Smokey Mountains current situation on the ground
Saint Joseph, MO · Member since 2018 · 401 posts · 244 votes
Smokey Mountains current situation on the ground
Most Popular Reply
Real Estate Agent · Sevierville, TN · Member since 2015 · 1k+ posts · 1k+ votes
6yHey @Ryan Proffit! Glad to share what I know. The charts @Lauren Kormylo linked are really where I point people to, those have more thorough information than the broad strokes I'm about to give. My rules of thumb - that is, conservative, middle-of-the-road estimates on gross annual income - are as follows: 0-1BR $35k/yr, 2BR $45k/yr, 3BR $55k/yr, 4BR $70k/yr, 5BR $85k/yr
That's readily achievable for a middle-of-the-road cabin within 15-20 minutes of either downtown Pigeon Forge or downtown Gatlinburg if you're a competent manager.
As for correlating with purchase price, while of course there's a general correlation of higher price = nicer property = higher rent potential, it's not necessarily going to scale proportionately. You can mismanage a nice cabin and do poorly, or be an awesome manager of an average cabin and do really well (though I think we all want to be awesome managers of awesome cabins and KILL IT!!!).
Performance comes down to management in so many ways - which means I can't predict how you'll do as a manager, but the awesome thing is it means you control your own destiny! (This does not mean you have to have handmade gift baskets for every guest; it mostly means being prompt and clear with your communication, responsive to any issues, and providing a clean, comfortable place to stay that is accurately reflected in your listing)
So, while I know we all want plug-and-play numbers, there's too many variables for something like that to be effective; this is what I have to offer. :)
101 Replies
- Lender · Asheville NC · Member since 2016 · 469 posts · 317 votes6y
Originally posted by @Alan Ford:
@Malgrum Holley totally agree on the gross rents comment. Most people here seem to include the money collected for cleaning fee for example
Which makes sense when self managing.
When I say gross rents of $73k for my 4/4 - it does not include cleaning fees because that goes straight to the cleaner. My PM nor I make profit on it.
I include cleaner's fees in gross because I think of it as an expense just the same as my elec bill. Also, I self manage / and primarily use airbnb, and the Monthly Earnings include cleaner fees so it's simpler for me. - 6yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Originally posted by @Alan Ford:
@Malgrum Holley totally agree on the gross rents comment. Most people here seem to include the money collected for cleaning fee for example
Which makes sense when self managing.
When I say gross rents of $73k for my 4/4 - it does not include cleaning fees because that goes straight to the cleaner. My PM nor I make profit on it.
Your PM is likely making a profit on the cleaning fee. Also, go to their website and try to make a sample booking for a couple of nights. What extra fees are they charging? Booking fee, hot tub fee, administrative fee, Damage waiver fee. You might be surprised. They aren't sharing any of these fees with you, and in fact are shifting $$$ away from rents into their fees. It's called rent shifting. I have a video on youtube exposing this. I can't provide a link because I it might be construed as promoting my own co., so you will need to do your own search for it. It's very eye-opening. Go to youtube and use the term vacation management exposed and it should pop up.
- Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes6y
@Gerald Pitts which is totally valid but just proves the point. Not everyone is speaking the same language. I tent to like the profit approach. How much hard cash do I get to spend re-invest etc. after paying for literally every expense in a year on average for a given property.
So on my 4 bedroom property - I put 10% down, purchase price of $395k = 39,500. Pure profit for 2019 after all (literally all) expenses was $14,365 (doesn't include equity gain) - works out to a 36% or so ROI (for my initial down payment). This was a better than normal year because I didn't have any major repairs to deal with or appliances to replace etc. Last year it was $12,567 profit - had to replace some decking and a dishwasher. This year I have it earmarked for new staining - so I expect to finish the year around $11,000 in profit or so. Although - on a four bedroom - one random *** weeklong vacation in an off season month can really bring it back up. My PM just put someone in my cabin for two weeks starting Valentine's Day. Was a nice reservation during the traditionally worst month.
- Lender · Asheville NC · Member since 2016 · 469 posts · 317 votes6y
I am very jealous of that / happy for you! Feb has been rough!
- 6yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Numbers are always fuzzy because "profit" means different things to different people. I don't include a mortgage in measuring profit, because it's not the property's fault that I am having to borrow to buy it. Whether a property is a good deal shouldn't be contingent upon your financing terms. That's a bank and personal finance issue.
