Market Saturation in Smokies?

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Market Saturation in Smokies?

Matthew Doyle
Member since 2019 · 4 posts · 0 votes

So I already own a STR in a colorado ski town that does fantastic..I would buy another if I could but I want to take advantage of the 10% second home loan for my next property.

The smokies are a popular spot for this investment strategy but something I can't seem to wrap my head around is the market saturation of these cabins in the Gatlinburg area. Does anyone else see this as an issue? There seems to be 1000s of rentals of the same unit type...and they just keep building more. That compounded by the fact that there is no limitation on supply, the land seems infinite to develop.

I'm not in this for quick liquidity reasons, but do people have concerns about even selling in 10 years from now - the supply just seems to be over the top. Also how does one even enter this market as a new rental, the competition seems stiff. Are people still entering this market now (past 6 months) and having success with it? 

Furthermore, are there other areas in the smokies (NC for example) that are worth considering that see similar success as gatlinburg and co?

Thanks for the advice!

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Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
6y

A few random thoughts...

In late 2016, the "Great Gatlinburg Fire" destroyed approximately 2500 structures, the majority of those being vacation rentals.  Over three years later, that inventory has still not been replaced.  And it won't be any time soon, because building in the area is a real challenge.  Labor shortages, new building codes that are untenable, etc.  It would be interesting to hear from a local realtor how many housing starts have been approved in Sevier County in the last 3 years. Maybe a few hundred I would think?  

Even in a robust seller's market, the price-to-earnings ratios in the Smokies are unmatched by anywhere in the country that I can find to date, and I have been looking.  

I personally own a 2BR cabin on the Roaring Fork River near downtown Gatlinburg that I rebuilt after the fire of 2016.  I had a guest offer me $575,000 last fall for it and I told him no.  He acted offended and told me that he was offering 50 percent above market because he wanted a cabin on the river, and I said "As soon as you find me $65,000 a year to replace my lost income, I'll sell it to you." 

The point is, even with hugely inflated values, the underlying earnings are still compelling. On my river cabin as an example, I probably wouldn't start entertaining selling it until it reached $700K, simply because I can't readily replace that income with a property elsewhere. It's a mathematical problem for me.

Now, once values reach 10X earnings, I think you start seeing things slow down.  We aren't anywhere close to that point yet.

What does it sell for in 10 years?  Who cares - your guests are going to completely pay it off way sooner than that.  If you just get what you paid for it, you're still in very fine shape.  I bought a cabin in Cosby just before the housing crash for $240K.  That was 15 years ago and it's probably worth $300K by now.  That's not much appreciation.  But, my guests have paid off the darn thing and I'm yielding $40-45K a year on it and have no intention of selling it.  Again, I can't replace that income.  Hope this helps.

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  • Alan Ford
    Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes
    6y

    @Matthew Doyle I have been worried about this a little myself. Curious what everyone else says. Especially folks like Jay Fradd that have been in the area for a long time.

    1Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    6y

    A few random thoughts...

    In late 2016, the "Great Gatlinburg Fire" destroyed approximately 2500 structures, the majority of those being vacation rentals.  Over three years later, that inventory has still not been replaced.  And it won't be any time soon, because building in the area is a real challenge.  Labor shortages, new building codes that are untenable, etc.  It would be interesting to hear from a local realtor how many housing starts have been approved in Sevier County in the last 3 years. Maybe a few hundred I would think?  

    Even in a robust seller's market, the price-to-earnings ratios in the Smokies are unmatched by anywhere in the country that I can find to date, and I have been looking.  

    I personally own a 2BR cabin on the Roaring Fork River near downtown Gatlinburg that I rebuilt after the fire of 2016.  I had a guest offer me $575,000 last fall for it and I told him no.  He acted offended and told me that he was offering 50 percent above market because he wanted a cabin on the river, and I said "As soon as you find me $65,000 a year to replace my lost income, I'll sell it to you." 

