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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  • Dustin TurnerBusiness Member
    Real Estate Broker · Little Rock and Hot Springs Arkansas · Member since 2020 · 55 posts · 62 votes
    5y

    The market saturation isn't with cabins, it's over saturated with investors. The prices have skyrocketed. Check out this MLS history of one cabin that just hit the market:

    The former owner tried to sell for years (2012-2017) without any luck. They finally dumped the property at a steep discount. The buyer, in just a few short years, has re-listed the property at a huge markup. No upgrades or improvements. Just riding the wave of a hot market. And I really can't blame him. 

    I'd love to buy something in the Smokies. I continue to watch the inventory almost daily. But I can't help but feel like the I missed the boat on this market. Anyone else feel this way? 

    1Reply
  • Avery CarlBusiness Member
    Real Estate Agent · USA · Member since 2016 · 909 posts · 1k+ votes
    5y

    @Dustin Turner The answer to your question lies in: "does the cash flow at the current purchase price makes sense?" If so, you have not missed the boat. 

    Podcast Guest on Show How to Get More Airbnb Bookings This Spring and Summer Break
    2Reply
  • Dustin TurnerBusiness Member
    Real Estate Broker · Little Rock and Hot Springs Arkansas · Member since 2020 · 55 posts · 62 votes
    5y

    @Avery Carl I do agree that if the numbers work, then it can still be a good investment. Which is why I continue to watch the market. It's just hard to pull the trigger on investment properties that get bid up with multiple offers and are already listed at top-of-the-market prices. 

    0Reply
  • David Haley
    Rental Property Investor · Katy, TX · Member since 2018 · 22 posts · 12 votes
    5y

    After talking to @Avery Carl a few months ago, and working with @Julie McCoy, my wife and I decided to pull the trigger. After getting into bidding wars on a handful of deals, and then having one under contract that had septic issues I didn't want to deal with, we decided to build. You can build new cheaper than what a lot of existing inventory is going for, but your ROI takes a hit with 20% down vs. 10% down, but the economics still work, and you have to wait but we're looking forward to getting ours built and counting some money. I asked Julie the same question when we were looking at cabins a month ago and her answers and the others mentioned above all make sense. The strong occupancy rates continue to indicate that the market isn't overly saturated either.

    3Reply
  • Julie McCoy
    Real Estate Agent · Sevierville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    5y

    No doubt it takes patience to invest here right now, and @David Haley has been very patient! However the returns are still great, and market saturation of properties is unlikely due to the ever-growing demand and the geographic limitations on expansion in the area.  We'll run out of good building sites before we run out of demand for properties to put there, at the rate things have been going for the last fifty years.

    1Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    5y

    @David Haley when do you break ground and how long does it take to build? What was the price per square foot? You can’t do 15% down as an investment property when building?

    0Reply
  • David Haley
    Rental Property Investor · Katy, TX · Member since 2018 · 22 posts · 12 votes
    5y

    @Brian G. Break ground mid-January and build time is 6-9 months if all goes well. 20% down for construction is typical. Not counting land, building cost is about $185psf.The issue is you have carrying costs during that build time on interest payments, insurance cost, property taxes (minimal since its land only) but we liked the idea of a brand new cabin with minimal capex for the first few years, and feel we will have built in equity immediately upon completion given the current pricing trends.

    @Brian G.

    2Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    5y

    @David Haley what’s your projected all in cost to build? Also, what size cabin are you building (bd/bth, square ft)? Thanks.

    0Reply
  • Anand S.
    Plantation, FL · Member since 2009 · 329 posts · 119 votes
    5y

    In my opinion, these markets experienced a huge demand due to Covid. Most travelers opted for a remote location vs. international and metro's. I would be very concerned that the current numbers will not sustain once a vaccine is available and folks start to travel overseas and to traditional destinations. If I was an owner in the market, I'd be flipping my home before the bubble bursts. 

    0Reply
  • Julie McCoy
    Real Estate Agent · Sevierville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    5y

    @Anand S. This market has been growing year-over-year by 8-10% in terms of tourism for the last several years running.  While I agree that Covid may have provided an extra boost for 2020, it's far from an isolated event, it's part of a longer trend.  There is no "bubble" to burst, it will merely level out once prices hit a point where returns are not greatly outpacing other markets.  

    3Reply
  • Account Closed
    Real Estate Agent · Sevierville TN · Member since 2020 · 32 posts · 16 votes
    5y

    @Julie McCoy I like your point there! I'm under contract for our first cabin and just over the last month prices have gone up quite a bit and they seem to keep creeping up. I had the same fear that the market could bust at any moment, but then I went and looked at the number of visitors the smokies have received this year and they are about to set a new record for total visitors even with covid so that helped lessen the fear. Like you said too, ran my numbers even with prices climbing and you still can't beat the return on investment. I think a lot of out of state buyers don't look at the full picture of this market. Our property taxes are low compared to most other STR markets, lots of places with no HOA fees or HOA fees that are pretty low, and the overall cost of operating an STR here is affordable. If you look at one bedrooms going for 300k right now some people are sticker shocked, then you run the numbers and it all still works really well from an investment standpoint. I am hoping interest rates stay low at least until June when I close lol. But like you said when the cabin prices reach a point that the return on investment starts matching other STR markets and the attention isn't so heavy on the smokies than we may see cabin prices level out. Very thankful for the short term shop team, Gennifer has dealt with my impatience way better than most people would haha. @Avery Carl thanks for the new build opportunity! We’re so excited for our first cabin! @Luke Carl had me reading all kinds of books the beginning of this year and then I slacked off because I hate reading, but the cabins never left my mind so I kept digging and here we are. First cabin at 26! One step closer to our freedom goal! Y’all have a rockstar team!