Now, I would still expect it to cash flow after a mortgage personally, or it wouldn't work for me.
- 6yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Originally posted by @Gerald Pitts:
I am very jealous of that / happy for you! Feb has been rough!
An actively managed property should be renting for 12 to 18 days MINIMUM, even in January and February.
- Lender · Asheville NC · Member since 2016 · 469 posts · 317 votes6y
Originally posted by @Collin Hays:
Originally posted by @Gerald Pitts:
I am very jealous of that / happy for you! Feb has been rough!
An actively managed property should be renting for 12 to 18 days MINIMUM, even in January and February.
By those expectations, I'm killing it, then! :) I'm just a couple months in so I just haven't cash flowed a lot of savings to make up for Feb. I knew going in Feb was a rough one, and to have a little extra put aside.
- Real Estate Agent · Sevierville, TN · Member since 2015 · 1k+ posts · 1k+ votes6y
Originally posted by @Alan Ford:
@Gerald Pitts which is totally valid but just proves the point. Not everyone is speaking the same language. I tent to like the profit approach. How much hard cash do I get to spend re-invest etc. after paying for literally every expense in a year on average for a given property.
So on my 4 bedroom property - I put 10% down, purchase price of $395k = 39,500. Pure profit for 2019 after all (literally all) expenses was $14,365 (doesn't include equity gain) - works out to a 36% or so ROI (for my initial down payment). This was a better than normal year because I didn't have any major repairs to deal with or appliances to replace etc. Last year it was $12,567 profit - had to replace some decking and a dishwasher. This year I have it earmarked for new staining - so I expect to finish the year around $11,000 in profit or so. Although - on a four bedroom - one random *** weeklong vacation in an off season month can really bring it back up. My PM just put someone in my cabin for two weeks starting Valentine's Day. Was a nice reservation during the traditionally worst month.
I get a lot of questions about what a property is going to "cash flow" (or what you're terming profit). It's an impossible question to answer, because it depends on too many variables that are subjective to the buyer. One thing I DO know is that your profit will NOT be the buyer's profit because their purchase terms will be different - they're almost always paying a (much) higher price for the cabin, financing terms are individual, they might choose to spend more or less on the cable bill, might generate more income, cut expenses, etc. etc. etc.
Every buyer should know how to estimate their own cash flow, but it's a meaningless metric if the information is coming from the seller. Gross income is far more useful (and yes, specifying whether or not that includes cleaning fees/taxes/etc) since that allows the buyer to make their own cash flow projections - but that still assumes performance remains the same, when often it does better with the new buyer if they self-manage. (not always, but often)
- 6yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Originally posted by @Julie McCoy:
Originally posted by @Alan Ford:
@Gerald Pitts which is totally valid but just proves the point. Not everyone is speaking the same language. I tent to like the profit approach. How much hard cash do I get to spend re-invest etc. after paying for literally every expense in a year on average for a given property.
So on my 4 bedroom property - I put 10% down, purchase price of $395k = 39,500. Pure profit for 2019 after all (literally all) expenses was $14,365 (doesn't include equity gain) - works out to a 36% or so ROI (for my initial down payment). This was a better than normal year because I didn't have any major repairs to deal with or appliances to replace etc. Last year it was $12,567 profit - had to replace some decking and a dishwasher. This year I have it earmarked for new staining - so I expect to finish the year around $11,000 in profit or so. Although - on a four bedroom - one random *** weeklong vacation in an off season month can really bring it back up. My PM just put someone in my cabin for two weeks starting Valentine's Day. Was a nice reservation during the traditionally worst month.
I get a lot of questions about what a property is going to "cash flow" (or what you're terming profit). It's an impossible question to answer, because it depends on too many variables that are subjective to the buyer. One thing I DO know is that your profit will NOT be the buyer's profit because their purchase terms will be different - they're almost always paying a (much) higher price for the cabin, financing terms are individual, they might choose to spend more or less on the cable bill, might generate more income, cut expenses, etc. etc. etc.