    The point is, even with hugely inflated values, the underlying earnings are still compelling. On my river cabin as an example, I probably wouldn't start entertaining selling it until it reached $700K, simply because I can't readily replace that income with a property elsewhere. It's a mathematical problem for me.

    Now, once values reach 10X earnings, I think you start seeing things slow down.  We aren't anywhere close to that point yet.

    What does it sell for in 10 years?  Who cares - your guests are going to completely pay it off way sooner than that.  If you just get what you paid for it, you're still in very fine shape.  I bought a cabin in Cosby just before the housing crash for $240K.  That was 15 years ago and it's probably worth $300K by now.  That's not much appreciation.  But, my guests have paid off the darn thing and I'm yielding $40-45K a year on it and have no intention of selling it.  Again, I can't replace that income.  Hope this helps.

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
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    8Reply
  • Ken Latchers
    Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
    6y

    $65,000 on a $575,000 str is very unimpressive.

    1Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    6y
    Originally posted by @Ken Latchers:

    $65,000 on a $575,000 str is very unimpressive.

    Might be, but he wanted it for that!  Finding a property for sale on a river in the area is a rarity.  Finding a river property with a decent multiple?  There is no such thing.

    [email protected]806-672-7102
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    0Reply
  • Avery CarlBusiness Member
    Real Estate Agent · USA · Member since 2016 · 909 posts · 1k+ votes
    6y

    @Collin Hays said most of what I was going to comment. This is not an area where overnight rentals are becoming hot as of the past few years. The vast majority of development in this market since the 70's was purpose-built to be an STR. We get 13 million visitors a year (and that number continues to climb), so 1000's of cabins are NEEDED to accommodate all those tourists. The hotel presence is minimal, and tourists want to stay in cabins in the mountains to get the full mountain experience. It's a pretty tight seller's market currently, and most of the demand is investor-driven because the income potential is still compelling at current prices. When the numbers stop making sense, demand will take a dip and prices may level off, although it's doubtful that they will drop significantly.

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    5Reply
  • Luke CarlPro Member
    Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
    6y

    @Matthew Doyle all great questions! It is my belief that 80-90% of the cabins in this market are mismanaged. If you’ve got a couple ounces of ambition, you’ll clean house. My cabins are NEVER empty.

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    6Reply
  • Julie McCoy
    Real Estate Agent · Sevierville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    @Collin Hays and @Avery Carl said it.  I frequently have clients who ask about this, and Collin and Avery summarized my answer.  Once the margin is slim enough that investors aren't as interested, prices will stop going up, and perhaps will correct a bit.  But the margin is still the best there is, even at current prices.

    3Reply
  • Leora Merrell
    Rental Property Investor · Member since 2019 · 276 posts · 235 votes
    6y

    I had this concern too but we bought one anyway. We listed on Airbnb the middle of February. March is 95% booked, April is already over 80% booked and May is filling in nicely, all at prices I consider on the higher end. Granted, my husband takes amazing pictures and it’s marketed really well but my point is: the demand is certainly there. I plan on buying 1-2 more within the next few months.

    2Reply
  • Leora Merrell
    Rental Property Investor · Member since 2019 · 276 posts · 235 votes
    6y

    I will say that I had planned on buying a large cabin within the next few months. However, with the prices where they are, I'd not be able to get the returns I'm looking for. I'm on the MLS 4-5 times a day (I'm way obsessive about it) and a lot of the higher priced cabins are just sitting unsold. I've watched one drop nearly $75k in price over the last few weeks. Still not low enough though. :)

    2Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    6y
    Originally posted by @Ken Latchers:

    $65,000 on a $575,000 str is very unimpressive.

    I'm sure that is Gross income not Net so even less impressive if that is the case.

    0Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    6y

    As @Luke Carl said, buy at the right price and then manage better than most of the other people and you can still do well even if this market were saturated.

