First Time Invester STR Tennessee

First Time Invester STR Tennessee

Real Estate Agent · Sevierville TN · Member since 2020 · 32 posts · 16 votes

Hello everyone I'm new to the BP community and have already read a lot of forums for STR in Sevierville TN area but would like some advice on my situation. I'm 25 with a great 9-5 job, my wife just quit her job to stay at home with our two kids and it has been a great decision although losing her salary was hard to let go of. So I started researching how we could bring in extra income and came upon Air DNA and the potential of STR in pigeon forge and Gatlinburg area. By the end of this year I should have 20-30k that I could put down towards a STR in that area, but I would like to either build my own small cabin one bedroom with loft ~1000 sqft, or purchase an existing cabin. Would it be possible to find something 150-200k in that area that would help us achieve some passive income? My wife is very detailed oriented and would be great at managing the property so we would do that aspect ourselves. We've built two homes and love building so we can create the look and feel we desire, but I know it can get expensive depending on land. We don't have any other debts except our mortgage, but limited funds for down payment. Any tips would be greatly appreciated, I know I have read a lot of Lucas and Avery Carl's posts and they could help me here I just don't know how to tag them in this post. Thanks everyone!

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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
6y

@Luke Carl and @Avery Carl can help with this.

I would think you could do better finding a deal on an existing house/cabin than building new and be up and running much faster.

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  • Real Estate Agent · Sevierville TN · Member since 2020 · 32 posts · 16 votes
    6y

    @Thomas Bass Correct. 

    @Ryan Proffit I’m glad that it has been useful for you, it sure has been for myself. Thankful there are people willing to take the time to help me get started 

  • Rental Property Investor · Member since 2019 · 33 posts · 78 votes
    6y

    @Levi Trentham

    We just listed a 2/2 in Sevierville and it went under contract for 10k over asking in under 24 hours(125k more than we paid for it 2.5 years ago).

    We also just went under contract to buy a 1/1 in Gatlinburg- also for a little MORE than 10k over asking in under 24 hours.

    The market is just ridiculous right now.

    If you can find a flat-ish piece of land and a reputable builder that isn't booked out 24 months, building could be a great option.

  • Real Estate Agent · Sevierville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Thomas Bass:

    @Julie McCoy I think that is why @Levi Trentham cut his 50k gross to 25k to account for other expenses.

     Ha, I was reading quickly and missed the all-important "half that" line!  Thanks for the clarification, and yes, that makes it a much better projection.  :) 

  • Real Estate Agent · Sevierville TN · Member since 2020 · 32 posts · 16 votes
    6y

    @Tony Antonelli Nice! Congrats! Exactly what I was thinking, I could probably build and have equity in it from the start if I can find a reliable contractor and good plot. 
    @Julie McCoy No big deal I just wanted to make sure I was on the right track there. Avery actually mentioned in the podcast today that she was doing better than the 50% rule. 

  • Investor · Member since 2018 · 24 posts · 6 votes
    6y
    Originally posted by @Chuck Kramer:

    Hard to find a property in that price range and getting harder every day. Most "rent ready" properties are well over $220 sq ft and many are at or over $300 sq ft now! You can build for $185-225 sq ft, depending on exact location and such, but builders are booked way out with most better ones looking at 1.5-2 years ahead.

    Don't mean to discourage you in any way, just being realistic. @Avery Carl can help you out with scoping properties.

    Being close is a plus, but not required. You do need a good team of cleaner/handyman and a list of solid vendors (many of us can assist with that or point you to good resources).

    Keep one thing in mind though, and it is important. The STR market in Sevier County, and especially its customers, are unlike anywhere else in the USA. Many have come in with experience or advice from people gained elsewhere and gotten their behinds kicked black and blue. Pass on the "be successful with airbnb" or "10 things you need in your vacation rental" as they just don't apply. This is a mature market and the clientele is highly varied.

    Before buying, make SURE you do your due diligence. In the last month or so I have run into a investors who ran here to the Smokies after hearing about our great returns and grabbed the first things that looked good, using agents who also don't really understand self-managed STRs. 

    That includes 3 who bought cabins in non-rental areas, another one who bought one in the City of Gatlinburg that was *never* going to pass inspection, and at least 3 others that didn't know they needed permits and business licenses until they got cease and desist letters. Another bought a new 5-bedroom home just to find that turning it into a rental required an $18K sprinkler system and a number of other changes. Oh, then there was the woman who bought a great looking cabin that turned out to be next door to a guy that raised and trained hunting dogs.

    Two words; DUE DILIGENCE all around.

    You can make it work and Avery can help. Reach out to her.

    On undeveloped land - would it make any sense to look at modular or similar (Tiny Homes?) for STRs?

  • Real Estate Agent · Sevierville TN · Member since 2020 · 32 posts · 16 votes
    6y

    @Andy Becker I’ve had that thought to, I’d have to do some cost comparisons and see if it’s worth it vs just doing new construction. One company I looked into for a modular cabin said lead time was 4-6 months so it wouldn’t be much quicker than just building 

  • Orlando, FL · Member since 2017 · 241 posts · 254 votes
    6y

    Got to be careful of tiny homes and modular homes in this area. Every jurisdiction (Gatlinburg, Pigeon Forge, Sevierville, and Sevier County) are not fond of ANY of those options. Blount County (next one over) prohibits all of those as rentals, and tiny home altogether. Cocke County doesn't have such restrictions...yet...but is considering it. They consider modular/mfg to be different that "mobile homes".

    How do I know? Well, been looking at that idea myself. Severe shortage of decent long-term rental properties in the area and it seemed like a good idea. Only way to make that work was to head out 321 to Cocke County and put them up there. 

    Bottom line - possible in a way, but not without fighting and sacrifice.

  • Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Levi Trentham fyi the 50% rule of thumb calculation is gross income x .5 - your mortgage (ie not including taxes and insurance). Taxes and insurance are part of the 50% estimated expenses.

  • Real Estate Agent · Sevierville TN · Member since 2020 · 32 posts · 16 votes
    6y

    Thanks for the info @Chuck Kramer 

  • Member since 2019 · 16 posts · 9 votes
    6y

    @Account Closed cabin.  You will be sold!

  • Real Estate Agent · Sevierville TN · Member since 2020 · 32 posts · 16 votes
    6y

    What would be some options for financing an STR that my DTI wouldn't come in to play? Owner financing or ? I have some capital I could put down, but considering we just bought a house 7 months ago while my wife was working and now she is not, I don't think I could do the 10% vacation home loan because of DTI ratio. Wishing I had learned about STR sooner and I would have definitely changed some things. Thanks everyone! @Luke Carl @Julie McCoy @Chuck Kramer @Avery Carl 

  • Orlando, FL · Member since 2017 · 241 posts · 254 votes
    6y

    Some local banks will look more at income potential and know the market reasonably well. You could also look at hard money for a bridge to GET the property, then refinance after 8-12 months.

    @Avery Carl has a great finance contact that knows some of these folks. Being semi-local, they will like that. There are some banks that will make those loans to locals but not out-of-towners.

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