Every buyer should know how to estimate their own cash flow, but it's a meaningless metric if the information is coming from the seller. Gross income is far more useful (and yes, specifying whether or not that includes cleaning fees/taxes/etc) since that allows the buyer to make their own cash flow projections - but that still assumes performance remains the same, when often it does better with the new buyer if they self-manage. (not always, but often)
This is so true. I purchased a cabin for my mother in the Blackbear Falls subdivision in Gatlinburg last summer. It's 900 square feet and she paid $270K for it. $300 psf! Does it "cash flow"? Absolutely it does. It generates about $41K a year. She paid cash for it, but here are her yearly fees (approximate):
HOA $2600
Utilities $3000
Insurance $2000
Repairs/maint $2000
Taxes $700
CC fees (her portion) $872
So about $11,200 in expenses, with a net income for her of approx. $30,000 from an investment of $270K. That's an 11 percent annual yield. Even if I was charging her a 25% management fee, her yield would still be approximately 8 percent annual, just on the income alone Find me a CD paying that!
- 6yRyan MoyerBusiness MemberProperty Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 991 posts · 1k+ votes
Originally posted by @Alan Ford:
@Gerald Pitts which is totally valid but just proves the point. Not everyone is speaking the same language. I tent to like the profit approach. How much hard cash do I get to spend re-invest etc. after paying for literally every expense in a year on average for a given property.
So on my 4 bedroom property - I put 10% down, purchase price of $395k = 39,500. Pure profit for 2019 after all (literally all) expenses was $14,365 (doesn't include equity gain) - works out to a 36% or so ROI (for my initial down payment). This was a better than normal year because I didn't have any major repairs to deal with or appliances to replace etc. Last year it was $12,567 profit - had to replace some decking and a dishwasher. This year I have it earmarked for new staining - so I expect to finish the year around $11,000 in profit or so. Although - on a four bedroom - one random *** weeklong vacation in an off season month can really bring it back up. My PM just put someone in my cabin for two weeks starting Valentine's Day. Was a nice reservation during the traditionally worst month.
Just out of curiosity, what is the gross you are bringing in to generate that amount of profit?
Cosmic Vacations4.9172 Reviews - Rental Property Investor · Castle Rock, CO · Member since 2017 · 335 posts · 387 votes6y
Originally posted by @Collin Hays:
..... I purchased a cabin for my mother in the Blackbear Falls subdivision in Gatlinburg last summer. It's 900 square feet and she paid $270K for it. $300 psf! Does it "cash flow"? Absolutely it does. It generates about $41K a year. She paid cash for it, but here are her yearly fees (approximate):......
So about $11,200 in expenses, with a net income for her of approx. $30,000 from an investment of $270K. That's an 11 percent annual yield. Even if I was charging her a 25% management fee, her yield would still be approximately 8 percent annual, just on the income alone Find me a CD paying that!
You could have just bought her shares in the S&P500 index fund, which returns, on average, 10-11% -- and that's including the Great Depression in 1929 and the Great Recession in 2008. And it's zero work. https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp
- Rental Property Investor · Castle Rock, CO · Member since 2017 · 335 posts · 387 votes6y
Originally posted by @Alan Ford:
@Malgrum Holley totally agree on the gross rents comment. Most people here seem to include the money collected for cleaning fee for example
Which makes sense when self managing.
When I say gross rents of $73k for my 4/4 - it does not include cleaning fees because that goes straight to the cleaner. My PM nor I make profit on it.
The whole issue of "does gross income include cleaner fees" is further complicated by the fact that from a TAX perspective, it absolutely is income. It's just offset by an expense of the same or similar amount so it's usually a wash. But not always -- a good example is an owner who cleans their own cabin. Or when an owner charges more than what they pay their cleaners, which is quite common. But when talking about gross income from an investment perspective (like this website) we all ought to be excluding it IMHO.
- Lender · Asheville NC · Member since 2016 · 469 posts · 317 votes6y
Originally posted by @Tim Schroeder:
Originally posted by @Alan Ford:
@Malgrum Holley totally agree on the gross rents comment. Most people here seem to include the money collected for cleaning fee for example
Which makes sense when self managing.
When I say gross rents of $73k for my 4/4 - it does not include cleaning fees because that goes straight to the cleaner. My PM nor I make profit on it.
The whole issue of "does gross income include cleaner fees" is further complicated by the fact that from a TAX perspective, it absolutely is income. It's just offset by an expense of the same or similar amount so it's usually a wash. But not always -- a good example is an owner who cleans their own cabin. Or when an owner charges more than what they pay their cleaners, which is quite common. But when talking about gross income from an investment perspective (like this website) we all ought to be excluding it IMHO.
That is another reason I include it in my gross. I charge a little over the cleaning fee to help pay for supplies.