    1Reply
  • Mark Miles
    Rental Property Investor · Philadelphia, PA · Member since 2016 · 543 posts · 716 votes
    6y
    Originally posted by @Matthew Doyle:

    So I already own a STR in a colorado ski town that does fantastic..I would buy another if I could but I want to take advantage of the 10% second home loan for my next property.

    The smokies are a popular spot for this investment strategy but something I can't seem to wrap my head around is the market saturation of these cabins in the Gatlinburg area. Does anyone else see this as an issue? There seems to be 1000s of rentals of the same unit type...and they just keep building more. That compounded by the fact that there is no limitation on supply, the land seems infinite to develop.

    I'm not in this for quick liquidity reasons, but do people have concerns about even selling in 10 years from now - the supply just seems to be over the top. Also how does one even enter this market as a new rental, the competition seems stiff. Are people still entering this market now (past 6 months) and having success with it? 

    Furthermore, are there other areas in the smokies (NC for example) that are worth considering that see similar success as gatlinburg and co?

    Thanks for the advice!

     I mean, you can spend 250 K on a house in Woodstock that will sit empty seven months of the year. So I’d rather spend my money in areas where I’m going to have 80 to 90% annual occupancy even if it costs a little more money to purchase the house.


    Like, you can spend a smaller amount of money for something with a small ROI. Or you can spend more money on something with a much higher occupancy rate & a much higher ROI.


    All that really matters is ROI, return on investment, so I'd rather spend a little more money in the southern half of the US than pay 250 K for something in the northern half of the US that will sit vacant for seven months of the year and return a very low ROI.

    0Reply
  • Alan Ford
    Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes
    6y

    I think only  a few of you answered the actual question. Which was around saturation. Having said that, the comment about the number of cabins that burned down and the number built since is good information. I wonder if those of us doing well right now past few years are getting a bump because of demand outweighing supply. Eventually supply will outpace demand, and then I agree that it becomes more important to manage well and work on your margins etc. 

    1Reply
  • Julie McCoy
    Real Estate Agent · Sevierville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    @Alan Ford The fires caused 2500 cabins to burn down but tourism has been up 1m per year for the last three years.  Def not concerned about saturation with trends like that.  

    And I meant to include in my previous comment: Regarding "the land seems infinite to develop" @Matthew Doyle that's a definite no.  The market is hemmed in by mountains, which renders plenty of land unbuildable, and the logistics of driving in the mountains means it takes longer to get places.  Unless you think people are just as happy to drive 45 minutes to get to the tourist hot spots, there is most definitely a limit on developable land.

    If you can get the same returns on the NC side, go for it!  It's definitely less saturated - but there's also a lot less (concentrated) demand.  I personally prefer visiting the NC side, I've been going there since I was a kid, but I park my money in Tennessee.

    3Reply
  • Avery CarlBusiness Member
    Real Estate Agent · USA · Member since 2016 · 909 posts · 1k+ votes
    6y

    @Alan Ford I think, in so many words, we are all saying we aren't worried about saturation. To support @Julie McCoy's comment above, per the national park visitor data we got 1.1 million more visitors in 2019 than 2018, that would be difficult for the contractors in any large metro area to keep up with, and Sevier County is small.

    https://irma.nps.gov/STATS/SSRSReports/Park%20Specific%20Reports/Annual%20Park%20Recreation%20Visitation%20(1904%20-%20Last%20Calendar%20Year)?Park=GRSM

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    2Reply
  • Alan Ford
    Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes
    6y

    @Avery Carl good info.

    0Reply
  • Ken Latchers
    Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
    6y
    That is why I said Str.  People keep getting dazzled with 90% occupancy  making tens of thousands of dollars in a proper to cause half a million.  Most of what I see here about the Smokies  is underwhelming to me. I paid 135000 for a pair of 4-5 bedroom townhouses for example and expect a solid 25 to $30,000 a year long term rental. A block away from me. As in without all the heavy costs.

    posted by @John Underwood:
    Originally posted by @Ken Latchers:

    $65,000 on a $575,000 str is very unimpressive.

