1031 so I’m sure that’s where part of my worry comes from. Just gotta make sure I have all my ducks in a row.... I’m more concerned about the quality of properties that pop up for sale when I am within my small time frame. 

@Leora Merrell if everyone else can do it you can do it too! The good thing about this market is it’s really difficult to screw up. A good income producing property will pop up in your time frame. You want to talk to @Dave Foster , a ton of folks on this forum have used him for their exchange. He’s the best.

If you want a good realtor in this area that knows the market and may even have access to Pocket listings then you need to be talking with @Avery Carl .

There are many ways to transact real estate in this area, and you would be surprised how many transactions occur before houses even hit the MLS. And even others that never hit the MLS and occur between two investor parties. You need to have in an aggressive agent to get access to these and Avery is plugged in.

The market is here and there can be units found in that price range. We just closed a month ago and had our offer accepted on another for $255k a week ago. We had a few we didn't get, and just made another offer yesterday on one for $268K. It can be done.

@Chuck Kramer

That is awesome to hear. I think you’re right about the agent. After the last few weeks of intense research and planning, I’ve come to the conclusion that my realtor is not what I need or want. I wish I had found BP much sooner!

@Leora Merrell You're getting great advice here! I also feel your pain - I have several clients looking in that $250k range and it's probably the toughest right now, for the reasons you mentioned. I think you're opening yourself up to a lot of success with your 1031 plan - your ROI will likely be better anyway and you'll just be catapulting yourself to another level. And while I do understand your nervousness about the 1031 timeframe, something (more than one something) good will come up in those 45 days. :)

I have to echo @Chuck Kramer - if you're not already working with an agent, @Avery Carl is who you want - nobody better in this market, especially for STR investors. :)

@Leora Merrell

So we just closed on our new cabin in the Pigeon Forge area on Tuesday with many thanks @Avery Carl and @Lucas Carl and their team in the area, especially my realtor Gennifer and lender @Parker Borofsky with MIG. We spent the week getting it furnished and equipped for a STR and should be listing it with VRBO and AirBnB later today. Many of the cabins as you have probably seen, come furnished though ours came completely unfurnished but we were able to get a 15K furniture credit with a local furniture store their in Pigeon Forge. Our new cabin was just built last year as the previous cabin on the lot burned in the fire back in 2016. That fire, horrible as it was has given new life to the area our cabin now sits as well as a much bigger clearing from the trees, so it has a decent view off the back deck, and you can hear the train whistle blow from Dollywood. This is our first STR. It's officially classified as a 1 Bdr with a loft, but we'll be listing it as two Bdr that sleeps 6. We probably paid a little more than we should have, but it's a beautiful cabin in a great area and so we feel that we'll do very well with it. In the lead up to the purchase I spoke with Avery and Parker in great detail as we were both excited and nervous about the prospect of having a cabin in the Smokys. We paid $333,900 for the cabin and thankfully the appraisal came back at $350 so a plus there. The cabin is just about 1400 sq feet and on .7 of an acre. The whole process from start to finish has taken just about 30 days and when I looked on VRBO and AirBnB for cabin rentals over the Thanksgiving period coming up, there were none. So my biggest question right now, is what should I put the cabin on for the nightly rental at a 4 night min rental for the holiday? I can't say enough good about the STR team. So as Lucas says, don't sweat the small stuff and just jump in and get started. I'll give a bigger picture of the process on a separate post later.

And on the other end of the spectrum, there is my town. Some people call it Hades. You can buy a 3BR house with CH/A for $9500 as a bank foreclosure. It'll need about $1000 in repairs/updates that can be done by a professional in 2 business days. It'll need basic furnishings for people to drink beer after getting off work, cook food, do laundry, bathe, sleep, repeat. It'll generate $600/week before expenses.

Contractors are the tenants for my 23 STRs.  Big burly guys you see working on the large erections of steel at a petrochemical refinery.  They drive jacked up 4x4s, have neck tats, smell like diesel fuel and chew tobacco in their sleep.

The other end of the spectrum compared to the Smokys.