- Rental Property Investor · Castle Rock, CO · Member since 2017 · 335 posts · 387 votes6y
Originally posted by @Collin Hays:
Numbers are always fuzzy because "profit" means different things to different people. I don't include a mortgage in measuring profit, because it's not the property's fault that I am having to borrow to buy it. Whether a property is a good deal shouldn't be contingent upon your financing terms. That's a bank and personal finance issue.
Now, I would still expect it to cash flow after a mortgage personally, or it wouldn't work for me.
The analysis of "Whether a property is a good deal" is absolutely contingent on financing (for income properties anyway) and for measuring ROI !! Income properties are all about cash flow, and cash flow is affected by your mortgage costs, so I cannot see how financing can not be included in the profit analysis. If you DO have a mortgage, your ROI % is going to be higher but cashflow will be lower. Unless you have unlimited capital, ROI is more important than cashflow in dollar terms. If you want to measure a property's potential profit without considering mortgage costs, use Cap Rate.Just my opinion.
- 6yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Originally posted by @Tim Schroeder:
Originally posted by @Collin Hays:
You could have just bought her shares in the S&P500 index fund, which returns, on average, 10-11% -- and that's including the Great Depression in 1929 and the Great Recession in 2008. And it's zero work. https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.aspWith all due respect, that idea is so preposterous that it's hard to even know how to respond. You cannot invest in an S&P index fund, or any mutual fund for that matter, and plan on an 8 percent annual withdrawal. You will go broke. Please re-read this a few times.
There are chunks of time - decades - where the S&P 500 has lost tremendous value. In March 2000, the S&P 500 index reached a high of 2266. Over the next 9 years, it fell until finally bottoming in Feb. 2009 to 893. It would be another 6 years before it would reach 2266 again. So that is 15 lost years there of ZERO growth whatsoever. So let's use your theory and assume I had $400,000 in an S&P index fund in 2000 fund and started withdrawing $32,000 per year, I would have been completely broke by around 2007.
Using my mother's home as an example of 8 percent (she's actually receiving 11%), she would be not only receiving 8 percent, but leaving the value of the asset intact, which over time is likely appreciating. When you are withdrawing from a mutual fund, you are eating away at the asset. In a bear market, you either quit eating away at it and wait for it to rebound, or you continue eating way at it until there's nothing left.
- 6yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Originally posted by @Tim Schroeder:
Originally posted by @Collin Hays:
Numbers are always fuzzy because "profit" means different things to different people. I don't include a mortgage in measuring profit, because it's not the property's fault that I am having to borrow to buy it. Whether a property is a good deal shouldn't be contingent upon your financing terms. That's a bank and personal finance issue.
Now, I would still expect it to cash flow after a mortgage personally, or it wouldn't work for me.
The analysis of "Whether a property is a good deal" is absolutely contingent on financing (for income properties anyway) and for measuring ROI !! Income properties are all about cash flow, and cash flow is affected by your mortgage costs, so I cannot see how financing can not be included in the profit analysis. If you DO have a mortgage, your ROI % is going to be higher but cashflow will be lower. Unless you have unlimited capital, ROI is more important than cashflow in dollar terms. If you want to measure a property's potential profit without considering mortgage costs, use Cap Rate.Just my opinion.
If I find a house I can buy for $100,000 that is worth $200,000, it's a great deal, whether or not I personally am approved for financing. My personal financial situation has no bearing on whether it represents a good buy.
- Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes6y
@Collin H. I know the term. They don’t do it. There is a cleaning fee. A $45 optional damage waiver (if they don’t take it - they pay a $300 security deposit) those are the only fees.
If they make money off the cleaning fee - more power to them. Doesn’t bother me - the place is always cleaned very well.
- Member since 2018 · 88 posts · 55 votes6y
You could put the money into a REIT though and get a 7-10% annual withdrawl. Though I would think that that is somewhat riskier as you dont directly have control over the investment...
- Rental Property Investor · Castle Rock, CO · Member since 2017 · 335 posts · 387 votes6y
Originally posted by @Collin Hays:
Originally posted by @Tim Schroeder:
Originally posted by @Collin Hays:
You could have just bought her shares in the S&P500 index fund, which returns, on average, 10-11% -- and that's including the Great Depression in 1929 and the Great Recession in 2008. And it's zero work. https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.aspWith all due respect, that idea is so preposterous that it's hard to even know how to respond. You cannot invest in an S&P index fund, or any mutual fund for that matter, and plan on an 8 percent annual withdrawal. You will go broke. Please re-read this a few times.