    2Reply
  • Anand S.
    Plantation, FL · Member since 2009 · 329 posts · 119 votes
    5y

    I appreciate your enthusiasm but the reason the region is hitting a record number of visitors is BECAUSE of covid. I was watching a segment on the travel market and they were saying that most folks planning travel for next year are looking for bucket list-type vacations. Everyone is so tired of being cooped up that they are looking to go big. When Covid is on the mend and the market opens back up, it's going to be at the expense of the drive-to markets. I'm not saying you will be empty, but run your numbers based on pre-covid revenues minus some percentage. What you're seeing now is an anomaly, in my opinion. 

    0Reply
  • Alan Ford
    Rental Property Investor · Temecula, CA · Member since 2020 · 128 posts · 55 votes
    5y

    @Anand S. No because most people that go there love it and will go back. We sure did, well before we invested.

    0Reply
  • Account Closed
    Real Estate Agent · Sevierville TN · Member since 2020 · 32 posts · 16 votes
    5y

    @Anand S. @Alan Ford I have to disagree with that statement that covid is what is pushing our numbers to new records. Go pull up the national park visitor numbers for the smokies and look at the trend. They’ve been setting new records year after year, it’s impressive they’ll set a new record this year even with shutdowns and mask mandates. The smokies get the most visitors out of all the national parks in the US, it’s around 14.5 million so far this year, the second most visited national park is the Grand Canyon and they get half the visitors we get. People love it here the numbers don’t lie!

    0Reply
  • Scott Goulet
    Rental Property Investor · Port Saint Lucie, FL · Member since 2015 · 107 posts · 44 votes
    4y

    Hi there everyone, I just attended bpcon 2022, and I spoke with the short term shop. Definetly inspired me to start looking at the smokies close to Sevierville, TN as my wife and I love the area. What got us us really interested was the 10% down second home loan, as everything else 25% down at this point. 

    what are you seeing for 800+ credit score rates and points? 

    My question is in the same vein as all of these previous comments about if the market is too saturated in late 2022 in the gatlinburg and pigeon forge area? 

    Thank you!

    1Reply
  • Kevin Luttrell
    Lender · Orange County, CA · Member since 2019 · 299 posts · 255 votes
    4y

    @Scott Goulet Try the Private Lending & Conventional Mortgage Advice category for pricing questions. 

    0Reply
  • Kyle Smith
    New to Real Estate · Member since 2020 · 220 posts · 107 votes
    4y

    I do think saturation will be a problem in the coming years in the Smokys for non-view plain knotty pine cabins. My builder just signed a contract to build 130 cabins next year. I also spoke with an excavation company owner who’s saying he’s so busy he can’t keep up. I asked him if these cabins being built are cabins with a view and he said the vast majority are not.  So, I would make sure you build with location and amenities at the forefront of your mind. If you can’t build or purchase better than the rest I wouldn’t build or purchase. My 2 cents. 

    5Reply
  • Scott Goulet
    Rental Property Investor · Port Saint Lucie, FL · Member since 2015 · 107 posts · 44 votes
    4y
    Quote from @Kyle Smith:

    I do think saturation will be a problem in the coming years in the Smokys for non-view plain knotty pine cabins. My builder just signed a contract to build 130 cabins next year. I also spoke with an excavation company owner who’s saying he’s so busy he can’t keep up. I asked him if these cabins being built are cabins with a view and he said the vast majority are not.  So, I would make sure you build with location and amenities at the forefront of your mind. If you can’t build or purchase better than the rest I wouldn’t build or purchase. My 2 cents. 


     Kyle, 

    that makes sense to me, thank you very much. So basically make sure the cabin or house is unique, and not just a cookie cutter type property. Got it. I appreciate the input.

    1Reply
  • Kyle Smith
    New to Real Estate · Member since 2020 · 220 posts · 107 votes
    4y

    I consider myself a fairly knowledgeable owner/builder but the variables for these mountain cabins can be numerous and very expensive.  Most view lots left are on hardship slopes meaning they are so steep you may need a $100-200k foundation.  I don’t necessarily trust contractors to get the estimate right so many of these are cost plus construction contracts.  Builders know this and do not want to take on the liability for a 100k change order.  Believe me when I say this, building in the mountains is not for the faint of heart.  Be prepared to have overages and overruns and when they start coming in they can be potentially huge.  I will not build another cabin on a significant slope or on a cost plus arrangement.  I’ve spent too many hours in stress and anxiety over this stuff. The end result will be amazing but be prepared for the ride of your life and it can go south fast if you don’t know what you are doing.   My advise to everyone is to buy a 80-100% built cabin which is near completion if you are going new.  Best scenario is buy existing if you can. You may pay more but in my opinion the peace of mind is worth it. 

    3Reply
  • Ray S.
    Investor · Miami Beach, FL · Member since 2014 · 123 posts · 19 votes
    4y
    Quote from @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!

    As they are building more cabins, they're also building more attractions, many that appeal to a much broader range of tourists than before, and giving more people a reason to go there. Covid gave that area a huge boom. Some of it is temporary, but I also feel it made a lot of people aware of that area who previously may have never thought to go there before and now may become a regular. The nice thing about the Smokies is that it attracts a lot of families and they go every year.

    I do think the prices there are still WAY too high for new investors. These cabins require a ton of upkeep and you really have to be making a lot of income and self manage to be able to cashflow. Just staining the cabin alone is like 12-15k. I own there from back when that area was cheap, but continue keep an eye on the market and rarely see new properties come up that realistically would cash flow well unless rates continue to move much higher, which I don't really see happening anytime soon. .


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