    I'm sure that is Gross income not Net so even less impressive if that is the case.

    0Reply
  • Johnny Duray
    Rental Property Investor · Destin, FL · Member since 2019 · 11 posts · 9 votes
    6y

    I just went under contract with @Avery Carl in the middle of Corona virus hysteria and a stock market collapse. Market saturation for the Smokies? In the words of @Luke Carl...Bring it on!!


    In all seriousness, I ran numbers left and right and nothing compared to the Smokies. I paid a little more than I wanted to, but even then, nothing still could compete with the potential NET income the Gatlinburg area brings in....even now when the market is super hot. 

    There's always the chance I could completely fail at this and feel differently in a few months, but I'll take my chances for now.

    1Reply
  • Avery CarlBusiness Member
    Real Estate Agent · USA · Member since 2016 · 909 posts · 1k+ votes
    6y

    @Johnny Duray you’re too smart to fail! You’ve done the research. From here on out, as long as you maintain adaptability and the ability to roll with the punches, you’ll be successful!

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    0Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    6y
    Originally posted by @Ken Latchers:
    That is why I said Str.  People keep getting dazzled with 90% occupancy  making tens of thousands of dollars in a proper to cause half a million.  Most of what I see here about the Smokies  is underwhelming to me. I paid 135000 for a pair of 4-5 bedroom townhouses for example and expect a solid 25 to $30,000 a year long term rental. A block away from me. As in without all the heavy costs.

    posted by @John Underwood:
    Originally posted by @Ken Latchers:

    $65,000 on a $575,000 str is very unimpressive.

    I'm sure that is Gross income not Net so even less impressive if that is the case.

    Absolutely, Ken.  I would stay far, far away from the Smokies.  The returns there are underwhelming.  

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    2Reply
  • Alan Ford
    Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes
    6y

    @Collin H. Yes, please do... and umm, if you get any leads on hot properties there... lemme know ...so uhh...I can stay away from them too!!

    Sarcasm over - I personally am enjoying having someone else buy me property, put net profit in my pocket every month, and to top it all off... both my properties are worth a combined $200k more than I paid for them....two year ago lol. By the way - I don’t even self manage and still raking it in.

    Yeah... Smokies suck... lol.

    3Reply
  • Jeff Piscioniere
    Investor · Shelton, CT · Member since 2016 · 218 posts · 225 votes
    6y

    @Alan Ford LOL. Don’t you live the naysayers? Lol.

    1Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    6y
    Originally posted by @Alan Ford:

    @Collin H. Yes, please do... and umm, if you get any leads on hot properties there... lemme know ...so uhh...I can stay away from them too!!

    Sarcasm over - I personally am enjoying having someone else buy me property, put net profit in my pocket every month, and to top it all off... both my properties are worth a combined $200k more than I paid for them....two year ago lol. By the way - I don’t even self manage and still raking it in.

    Yeah... Smokies suck... lol.

     We are in an unprecedented, perfect storm for both price appreciation and rental income in the Smokies.  There is no way it can reasonably continue at this pace, but we will enjoy it while it lasts!

    [email protected]806-672-7102
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    0Reply
  • Alan Ford
    Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes
    6y

    @Collin H. Wow we revived this thread! Forgot about it. My houses are worth more now during Covid. Kind of strange. Faced with a weird situation where the house I am building and furnishing for $750k all in is likely to be worth around $1m when it’s done.

    0Reply
  • Michael C.
    Investor · New York, NY · Member since 2019 · 91 posts · 92 votes
    6y

    @Ken Latchers

    Ken - where are you get 25-30k on 135k townhomes? If this is true, those cash on cash return would be amazing? But I’m curious - are these D class neighborhoods?

    0Reply
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