@Avery Carl , Thanks for the shout out.  @Leora Merrell , When done right the 1031 exchange is seamless and almost invisible for you. Your QI guides you through the process. Your biggest job is still finding the right replacement property that meets your needs. That's where great realtors like Avery are worth their weight in gold because they have their finger not just on the sales . market but also on the rental market industry.

@paul cox Congrats on your first str. I have lived within an hour drive of the smokies my entire life and really took it for granted. Well, thats changing, and I'll be getting into the market soon myself. I might speak for others on here as well, but I would love for you to expand on this credit for furnishings you received. Thanks!

Sorry, but I'm not going to march to this chorus. The Smokies are a great place and I almost went up there once. But if you are planning to use a property manager, and pay your 30%, I think it's a waste of time. It's only worth it if you how old is Vice is some here and learn how to do it entirely yourself remotely. Even then, I'm not a big fan of being remote when you can be local.

You don't mention in your post where you live.

You're in an area that's already growing in Utah you said. Selling that house and buying another is going to come with a lot of costs

if you live near that house, I would suggest instead that you short term rental that and learn how to do it before trying to jump into a place far away.

if you've never done short term rental, it's not in any way as simple as Everyone likes to make it seem. It is until things go unexpectedly. Lucas is offered to teach people by phone and I would take that up as an offer before deciding or do anything

notice that a lot of responders have businesses that relate to this, so I always start out by not trusting any of them who is a potential sales person to you. Do your due diligence. Don't hop into the fire.

My first STR was located 200 miles from my home and I self-managed while working 80 hours a week in an industry not at all related to real estate.

My second, third, and fourth STRs (in the Smokies) were located 2000 miles away and I found them even easier to manage because of the local resources that are available.  

Now I've moved so that my first one is 2000 miles and the others are 200 miles, but it doesn't really matter.  Even if I lived in the same area I'm generally not going to be personally responding to the very rare service request I get.  I'll pony up the occasional service charge in exchange for getting to live where I want, thanks!

@Dave Foster I appreciate the information. I will likely be reaching out to you. I've read several of your posts on the 1031 forums and found them very educational. It definitely seems less daunting when working with a good intermediary.

@Ken Latchers I've done hours upon hours and months upon months of research. I live across the country from the home in Utah and the area it's in performs terribly for STRs and the cash flow for it as LTR is nowhere near where I want my returns to be (we bought it thinking we'd be there forever, we were there for a year). I'm confident in my abilities to manage it myself and save the 30%. But you are right, due diligence is crucial.

@Leora Merrell , that's great. We're self managing as well. I failed to mention in my original post that I contacted @Lucas Carl on more than one occasion to ask questions. I like Lucas's matter of fact mentality. He's a straight shooter and won't steer you wrong, but with so many people reaching out to him, you just have to remind him of who you are and what property or issues you've discussed with him are :) In fact I'll be reaching out to him again after this post! Maybe we can get a STR meetup going in the NOVA area soon.

Gatlinburg has been getting more exposure to STR investors and this might be an excuse to go out there and check out this market.

I'm sure there are a ton of activities to do there too. 

@Leora Merrell We were selling a LTR and wanted to buy another one using the 1031 in Jacksonville FL. We had already identified two properties there. Separately, we had a STR elsewhere and after learning about the Smokies and my personal desire for the mountains and diversifying, we decided to switch plans and buy in Pigeon Forge area instead of JAX. My conversation went like this, "hello Avery? I want to buy a cabin in the Pigeon Forge area, here's what I want to spend, oh, and I have two days to identify it." Check, check, check. Work with seasoned people and you can do it. I don't recommend putting yourself or anyone else under pressure but it is a smart idea to defer taxes and grow your portfolio. We manage ourselves and remotely.

With the 1031, it doesn't matter how much equity or debt you have on the property you're selling. If the new property is the same or greater you can defer 100%, anything less is prorated.

We worked with @Parker B for our mortgage.

Good luck! It can certainly be done. You might not get the low ball best deal but you’ll get into the market that’s proven and local to you.

every serious vacation place is booked solid for the major holidays memorial day, july 4th, labor day.

is november leaf season? that would explain that and it would be nothing special.

picky normally busy times of year and thinking it is significant is an incorrect analysis