There are chunks of time - decades - where the S&P 500 has lost tremendous value. In March 2000, the S&P 500 index reached a high of 2266. Over the next 9 years, it fell until finally bottoming in Feb. 2009 to 893. It would be another 6 years before it would reach 2266 again. So that is 15 lost years there of ZERO growth whatsoever. So let's use your theory and assume I had $400,000 in an S&P index fund in 2000 fund and started withdrawing $32,000 per year, I would have been completely broke by around 2007.
Using my mother's home as an example of 8 percent (she's actually receiving 11%), she would be not only receiving 8 percent, but leaving the value of the asset intact, which over time is likely appreciating. When you are withdrawing from a mutual fund, you are eating away at the asset. In a bear market, you either quit eating away at it and wait for it to rebound, or you continue eating way at it until there's nothing left.
Umm, no, not preposterous. First of all I didn't mean she had to withdraw 8% per year, I was just saying that "earning" 8-11% per year just doesn't sound like a lot considering the work that goes into managing an STR, and that you can make that a lot easier with less risk in an index fund. Secondly, the S&P was in the 1500's not 2266 in March of 2000 when the market tanked. I checked this in three places (I suspect you were looking at an inflation-adjusted chart because I also found one that said 2266 but it was adjusted for inflation). Yes, it bottomed in 2009 (at 676). It had recovered completely by March of 2013, only 4 years later. It closed yesterday at 3386, 125% higher than the peak in 2009. I could also cherry-pick dates when you could get much MORE than 10% per year, but that's not fair just as cherry-picking a theoretical investment the day before a market crash isn't. The point is, the S&P hits 10% over the long haul even including the really bad times. And if we start adding in compounding, well, it goes through the roof. For anyone with a long-term view, it is one of the best ways to build wealth, and it survives recessions. I looked all the way back to the 1930's and all the drops recovered in 1-2 years, and at the most 7. Not "decades".
I'll admit though that the allure of the S&P is in leaving the money there for 10-20 years and the compounding. Taking 8-10% out per year is a bad idea, like you said. Experts say that to survive downturns and mitigate inflation, you should only withdraw 4% from an index fund if you want it to provide income indefinitely. And if you continued to withdraw in a 1-2 year downturn, you would earn less in future years because you lost some capital. Sometimes, people need that 10% income (I certainly do), in which case I can't just stick it in a fund and not touch it. Plus, we may get huge appreciation in the value of the property which you don't get in an index fund. Or, we could lose it all to foreclosure. So these are two very different investing models.
But at the end of the day, for young investors anyway, a compounded index fund is the way to go. Me, I was spending my extra money on concerts, weed, and beer when I was in my 20's not investing it, which is why I have to hustle harder in RE now that I'm in my 50's -- I don't have time to wait 20 years!!! :)
- 6yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Most of the time, real estate investments are for income. Price appreciation is a bonus.
Most of the time, equity investments are for price appreciation. A small dividend is a bonus.
Apples and oranges. I have invested heavily in both, and my experience has been that leveraged RE far outperforms equity averages over almost any measure of time beyond 3 years.
- 6yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Originally posted by @Yitzchok Carmen:
You could put the money into a REIT though and get a 7-10% annual withdrawl. Though I would think that that is somewhat riskier as you dont directly have control over the investment...
There are lots of alternatives for income. I really like STRs in the Gatlinburg area and have found them to deliver consistently the highest and most reliable returns.
- Rental Property Investor · Castle Rock, CO · Member since 2017 · 335 posts · 387 votes6y
Originally posted by @Collin Hays:
Updated about 3 hours ago
I would also add that between 1929 and 1955, there was zero growth in the S&P 500, and between 1968 and 1987, there was zero growth in the S&P 500.
I think you got some bad data. The S&P tripled in value between January 1968 (92) and January 1987 (280)
- Rental Property Investor · Castle Rock, CO · Member since 2017 · 335 posts · 387 votes6y
Originally posted by @Collin Hays:
Sure, as an equity play or a flip. But as an income play, maybe not. Depends on rental income and expenses. And a mortgage is a big expense. Therefore, financing matters for income investments. Period. Sorry man, not trying to bust your chops, I was talking just about income plays. In other scenarios, you may be right about your finances not determining whether it's a good buy.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.